3 Business Strategies To Grow Your Startup
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Are there any viable non-simplifying strategies? Of course there are. Consider the furniture industry, which boasts tens of thousands of firms but only one IKEA. The latter’s competitors are not -- and cannot all be -- successful price- or proposition-simplifiers. Yet there are hordes of them, including a smattering that are rather successful, striving away in the face of IKEA’s price-simplifying juggernaut.
In one way, the furniture industry is like a natural ecosystem -- perhaps a jungle. There are only a few creatures at the top of the food chain, but there are thousands of lesser species with almost infinite variation in physical and reproductive characteristics, defense mechanisms and habitats, as well as myriad passive, predatory, symbiotic and parasitic behaviors, which are, in essence, naturally selected strategies. These may not be the most powerful strategies, but they’ve been viable, because the firms are still going. Many other species are now extinct, however, because their strategies have been eclipsed by more successful ones in this evolving marketplace.
Back in the forest of industrial production and commerce, what does that competitive variation look like? What are some of the alternative -- and at least temporarily sustainable -- competitive strategies? There are three principal ones: elaborating, invention and discovery strategies.
Elaborating is the opposite of simplifying: It involves making a product or service more complex. This can be a very successful strategy. Take, for example, luxury goods and services. The Patek Philippe Grand Complications wristwatch (in its various forms) retails for tens of thousands of dollars; it’s made by hand in very small quantities; and it’s terrifically complex mechanically. These are rare and beautiful timepieces, and they function in a world that’s antithetical to the “democratic” strategies of price- or proposition-simplifying.
With simplified products, even those targeted at customers who are willing to pay a price premium (proposition-simplifying), a larger market is always desirable, and the dream is to develop a universal product that can be mass manufactured. True luxury markets, by contrast, are always niche and deliberately exclusive; the product’s complexity and rarity are desirable attributes. The intent is to anoint the privileged few with exclusive opulence and status through fantastic product elaboration -- simple functionality and affordability be damned.
Of a similar ilk are bespoke products and services, such as enterprise software -- large systems that are tailored to and integrated with a firm’s existing systems and practices. Enterprise software is typically replete with important-sounding acronyms: ERP (enterprise resource planning), MIS (management information systems), MRP (materials resource planning) and many others. The requirement to tie together a diverse set of information from numerous sources, with each of those sources either subtly or markedly different with each new deployment, results in incredibly complex products that have to be intimately tailored for each installation. This makes the cost eye-wateringly high, yet the customer often becomes locked in to the system because they feel it’s integral to their organization, and switching will cost even more. It’s like an addict’s relationship with a powerful drug, and the company that supplies the enterprise software reaps rewards of a magnitude that would make a pusher jealous.
The final type of elaborating strategy involves the development of bigger-is-better products. These are generally not as commercially successful as luxury or bespoke products over the long term, but they can enjoy quite high growth for a short period. Products might be made bigger -- or stronger or faster -- in search of scale economy or some specific utility, but in doing so, they may become extremely complex, harder to make and often harder to use. They do, however, represent a meaningful segment of the product universe, where greater complexity is accepted as long as a product performs better than its predecessors -- or achieves something that was previously impossible or unavailable.
And even though their complexity has high costs -- both economic and otherwise -- such products still have important roles to play. Consider the behemoth Airbus A380 -- a technical marvel that has stretched the physical size of a plane and its engines to the limit of what’s feasible, for which its designers deserve great credit. Yet the A380 has also taken Airbus and its customers to the very edge of commercial and operational viability. Among other things, the plane’s complexity may prevent it from ever finding a large enough market or commanding a premium margin. Therefore, it may be the latest in a long list of bigger-is-better products -- including the Apollo program, the Hummer and the Concorde -- that eventually disappear.
Some inventions simplify; others complicate; and yet others do both. The wheel simplifies. The Airbus A380 complicates. But a coach-and-horses, compared with the horse-and-trap, has both simplifying and complicating aspects. Similarly, the car -- while demonstrably faster and more comfortable than a horse-drawn coach (proposition-simplifying by being a joy to use) -- is obviously a much more complex piece of kit that requires expensive manufacture, skill in both driving and maintenance and a new, complex infrastructure of roads and traffic controls, in stark contrast to the beautiful simplicity of the equine world.
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Is an online meeting or relationship generally superior to a good old-fashioned person-to-person date? Some inventions are both seductive and commercially successful, up to a point, yet eventually complicate or even compromise our lives and their value. We would be hard pressed to argue, however, that simplifying is a one-way street and always the road more traveled.
Discovering -- finding something, as opposed to inventing it -- can be a very lucrative strategy, even when it doesn’t simplify. The beauty of Seville’s gold-encrusted churches and houses rests upon the discovery of America, and the port city’s subsequent monopoly on voyages to and from the continent.
Again, however, although the discovery of America was hugely lucrative -- and in our opinion (not everyone would agree) beneficial -- it did not simplify the world. Similarly, think of John D. Rockefeller’s mega-successful strategy: “Get up early, strike oil.” You can characterize most of the world’s mineral-extraction industries in this way -- it’s a specific strategy that’s a far cry from simplifying. Biotechnology is another case in point.
Richard Koch is an entrepreneur who has made over $300 million from starting businesses and investing in early stage venture capital. His businesses have included Filofax, Plymouth Gin, Belgo Restaurants, Betfair, FanDuel, and Auto1. Former...Read more
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February 7, 2017 at 07:15AM