Most of contemporary strategy literature is based on big company strategy. Larger companies focus their strategies on a cost based model because costs are within their realm of control. They almost never think about the revenue side of the equation. After all, one can control costs, but the customer controls your revenue. This is where entrepreneurial training differs, and provides a winning strategy.
If you think of strategy in terms of costs you can win only half the battle. A recent Harvard Business Review Article by Roger Martin, calls this The Big Lie of Strategic Planning. Martin clearly sees the entrepreneurial view, to focus on the sources of revenue, i.e., customers as the key element of strategy.
Henry Mintzberg called this differential—intended strategies versus emergent strategies. Entrepreneurs work in the emergent section, because they are very opportunistic about revenues. Good entrepreneurs learn quickly that you cannot control the future, but you can try to reduce the uncertainty in getting there. Strategists would call this the resource-based view of strategy.
Resource based strategy states that an organization should use the strongest competencies of a firm to determine a strategy. Entrepreneurs think about what they could be doing with the resources in hand in order to find the opportunities. The planning school holds the thought about what the organization “should be doing” corner of the spectrum rather than the “could be doing” corner. Other strategists might view this as the Blue Ocean strategy. Swim to where no one else is playing; find a niche where there is no competition. Entrepreneurial strategy might also fall into the Michael Porter School of Positioning strategy, which is very analytical.
For information of the various schools of strategy read Henry Mintzberg’s book Strategy Safari. Unfortunately, the entrepreneurial school has changed dramatically since the book was published and it shows less relevance for entrepreneurs. However, this book is recommended as a great summary on the various strategic schools of thought and it is still relevant today as a great primer on the major thought patterns in the strategy discipline.
A good strategy (or whatever term is used – mission statement, mantra, culture) communicates behavior to employees. This strategy communicates what decisions should be made and the boundary limits for what should be the focus of the organization.
Another way to determine and validate a strategy, entrepreneurs may prefer the VRIO framework as popularized by Jay Barney. Are you building something Valuable? Is it Rare? Can it be easily Imitated? And can your Organization implement on the concept?
Possibly, the most important considerations for a startup concern (1) whether a strategy is necessary, and (2) at what point does a strategy become necessary for an organization. Should every company act like entrepreneurs and be opportunistic? Early stage startups do not necessarily engage in long-term strategies. For them, it comes down to tactics and execution. Execution trumps all organizational strengths every time.
The bottom line is that entrepreneurs should talk to their customers. Entrepreneurs have a venture. A business is created when the product or service of the venture can reach at least twenty customers who will make a purchase at a price that provides sufficient margins. If the entrepreneur doesn’t have a product and a price then they don’t have a business…yet.
