A significant number of startups, estimated around 75%, do not achieve a successful exit. While various factors contribute to this, such as insufficient funding or intense competition, a primary challenge for new ventures is often the struggle to attain product-market fit and identify the optimal path to commercialisation. To address this, a systematic framework has been developed by academics at a prestigious technological university, drawing on over two decades of research and insights from thousands of companies and students. This approach, detailed in their new textbook, “Entrepreneurship: Choice and Strategy”, aims to equip startup leaders with the tools to make informed decisions for their early-stage businesses.
“Choice is at the core of entrepreneurship,” states a senior lecturer in technological innovation, entrepreneurship, and strategic management involved in the framework’s development. The motivation behind this framework is to centralise the entrepreneur and their idea, reconcililing often conflicting advice by presenting distinct alternative paths for their venture.
The framework, previously outlined in business publications, is built on the principle that a promising idea can lead to value through multiple routes, but simultaneously pursuing too many paths often proves detrimental. After navigating four key areas of entrepreneurial choice—customers, technology, organisation, and competition—entrepreneurs can explore the Entrepreneurial Strategy Compass. This framework delineates four strategic routes to commercialisation, categorised by two dimensions: their orientation towards established businesses (collaboration versus competition) and their focus of investment (execution versus control).
The four strategic routes are:
Intellectual property: This strategy prioritises idea generation, maintains control over the startup’s product, and aims for growth by creating value for existing customers of a partner organisation.
Architectural: This approach involves building and controlling a new value chain for new customers, achieving success by fulfilling specific needs for each stakeholder within that value chain.
Value chain: Similar to a consulting model, this strategy focuses on developing and executing specialised products and services within an existing value chain of a partner organisation.
Disruption: This strategy creates value for a niche customer segment by redefining existing value chains and competing with established businesses that are inadequately serving their customers.
Navigating these choices can be challenging, as the four strategies frequently present conflicts. For example, a well-known online pharmacy co-founded by alumni of the technological university faced a choice: collaborate with established retail pharmacies (a value chain strategy) or compete with them by directly engaging consumers (an architectural strategy with disruptive elements). The company ultimately chose the latter, which shaped its early priorities and closed doors to partnerships with incumbent pharmacies but opened opportunities for collaboration with new market entrants. This strategic decision had significant consequences, as evidenced by the substantial market capitalisation loss experienced by traditional pharmacies when the online pharmacy was acquired.
To make informed entrepreneurial choices, the framework recommends a sequential learning process called “test two, choose one” for the four strategies within the compass. This systematic approach encourages entrepreneurs to consider multiple strategic alternatives and identify at least two commercially viable options before committing to a single one.
As the authors suggest, “The intellectual property and architectural strategies are worth testing for entrepreneurs who prefer to put in the work developing and maintaining proprietary technology; meanwhile, value chain and disruption may work better for leaders looking to execute quickly.”
A well-known fashion designer provides a classic example of sequential learning. As an employee at a major fashion house and an impending bride, she identified an unmet market need for older women seeking wedding dresses. When her company disagreed, she opened her own shop. Instead of immediately launching her own line, she stocked her shop with traditional dresses and offered only one of her own designs. Her objective was to gauge customer interest and identify successful aesthetics before fully developing her new collection. This allowed her to apply insights gained about design, customer preferences, messaging, and pricing to her venture.
The sequential learning model can also help entrepreneurs discover if an idea is unviable before they become too heavily invested. A startup founded by students from the technological university, which aimed to reduce ride-sharing carbon emissions by renting insured electric vehicles to drivers, demonstrated this. The company engaged in thorough, hypothesis-driven experimentation, including talking to drivers, becoming drivers themselves, purchasing an electric vehicle, and refining their business model. This lean process ultimately provided them with early clarity, leading them to discontinue the venture. They realised the business was susceptible to fluctuations in operating costs and would not achieve their desired environmental impact. This contrasts sharply with the experience of a major car rental company, which faced significant financial charges after retreating from an electric vehicle rental initiative due to high repair costs and poor execution.
When confronted with such market decisions, startups often attempt to pivot. However, this decision also carries challenges. While pivots are possible, they come with costs, potentially requiring staff layoffs or renegotiations with investors. Entrepreneurs are advised not to fear pivoting but to understand that fundamental strategic pivots demand significant time and effort, and a startup typically has a limited number of opportunities to do so.
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