Balancing Incentives

Entrepreneurial Strategy

Joshua GansFiona MurrayScott Stern

January 2014

1#

Capitalized with great fanfare as a disruptive start-up aimed at overturning traditional grocers, Webvan positioned itself as an integrated substitute for supermarketsWith a much smaller capitalization, and focusing on online grocery delivery using existing chains, Andy and Tom Parkinson positioned Peapod as a complement to traditional supermarketsTwo entrepreneurial companiesboth having access to significant resources seeking to exploit the same opportunity.at the same time.

With fundamentally different strategies3#

Webvan ultimately burned through ~ $1 billion and went bankrupt less than two years after its IPOPeapod 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 basisIdea SelectionCommercializationIdea GenerationWhat do we Do and Not Do in Commercializing Our Idea?6#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 commitmentsNot a passive process, but the active choices that allow a firm to establish priorities, achieve internal coherence, time irreversible commitments, and ensure value captureA plan for choosing what NOT to doDo Entrepreneurs Need Strategy?Many start-up companies find their growth path guided not by design but by circumstanceThe Customer is Always RightMoney Talks

And, there has long been skepticism among entrepreneurs in the lessons from strategy for their fledgling venturesWho can afford another expensive study?My industry / setting moves so quickly those static tools are not very helpful!Isnt 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

INVESTMENTORIENTATIONCONTROLEXECUTIONCOLLABORATION

COMPETITIONThe Entrepreneurial Strategy Canvas11#AgendaWhat is Entrepreneurial Strategy?

Entrepreneurs Need Strategy

Choosing Your Competition

Choosing an Entrepreneurial Strategy

Putting the Framework to Work

Entrepreneurs Need StrategyPrioritization

Internal Coherence

Irreversible Commitments

A Field Guide for Experimentation and EvolutionPrioritization

Internal Coherence

The Timing of Irreversible Commitments

Commitments and Expropriation

Dr. Yet-Ming Chiang

A Guide for Experimentation and EvolutionA Few ThoughtsExecution is fundamental to any businessthe 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 venturethe 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 businessesAgendaWhat 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 typingSwiftkey 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 propertySwiftkey 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 ExecutionThe Benefits of ControlIncreased Appropriability

Ensuring the Vision of the Founder

Facilitating Value Capture with Key PartnersThe Benefits of ExecutionTime-to-Market

Feedback and Experimentation

Lower Commercialization CostOriented Towards.CollaborationCompetition

Oriented Towards Compete Versus Cooperate?Benefits from CollaborationEnhanced Value Proposition

Reduced Costs

More Focused Incentives

Higher Product Market ProfitsBenefits from CompetitionMore Control

Fewer Bargaining Hassle

High-Powered Incentives

Potential for Increased Value Capture (as a Share of Value Creation)AgendaWhat is Entrepreneurial Strategy?

Entrepreneurs Need Strategy

Choosing Your Competition

Choosing an Entrepreneurial Strategy

Putting the Framework to Work

Selecting YourEntrepreneurial Strategy

INVESTMENTORIENTATIONCONTROLEXECUTIONCOLLABORATION

COMPETITIONChoosing an Entrepreneurial Strategy30#Intellectual Property StrategyInternal OrganizationCapabilities focuses on innovative capacity and IP managementIntegration and collaboration between technical workers and IP managersFocus 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 StreamsObjectiveEntrepreneurs Role is Limited to Invention, IP Management, Technology Transfer, and Perhaps Standard-SettingGlobal Approach to Implementation and Commercialization of InnovationPotential for Exclusive or Non-Exclusive ArrangementsScopeExternal PositionCompetitive advantage is premised on bargaining power rather than market power. Reputation and commitments for enforcing control over knowledge assetsExploit comparative advantages in invention versus commercialization

Investing in Control, Oriented Towards Partners31#

33#Disruptive StrategyInternal OrganizationA focus on experimentation and execution. Integration of customer insights into the technology development processCapability 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 chainObjectiveMust consider how to create and deliver value to key consumer groupings, with a particular focus on consumer segments poorly served by existing productsOften involves the development of a novel and integrated value chain, with an explicit focus on differentiation and isolation from established playersEarly focus is often on local markets

ScopeExternal PositionStrategy as Hustle!Avoiding detection and early response by established firmsChoosing a lonely place on the strategic frontierInvesting in Execution, Oriented Towards Competition34#

Value Chain StrategyInternal OrganizationNot Simply a Technology but a Team and Organization to Support the Deployment of the Innovation within the Value ChainIntegration between innovators, business development, and supply chain partnersIntegration 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)ObjectiveScope follows the strategic logic of the value chain you will joinOften 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 chainLeveraging the Technology S-Curve to serve the established Market S-CurveScopeExternal PositionExclusivity: Enhancing and Reinforcing the Uniqueness and Distinctive Positioning of the Value Chain you JoinBargaining Power: Enhancing the Exclusivity & Isolation of the Piece You Contribute to the Value ChainInvesting in Execution, Oriented Towards Cooperation36#

Architectural StrategyInternal OrganizationOften 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 tacticsExploitation of new Technology S-Curve by architecting a new value chainObjectiveCareful 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 chainVery often must consider how to create and deliver value to stakeholders within the eco-system, both through your technology and as a brokerOften involves the development of a platform core that allows multiple side to interact and exchange easily and transparentlyScopeExternal PositionPlatform architects serve a crucial role at the hub of multiple stakeholders through control over an interface or access pointPlatform Architects Compete For the Market Rather than In the MarketInvesting in Control, Oriented Towards Competition39#Architectural Strategies

Different Entrepreneurial Strategies Involve Different Priorities and CommitmentsValue Chain StrategyIntegrating your Innovation into an Existing Value ChainReinforces Value Proposition of Already Existing ConsumersEmphasis on Exclusive Relationships and Horizontal controlDisruptive StrategyExploiting a New Technology S-Curve through the development of a novel value chainFocus on customer segments poorly served by existing value chainsNeed to execute quickly enough to avoid response by established playersAgendaWhat 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. Lytros company launch is truly the start of a picture revolution.Ren Ng, Lytro Product Launch, 2011

Selecting YourEntrepreneurial Strategy

INVESTMENTORIENTATIONCONTROLEXECUTIONCOLLABORATION

COMPETITIONEntrepreneurial Strategy: The First Stage of Strategic Experimentation

44#

45#

Selecting YourEntrepreneurial Strategy

INVESTMENTORIENTATIONCONTROLEXECUTIONCOLLABORATION

COMPETITIONDisney and Entrepreneurial Strategy

47#Parting ThoughtsThe 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 basisThank You!