Many startups are founded simply on the basis of a new and exciting technology, a problem that will result in surprise and frustration while waiting for funding and for customers to materialize, which represents the “solution looking for a problem” and “if we build it, they will come” syndromes.
Rather than focusing on the technology, a successful startup will begin by solving a problem for a large number of customers who are willing to pay for a solution. After identifying the problem, you must develop the solution with your technology as well as a strategy to maximize your impact in the marketplace. The focus of this article is on the value of a strategy.
In their new book “Now, Build a Great Business!” Mark Thompson and Brian Tracy describe five reasons to develop a strategy early in the process. They emphasize that before the “What” should come the “Why?”. Their book is written for businesses of all sizes, but the principles apply especially to startups in the following ways:
- To increase return on equity invested. The first purpose of a strategy is to organize and reallocate your resources to increase the return on the money invested in your startup to-date, allowing you to earn more bottom-line profitability.
- To position yourself relative to your competitors. Business strategy allows you to change customer perceptions and responses to your product or service offerings. Rather than simply offer yet another option for a common problem, you should develop innovative approaches and changes in customer preferences that may not yet be covered by competitors.
- To capitalize on strengths and opportunities. You must take advantage of the unique talents and product capabilities that make your startup superior to your competition so that you can offer things that your competition cannot duplicate in the short term.
- To form a basis for making better decisions. All strategic and business thinking must lead to immediate action to increase sales and profitability potential relative to your competition. Failure to develop a strategy will lead to indecision or poor choices.
- To attract investors and financing. Evaluate your startup from the perspective of a potential lender or investor and create a strategy that makes your company an attractive place to invest. The startups that typically receive the money in first-time financings are ones that have the following four advantages:
- Experience in related fields. Investors highly prize gifted leaders who are business veterans with experience in similar ventures and who can make decisions quickly and effectively.
- Great business model. Your offering should open new, large markets in ways that are difficult for competitors to emulate quickly.
- Scalability. You must demonstrate that your business can build the necessary products and services rapidly and achieve economies of scale with minimum capital and labor.
- Intellectual property (IP). Patent protection improves the chances of building a business with a sustainable competitive advantage, although it is not a guarantee.
Your business strategy starts with both your ability to describe your value proposition and your core competency. Most startups that find themselves struggling have a poorly articulated value proposition and thus lack a critical piece of business strategy.
A successful startup will be more effective with a proper strategy, risk assessment, and careful decision making. If you focus on the end goal, it will dictate the choices you make, providing you with the ability to stave off threats and foster success.