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Entrepreneurial Strategy

Recap of Webinar 8 by Michal Gilon-Yanai

· Product Definition,strategy,Value Creation

The main lesson that Prof. Scott Stern wants entrepreneurs to take away from his course on entrepreneurial strategy is the role of choice in shaping the future of the firms they found.

He started his talk with an example: currently, there is a wave of companies aiming to “redefine the keyboard”, and different people are making different bets. One Silicon Valley company – Tactus – is developing a tactile user interface that combines “the elegance of a touch screen” with the physical sensation of typing. Another company, Swiftkey of Oxford, England is focused on predictive typing. Both companies are innovation intensive, science based, largely Software plays. Both are past series B funding, their valuations similar. However, their strategies are very different.

Tactus, following several years of development, are now releasing a first product, but their focus is on IP. They have 15 patents issued and many more pending around the world. This means that they control this technology and will likely own part of anything done with tactile typing, but this achievement comes at the expense of not having done other things.

Swiftkey took a different approach. Putting out an MVP early, they got feedback, iterated and according to their founder have been therefore able to “get ahead and stay ahead”.

Either company could have gone in different directions. Both faced a set of choices of equally viable alternatives and clearly, staying in place would have led to failure. They had to make a decision and realize it over time. Realizing that this is a major challenge, Scott designed his course to give students meaningful guidance on how to make these types of choices.

Scott agrees that great ideas are important. But he stresses that an equally important challenge is implementing the idea in a way that leads to value creation and capture over time. According to him, entrepreneurial strategy, is in essence – “Choosing among alternative visions for an idea at a company” - A language and a way of approaching entrepreneurial decisions proactively, in conditions of great uncertainty.

The key building blocks of the course are “The three axioms of entrepreneurial strategy”, which lead to “The paradox of entrepreneurship”.

Axiom 1:

Ideas do not equal strategy – Scott mentions the Webvan vs. Peapod models cases as a good example for this. The same basic idea of “Grocery store meets internet” was common to both companies, but totally different strategies led to totally different outcomes.

Axiom 2: This deals with the fact that for a given idea, there are multiple and equally viable potential strategies, yet not all can be pursued at the same time. For this, Scott provides the interesting example of the MIT project called the Copenhagen Wheel. Students are most often taught to select options based on a cost-benefit analysis. But, Scott points out – while you many find the numbers useful for identifying obvious loosers, what do you do when the results of this analysis are several different viable strategies? And especially when considering axiom 3:

Learning about core choices inevitably requires some degree of commitment, and involves certain irreversibility. According to Scott, we do entrepreneurs an injustice by saying that learning is commitment free. For example, when you put things out, such as an MVP, you can’t control what people think about it and about you.

Putting these axioms together, you end up with “the paradox of entrepreneurship”:

“Choosing between equally viable alternative strategic commitments requires knowledge that can only be gained through experimentations and learning…

yet the process of learning and experimentation inevitably results in (at least some level of) commitment that forecloses particular strategic options.”

The job of entrepreneurial strategy, as Scott views it, is to resolve this paradox – helping to make choices among equally viable options.

During the rest of the session, Scott laid out the three main principles outlined below, demonstrated by interesting examples. I encourage you to watch the webinar and to take a look at all the excellent material that Scott has made available for our community here.

Principle 1: Choice matters

One of the key messages is that choices made about how to create and capture value before embarking on a certain path matter – and your ability to make these choices effectively is important.

By selecting a certain path and going down it, even if only part of the way, you distance yourself not only from the “prize” of the alternative path but also from the learning about it. Scott therefore recommends developing with some detail at least 2 different visions of the business, not focusing on trying to define one as better than the other, but mostly trying to let go of the bad ones. Then – a choice should be made, not necessarily based on benefit-cost analysis or an a/b test, and taking into account additional considerations such as the objectives and personal circumstances of the founders.

Principle 2: These choices matter

Some choices, once made, can leave other options off the table. These are Customers, Technology,

Identity and Competition. Therefore, they are the most important choices an entrepreneur needs to make.

Principle 3: These choices matter together

  • With whom do you want to compete (do you want to compete with large established firms, or rather leverage their complementary assets?)
  • How will you compete? Control (of IP for example) vs. execution (putting things out early)

Scott shows how based on the answers to these two questions, you can start with the same idea and define your strategy as one of four- “Disruption”, “Architecture”, “Intellectual property”, and “Value chain”). The goal, after mapping out the options is eliminating strategies that are poor for the ideas, and choosing among the remaining viable strategies. To learn more about the guidance that can be provided to students on how to do this, watch the webinar and see Scott’s excellent course materials.

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