Summary: For many entrepreneurs, strategy often seems to be an afterthought, and the process of creating a great product through experimentation. So think first, then measure, and then figure out the business model if successful. But it is true that having a mesmerizing product that the customer wants to buy is not comparable to anything else. However, they are considered not a substitute for a clear strategy. One of the trickier issues in strategy is that, instead of putting too much emphasis on one part, founders can make the best of their familiarity with fundamental principles. The first point I’m proposing here is – the most fundamental question every successful business must answer – how are you creating value for your product and who are you making it for? How are you planning to release that product to the market? And how is your product different from others and what is its source?
Many traditional business rules are ignored today because of new platforms like data, machine learning, artificial intelligence, crowd-sourcing, Internet of Things (IoT), and more. These trends have changed the business world a lot. But the basic rules of business strategy are still the same.
However, many entrepreneurs, especially those in technology, think that strategy is not important. They focus on making great products, testing ideas, measuring results, and finding a business model. But good products and good “shop” are not enough for a good business.
Smart entrepreneurs and business founders can use different tools to make their strategy. They can use business models that can change with the situation, or analyze the forces in their industry, or find a blue ocean. All these tools are useful and can give some direction, but they are not the whole strategy. Making a new strategy also needs organizational change. We all like change when we think it will benefit us.
The goal of any strategy is to have a clear view of how your business works, how it competes, how it attracts customers, and how it makes value. So, instead of following one tool of strategy, founders can learn the core principles and use them as they need [Describing the 5 Principles of Purposeful Leadership]. But strategy is very complex and dynamic.
As a professor of strategy at Harvard Business School and Northeastern University, I tried to explain the minimum requirements of a clear view of strategy. I also made a framework that shows how different tools relate to each other and gives a process for entrepreneurs to know what they need to start any business. It helps you focus your intentions, feelings and thoughts to create the right energy.
I have written a hundred-page book about this topic, and I cannot summarize it all here. Because strategy is hard work and there are no easy ways. What I will say here is just the start: the most common questions that all entrepreneurs should ask. Those who build their business around these questions will have a better way to shape their strategy. You can write the answers to some questions on a single index card.
What kind of demand do you want to create and for whom?
People buy goods and services because they think they are cheap and useful. The first step to a good strategy is to explain how you will make people want your product, and who they are. This means that finding out who your customers are is very important for your strategy. This is the first blank in the image above: Who are you selling to? Learn about your customer’s features, such as their age, country, interests, situation, or anything else.
The next step is to describe the value of your product, or what problem you want to solve.
Second, what are you offering? This part of strategy is related to other parts like business design or design thinking, and there are many ways to do it. Some key questions are: How do you help customers solve their problems with speed, cost, and quality? How is your product better than others? How do you balance benefits and drawbacks? (Remember, you usually cannot be better than others in everything.)
You can think of a playground as the place where you want to sell your product in a market. Your business position is based on how you combine your customer benefits and your product value. The best position is to offer a product that customers really want, need, and cannot find elsewhere (more on that later).
If you are not sure about the answers to these two questions, it is very important to think about your customers and what they like. You need to know what they want more and what they want less. For example, maybe your customers like both variety and low prices. How do you compare with others on these two things? Maybe you sell the cheapest product, but others have more options.
How do you plan to create demand for that product?
To make your position in the market, you also need to analyze your plan for how you will make people want your product and who they are. The operating model is the set of choices and actions that show how the business works. It usually means making some trade-offs (balances) to find a mix of activities that helps you compete and offer some parts of your product better than others.
This may be the hardest question above, because making an operating model means choosing things across the business that the organization must do together. A good operating model is more than just “how you earn money”. It is a set of decisions that make more value together than alone. It is about doing things that support each other, making a whole that is worth more than the parts.
To start a business, first think about the steps in your value chain and then make a main list of how your company is different. Then think about how to combine those actions. Think about where there is complementary, where one activity makes another activity better? Finally, think about how these actions will connect the customer to the product position you have made. Another thing to think about is, how do complementary actions make value for your customers?
How do you stay ahead of the competition – what is your source of survival?
The final question on the card is perhaps the central question of strategy: Why shouldn’t your product be duplicated? Even if you offer a great product that customers love and are making money selling it, competitors can easily enter the market by duplicating that product and even economic theory suggests that competitors can drive your profits down to zero. . There are many sources of competitive advantage, but they fall roughly into two broad categories.
Resource-based advantages are based on unique resources or inputs that are valuable, rare, difficult to imitate, durable and specific to your organization. Positional advantages relate to your role and the position you hold in your industry, with things like scale and responsibility or network influence and early entry. Think about the resources you have that would be most difficult for competitors to duplicate or replicate, as well as the advantages your position provides. What will separate other companies from copying your operating model?
Understanding LinkedIn’s Business Strategy:
The questions I have asked leave a lot of space for strategy. (See the full notes for a complete explanation.) But they try to understand a business from the bottom and plan how it will succeed. Think about how LinkedIn answers these questions. It is a complex marketing platform, so its scorecard may look more complicated than most. It is a good place for job seekers and also a chance for recruiters and consultants. Its operating model (plan design) focuses on free access and easy joining, which makes more people want it. Size gives it a competitive edge with network effects. The more users LinkedIn has, the more useful it is for everyone. (You can see an example in my notes where I compare LinkedIn with other businesses.) The card shows some of LinkedIn’s activities. It has an idea of the benefits it will give, how it will do it, who it will do it for, and why others cannot copy it easily. In other words, it has a strategy.
A big limit of this analysis is that this figure does not show how competitors react to each other and how industries and technologies change. When you make your business, as a new entrepreneur or as an old operator, you need to go deeper into strategy, even into how you will make people want your product and keep and grow your idea. But don’t forget the basic questions that decide the success of a business. Offer the products and services that customers want, sell them at a price higher than it costs to make them, and have some good reason why competitors cannot copy you easily.
