Choices that matter in a startup strategy

Choices that matter in a startup strategy

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Two years after Socrates Rosenfeld, MBA ’14 graduated from MIT Sloan, he returned to campus with co-founders and an idea: Get into the cannabis industry.

Rosenfeld had used cannabis to treat lingering stress and anxiety from his time as a U.S. army ranger and had watched the legalization of recreational marijuana across the country. He approached Scott Stern and Erin Scott, both with MIT Sloan’s Technological Innovation, Entrepreneurship, and Strategic Management group, for advice on how he could start a business at the intersection of cannabis legalization and the internet.

“Strategy for startups is the choice among alternative visions for your idea and company; choosing among the alternative paths that your company can go down,” Stern said during a recent presentation.

For Rosenfeld, his choices included launching a seed-to-sale inventory system; building a digital map for retail customers that identified vendors; operating a brick-and-mortar dispensary; or opening a digital storefront. Each option had unique capabilities, competition, and customers, as well as a set of choices for Rosenfeld and his team to consider.

They ultimately decided to open a digital marketplace, and by 2021, Jane Technologies and its platform was responsible for 20% of legal cannabis sales in the U.S.

During a recent MIT Sloan Executive Education webinar, Stern and Scott provided an overview of strategies for startups and emphasized the four key choices that matter in designing a strategy.


Entrepreneurial strategies

In identifying alternative strategic routes to commercialization, founders must decide where they land in terms of collaboration versus competition, and execution versus control:

  • Intellectual property strategy — This strategy creates value for existing customers of partner companies through idea generation and development and takes a collaborative approach to the competition, maintaining control through intellectual property. Consider Dolby Laboratories’ business model, which licenses its audio technology and controls its market through patents and trademarks rather than trying to directly compete with other audio companies.
  • Architectural strategy — This strategy delivers value for new customers by building a new value chain, and orients toward competition and control. OpenTable, the online restaurant reservation service, works with multiple stakeholders and uses its platform to satisfy both restaurants looking to manage filling tables and diners wanting to get a seat at a coveted hot spot.
  • Value chain strategy — This strategy delivers value for existing customers of a partner organization and builds specialized functional capabilities within that partner’s value chain through collaboration and execution. IT, consulting, and outsourcing company Infosys is an example of a firm that uses a value chain strategy.
  • Disruption strategy — This strategy creates value for new customers who are poorly served by current offerings and orients toward competition and execution. An example is Rent the Runway, which got its start with young women who wanted an alternative to shopping at luxury department stores for special occasions.

Each of these strategies for startups involves a distinct set of choices around customer, technology, organization, and competition.


Choose your customers

The choice of customer impacts what the first product and follow-on products will be, what team should be hired, and how stakeholders will view value creation.

“We absolutely want a customer that we create value for, otherwise they won’t buy, [and] they won’t be a customer. We also want to actively choose among potential customer groups to choose a beachhead that can serve as our pathway to a mainstream market,” Scott said.

When choosing customers, Scott and Stern recommend entrepreneurs identify a set of possible markets and assess the inherent value of early adopters as well as the strategic value — such as the potential to engage with customers to gain feedback — as the Jane Technologies team did with its cannabis business. Consider your overall entrepreneurial strategy. Make a limited decision on who your customer will be so that you can test your value creation and adjust if need be.


Choose your technology

Mariana Matus, Ph.D. ’18, and Newsha Ghaeli knew there was a lot of public health data in wastewater, and they saw a startup opportunity there. But they needed a way to measure and catalog that information and make it accessible to the community and government stakeholders.

The co-founders decided on a system for sampling, testing, and analyzing wastewater. The technology allowed Biobot Analytics to pivot their focus based on partnerships and evolving health crises. Before the pandemic, the company was testing for opioids in North Carolina sewer systems. Now Biobot Analytics works with the National Wastewater Surveillance System on monitoring COVID-19 levels and other public health threats like monkeypox.

“We want you to really think about that choice of technology so that you can be incredibly focused in how you develop it, so you give your idea and your innovation the best chance of success,” Scott said.


Choose your competition

Startups don’t get to choose whether they have competition, but they do have the ability to choose who they want to compete with and how they’re going to do it, Scott said.

As online pharmacy PillPack was gaining traction with their early idea, co-founders Elliot Cohen, MBA ’13, and TJ Parker had to decide whether they wanted to license the idea to incumbent competitors like CVS and Walgreens or fill and deliver prescriptions directly to consumers. While either path could bring success, Scott said, the founders ultimately decided to compete head-on and build their own pharmacy business. PillPack was acquired by Amazon in 2018.


Choose your organization

Think of this choice not only as a decision on a co-founder or founders, but a choice about which capabilities and resources you’re going to build, and what stakeholders can expect from your company.

Amazon started as an online marketplace for books, but Jeff Bezos made it clear the company had bigger aspirations than competing with brick-and-mortar bookstores. In fact, the site’s competitive prices and delivery service put many bookstores out of business, and Amazon has continued to expand into the multi-technology juggernaut it is today.

“What you tend to see is that your first customers and your first employees, the first people who you start to bring on board, all of a sudden they shape the path that you walk down,” Stern said. “Making that a choice rather than [having it be] something that happens to you is very key to what allows for success.”


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