By Dr. Eyal Benjamin, a serial entrepreneur and head of entrepeneurship studies at the Tel Aviv - Yafo academic college.
Let’s assume that after years of dealing with the latest technologies, you have come up with an amazing algorithm relating to Web 2.0. Immediately, you have to call your two best friends, and at an impromptu meeting over a large cappuccino at the local Aroma coffee shop. You all examine this amazing algorithm on the laptop screen and think about the next step.
Just an hour ago you were happy and relaxed, and suddenly it’s become a story about three friends from an elite technology unit who set up a brilliant startup. You start to see yourselves in the headlines when your startup is bought for millions of dollars by an international corporation. Agitated and excited, you start planning how to achieve your dream. The first question of course, is what to do with this great technology.
One partner says that the best way to implement it is by means of a free, viral product that will spread throughout the Internet. Once millions of people have used it, then Google, or maybe Yahoo, will chase you and buy the venture for a fortune. Something along the lines of ICQ or Skype or even Second Life – and you’re made for life. Why not? It’s already happened more than once…
The second, with his feet on the ground, thinks it’s best to go to someone with money. For example, make the technology into a product aimed at businesses that will be prepared to pay for the benefit they receive. Marketing will be done through a marketing franchise in various countries. This idea is particularly attractive as it combines the scent of money with the scent of visits to distant countries. But you’re thinking in a different direction.
You think it would be best to plant the technology into communications boxes of a large manufacturer, someone like Cisco or Nortel or one of the other giants. You think the best way is to develop the algorithm even more and sell them the rights to incorporate it in their equipment (what is otherwise known as OEM - Original Equipment Manufacturar). They will have the benefit of using it since, in any case, they have sales infrastructures all over the world, and you’ll have a small company that will earn a lot from royalties.
So which is best? Welcome to the first strategy discussion of your startup.. a discussion that will probably not be the last.
The business strategy of a startup has to answer a whole range of material questions: what value are we creating, for whom, how can we be rewarded for this value, who are our competitors, what is our timetable, who would be suitable partners, and more. The selection of a business strategy will to a large extent determine the character of the new venture, as well as its chances for survival in the industry and in the market. A good definition of the character of the venture (otherwise known as "strategy") will help to answer other questions, such as: who are the most suitable investors, what is the best personnel structure, what are our target markets and how much money does the venture need.
Those who were active during the Internet boom around the year 2000 certainly remember the concept of the “business model”, which sounds similar to the foregoing, and in its time referred largely to the dot.com companies springing up at that time.
Today, the prevalent view is that “business strategy” and “business model” are very similar concepts. However, the difference is that the business model is more individual, and relates more to the feasibility of the chosen business strategy.
We also have to be careful to avoid confusion with the various derivatives of business strategy, such as marketing strategy, financial strategy, etc., which all have to coexist in harmony with the overall strategy of the new venture.
Today’s world of technology offers a whole range of business possibilities and options for communications and creating contacts that were impossible until quite recently. The ability of an artist from a Moshav (communal settlement) in the Galilee (in the north of Israel) to sell jewelry to a language teacher in a small town in the southern USA (for example, through eBay, the electronic commerce giant) was not practical just 15 years ago, but now he has options for earning income far beyond the weekly stall in the local shopping mall. But the decision to engage in direct marketing has implications that must be taken into account, such as customer service, international credit card clearance, customs requirements, etc.
The selection and formation of a business strategy for a new venture is one of the biggest challenges facing entrepreneurs, mainly because it is one of the main factors affecting the success and/or future of the venture. In spite of this, the area of business strategy is still a newcomer in the field of academic research (it was started sometime in the 1960s by Porter), and until recently the emphasis was largely on strategic content for corporations. In recent years more and more researchers have focused on shaping strategy for young ventures and have discovered that the processes are materially different from those prevalent in large corporations. Moreover, it is now clear that any startup hoping to succeed must carry out preliminary strategic research and planning, but it is even more important to keep a finger on the pulse, constantly examine the chosen strategy and not be afraid to make changes as things happen.
Updating a business strategy is not a simple task, but is just as important, if not more important, than the initial strategy design. Perhaps a quote from an experienced player in the field of startups will persuade the team to invest rather more thought into the strategy of the new venture: “I don’t know of any successful company that has not changed its business strategy at least once…”