Entrepreneurial Strategy Joshua Gans Fiona Murray Scott Stern January 2014

Entrepreneurial Strategy

Joshua GansFiona MurrayScott Stern

January 2014

Capitalized with great fanfare as a disruptive start-

up aimed at overturning traditional grocers, Webvan

positioned itself as an integrated substitute for

supermarkets

With a much smaller capitalization, and focusing on online grocery delivery

using existing chains, Andy and Tom Parkinson

positioned Peapod as a complement to traditional

supermarkets

Two entrepreneurial companies…both having access to significant resources…

seeking to exploit the same opportunity….at the same time….

With fundamentally different strategies

Webvan ultimately burned through ~ $1 billion and

went bankrupt less than two years after its IPO…

Peapod established a partnership with Ahold

(Stop&Shop), who ultimately acquired majority ownership.

Highly profitable niche business, with Parkinson brothers still in direct operational control of the

company…

The challenge of innovation-based entrepreneurship is not about coming up with great ideas….

The hard part is commercializing the idea in a way that creates unique value for an end user while allowing the

entrepreneur to capture value on an ongoing basis

Idea Selection CommercializationIdea Generation

What do we Do and Not Do in Commercializing Our Idea?

The Paradox of Entrepreneurship

Coming to market requires market knowledge; the process of gathering knowledge -- market experimentation – inherently limits

the scope of competitive advantage

What is Entrepreneurial Strategy? Entrepreneurial Strategy is the plan a founder

(and her team) undertakes to identify a system for value creation and value capture before the opportunity for value capture is dissipated. – Combines systematic experimentation and learning

with escalating strategic commitments– Not a passive process, but the active choices that

allow a firm to establish priorities, achieve internal coherence, time irreversible commitments, and ensure value capture

– A plan for choosing what NOT to do

Do Entrepreneurs Need Strategy? Many start-up companies find their growth path guided

not by design but by circumstance– The Customer is Always Right– Money Talks

And, there has long been skepticism among entrepreneurs in the lessons from “strategy” for their fledgling ventures– Who can afford another expensive study?– My industry / setting moves so quickly – those static tools

are not very helpful!– Isn’t this just my business plan?

Our objective is to offer a novel framework that allows entrepreneurs to choose how their company evolves, and helps to align the disparate decisions made during the earliest stages of a venture.

The Four Choices that ShapeEntrepreneurial Strategy

Selecting YourEntrepreneurial Strategy

INVESTMENT

ORIENTATION

CONTROL

EXECUTION

COLLABORATIONCOMPETITION

The Entrepreneurial Strategy Canvas

Agenda

What is Entrepreneurial Strategy?

Entrepreneurs Need Strategy

Choosing Your Competition

Choosing an Entrepreneurial Strategy

Putting the Framework to Work

Entrepreneurs Need Strategy

Prioritization

Internal Coherence

Irreversible Commitments

A Field Guide for Experimentation and Evolution

Prioritization

Internal Coherence

The Timing of Irreversible Commitments

Commitments and Expropriation

Dr. Yet-Ming Chiang

A Guide for Experimentation and Evolution

A Few Thoughts… Execution is fundamental to any business…the

pay-offs to execution are higher when guided by strategic priorities and internal consistency

Experimentation and learning are fundamental to the evolution of any new venture…the value of experimentation is far higher when guided by strategic priorities, and allows more effective staging of irreversible commitments

More generally, because they have more freedom but fewer resources, the marginal returns to “strategy” are higher for entrepreneurs than for established businesses

Agenda

What is Entrepreneurial Strategy?

Entrepreneurs Need Strategy

Choosing Your Competition

Choosing Your Entrepreneurial Strategy

Putting the Framework to Work

Two Broad Dimensions for Choosing With Who and How you Compete…

Control Versus Execution

Tactus Technology has created a tactile user

interface that combines the elegance of touchscreen

with the physical sensation when typing

Swiftkey has developed a powerful predictive

algorithm that dynamically updates keyboards on a stroke-by-stroke basis

Tactus Technology has focused on establishing a strong IP position, with 15

issued and 45 pending patents. “We made a

choice to go with intellectual property…”

Swiftkey has focused on bringing their product to

market, with three software generations over the past four years, and significant follow-on innovation in the

area of predictive text

Investing in Control Versus Execution

The Benefits of Control

Increased “Appropriability”

Ensuring the “Vision” of the Founder

Facilitating Value Capture with Key Partners

The Benefits of Execution

Time-to-Market

Feedback and Experimentation

Lower Commercialization Cost

Oriented Towards….

Collaboration Competition

Oriented Towards Compete Versus Cooperate?

Benefits from Collaboration

Enhanced Value Proposition

Reduced Costs

More Focused Incentives

Higher Product Market Profits

Benefits from Competition

More Control

Fewer Bargaining Hassle

High-Powered Incentives

Potential for Increased Value Capture (as a Share of Value Creation)

Agenda

What is Entrepreneurial Strategy?

Entrepreneurs Need Strategy

Choosing Your Competition

Choosing an Entrepreneurial Strategy

Putting the Framework to Work

Selecting YourEntrepreneurial Strategy

INVESTMENT

ORIENTATION

CONTROL

EXECUTION

COLLABORATIONCOMPETITION

Choosing an Entrepreneurial Strategy

Intellectual Property StrategyInternal

Organization

• Capabilities focuses on innovative capacity and IP management

• Integration and collaboration between technical workers and IP managers

• Focus on the technology S-Curve rather than the Market S-Curve

• Use Control over Key Intellectual Property Assets as a Means for Extracting Significant and Sustainable Revenue Streams

Objective

• Entrepreneurs Role is Limited to Invention, IP Management, Technology Transfer, and Perhaps Standard-Setting

• Global Approach to Implementation and Commercialization of Innovation

• Potential for Exclusive or Non-Exclusive Arrangements

ScopeExternal Position

• Competitive advantage is premised on bargaining power rather than market power.

• Reputation and commitments for enforcing control over knowledge assets

• Exploit comparative advantages in invention versus commercialization

Investing in Control, Oriented Towards Partners

Disruptive StrategyInternal

Organization

• A focus on experimentation and execution. Integration of customer insights into the technology development process

• Capability Development focuses on building out an organization to serve key customer groupings .

• Exploitation of new Technology S-Curve through the development of a novel value chain

Objective

• Must consider how to create and deliver value to key consumer groupings, with a particular focus on consumer segments poorly served by existing products

• Often involves the development of a novel and integrated value chain, with an explicit focus on differentiation and isolation from established players

• Early focus is often on local markets

Scope

External Position

• Strategy as Hustle!• Avoiding detection and early response

by established firms• Choosing a lonely place on the

strategic frontier

Investing in Execution, Oriented Towards Competition

Value Chain StrategyInternal

Organization

• Not Simply a Technology but a Team and Organization to Support the Deployment of the Innovation within the Value Chain

• Integration between innovators, business development, and supply chain partners

• Integration of an Innovation into an Established Value Chain to Enhance Market Power (for the Chain) and Establish Bargaining Power (for the Innovation and Entrepreneurial Team)

Objective

• Scope follows the strategic logic of the value chain you will join

• Often involves establishing a commitment to serve a particular “horizontal” piece of the value chain (but not others) and depends on commitments by others not to encroach on your piece of the value chain

• Leveraging the Technology S-Curve to serve the established Market S-Curve

Scope

External Position

• Exclusivity: Enhancing and Reinforcing the Uniqueness and Distinctive Positioning of the Value Chain you Join

• Bargaining Power: Enhancing the Exclusivity & Isolation of the “Piece” You Contribute to the Value Chain

Investing in Execution, Oriented Towards Cooperation

Architectural Strategy

Internal Organization

• Often involves a separation between Job 1 (grow the ecosystem) and Job 2 (monetize the core)

• Coring involves a combination of technology and market design; tipping involves a combination of market design and tactics

• Exploitation of new Technology S-Curve by architecting a new value chain

Objective

• Careful choice of which stages of the value chain to participate in (or not) and taking responsibility for the coordination and integration of the entire value chain

• Very often must consider how to create and deliver value to stakeholders within the eco-system, both through your technology and as a broker

• Often involves the development of a platform core that allows multiple side to interact and exchange easily and transparently

Scope

External Position

• Platform architects serve a crucial role at the “hub” of multiple stakeholders through control over an interface or access point

• Platform Architects Compete For the Market Rather than In the Market

Investing in Control, Oriented Towards Competition

Architectural Strategies

Different Entrepreneurial Strategies Involve Different Priorities and Commitments

Value Chain Strategy Integrating your

Innovation into an Existing Value Chain

Reinforces Value Proposition of Already Existing Consumers

Emphasis on Exclusive Relationships and “Horizontal” control

Disruptive Strategy Exploiting a New

Technology S-Curve through the development of a novel value chain

Focus on customer segments poorly served by existing value chains

Need to execute quickly enough to avoid response by established players

Agenda

What is Entrepreneurial Strategy?

Entrepreneurs Need Strategy

Choosing Your Competition

Choosing an Entrepreneurial Strategy

Putting the Framework to Work

“I am thrilled to finally draw back the curtain and introduce our new light field camera company, one that will forever change how everyone takes and experiences pictures. Lytro’s company launch is truly the start of a picture revolution.”

– Ren Ng, Lytro Product Launch, 2011

Selecting YourEntrepreneurial Strategy

INVESTMENT

ORIENTATION

CONTROL

EXECUTION

COLLABORATIONCOMPETITION

Entrepreneurial Strategy: The First Stage of Strategic Experimentation

Selecting YourEntrepreneurial Strategy

INVESTMENT

ORIENTATION

CONTROL

EXECUTION

COLLABORATIONCOMPETITION

Disney and Entrepreneurial Strategy

Parting Thoughts… The power of entrepreneurship is the ability to not

only identify and implement exciting opportunities but to make choices that allow you to create real value for the world and capture value for your stakeholders

The more exciting and disruptive the innovation, the more important those choices are for your ability to commercialize and build a new company with competitive advantage

The process of choosing an entrepreneurial strategy requires a venture to come to terms with the core value that it will create, and the logic of how it will capture value on a sustainable basis

Thank You!