Big Ideas

Thinking Strategically in Startups: Market Positioning

The Silicon Valley story leaves out a lot. You know the tale – the college dropout who has a great idea, builds it in his garage, remains scrappy and resilient in the face of adversity, and eventually becomes ludicrously rich. It’s Bill Gates, Steve Jobs, Elon Musk…the list goes on.

In each case, we idolize the idea, the engineering, and the entrepreneur. It’s the American dream, where hard work and persistence are the keys to success. In reality, however, there is more to building a successful company than having a great idea and hacking together a great widget.

Good ideas fail every day.

Indeed, reports state that over 90% of startups fail. The reasons for those failures are many. Some of those startups probably did not have a great idea to begin with, or maybe their team fell apart. But for every startup with a good idea and a good team that ultimately fails, there is a good chance the reason falls somewhere under the umbrella of business management. And if you have to know just one thing about business management, you should understand the importance of business strategy.

To put it as simply as possible, business strategy is about doing things differently than your competition. To understand this more deeply, we look to one of the most seminal writings on the subject – What is Strategy?, by Michael Porter.

I’m of the opinion that everyone should read this essay in full, but for our purposes I will offer this brief summary:

  1. Strategy is choosing a market positioning – meaning that your activities differ from those of your competition.
  2. You have to make tradeoffs to adopt a market position – choose which opportunities to pursue, and which to leave on the table.
  3. Being strategic does not mean doing only one thing. It does mean that all your activities should complement one another and strengthen your chosen positioning. This is called fit.

Porter offers some compelling examples to back up his argument. He describes Jiffy Lube, a company that thrives because they focused all their activities around one core value – changing the fluids in your car quickly and cheaply. Another example is Ikea, a furniture company dedicated entirely to low-cost home furnishings.

Both companies have achieved great success by focusing their effort around one core position and not straying. Additionally, their auxiliary activities reinforce this position. Ikea’s day care facility makes it even more perfect for cash-strapped young families; not only is the furniture inexpensive, but they can go shopping for furniture without having to spend money on a babysitter.

How about an example relevant to the world of tech? For that, we need look no further than the current king of the hill – Apple, Inc. Though Apple is now one of the world’s dominant companies, this was not always the case.

Apple started off strong in the late 70’s through the early 80s, coasting on their competitive advantage of being the world’s first well-designed, easy-to-use personal computer. But when IBM entered the personal computing market with lower cost machines, things got rough. Apple spent much of the late 80s and 90s trying to copy IBM by selling low-cost Macs and licensing their operating system to third party computer manufacturers. By ’97, Apple was very nearly bankrupt. Fortunately, that is when Steve Jobs returned. Jobs killed off the inexpensive Mac clones and moved the company back to their original market positioning of well-designed, highly usable, premium electronics. The iMac was well received in 1998, then came the iPod in 2001…the rest is history, really.

Now, there was more to this turnaround than a well-focused market positioning. There was a great design team, world-class supply chain management, etc. The crux of the change, however, was being strategic about the company’s activities.

And if being strategic can take a tech company from the very bottom to the very top – well, it’s probably something you should think about.