A business strategy is a set of choices that will help people answer the questions, “How will we compete?” and “How will we achieve our organization’s mission?“. Richard Rumelt, in Good Strategy, Bad Strategy, defines a good business strategy as one that helps with:
- Focus on the goals that need to be achieved and, equally importantly, goals that shouldn’t be pursued. A clear business strategy can help with the formulation of downstream tactical goals and activities.
- Market viability – A unique value proposition that differentiates the organization’s identified customer challenge and/or approach from those of its competitors.
- Constant exploration of ways to improve and achieve the organization’s vision and mission.
Michael Porter also details the questions that a good business strategy should answer, and the different options for answering those questions.
Without a compelling business vision, a strategy can’t exist. In the video above, Simon Sinek argues that business is an infinite game where the goal for companies is to stay in the game as long as possible – not for quick wins. When creating a business strategy, it’s more important for organizations to build a process around constant innovation and value delivery rather than having one or a few big bets.
Organizations that focus on getting better than their past selves rather than keeping up with cool features and functionalities that their competitors release, will stay ahead of the curve. Sinek recalls a conversation with a business coach who worked with both Apple and Microsoft. The business coach noticed a stark difference between the two organizations in how they conducted their quarterly meetings. Apple focused on important customer problems and ways to address them while Microsoft focused on the features that Apple was releasing and how they could replicate it for their products. Those who are better at constantly assessing, meeting, and exceeding customer needs, stay longer in the game because today’s innovations become tomorrow’s basic needs.
The Kano model above elegantly explains the concept of shifting customer needs. Over time, the parts of your product that delight your customers become their basic expectations. For example, imagine a food delivery app where all the vendors charge a delivery fee for delivering food to your location. The first few times you notice vendors offering free delivery, you, as the customer, are delighted. Over time, however, you may tend to only order from vendors who offer free delivery, as the free delivery criterion has become widespread in the industry and a basic expectation for you.
A business strategy can be made successful through different models and approaches. When the market validates one or more of those approaches, then the strategy can be called a success. A classic way to create a business model is by using the Business Model Canvas, created by Alexander Osterwalder. Read more about the business model canvas and how organizations like Google and Uber have applied it, here.
Strategy creation and execution is a non-linear and emergent process. You can think of it as a loop where incorporated feedback from the execution shines a light on the way forward. The beauty of a strategy that turns into a successful company, is that it might take years to roll out and seem obvious only in hindsight.
A transitional business model is used by companies to enter a market (usually a niche) to gain initial traction and prove the idea is sound. This helps the company secure the needed capital while having a reality check, and helps shape the long-term, scalable business model. Let’s look back at Tesla’s market-entry strategy. In 2008, Tesla launched the Roadster, an electric sports car for a small niche in the automotive market. The Roadster was priced as an alternative to other expensive and luxury sports cars, whose owners didn’t mind splurging the cash. Tesla, however, took advantage of the early wave of a shift of consumer preferences and industry incentives toward electric vehicles. Additionally, it helped that the Roadster unexpectedly became a collectible car.
Although the Roadster captured a small market size, the generated revenue from it allowed Tesla to transition to a greater market share at a slightly more affordable and competitive price. In 2020, Tesla released two variants of the Model S, a five-passenger electric luxury sedan – Long Range (later changed to Long Range Plus) and Performance. Both use the same 100-kWh battery pack and come standard with all-wheel drive. In 2006, Tesla’s plan was to build an electric sports car followed by an affordable electric sedan, and reduce our dependence on oil. Delivering the Model S is a key part of that plan and represented Tesla’s transition to a mass-production automaker and the most compelling car company of the 21st century.
Similarly, Netflix also used a transitional business model to initially stay afloat by relying on DVD-rentals when the company was launched. The organization then noticed the upcoming market shift toward online media consumption and successfully transitioned into the burgeoning streaming industry. Being an early player in the industry with a viable business model meant that Netflix could “attack” the market and gain a big piece of the market share.
In yet another case study, Google has a three-pronged business model that targets users of the search engine, publishers, and businesses. Google has created a self-feeding and self-evolving model where each of the three players contributes to the needs of the other. By using the search engine, Google’s users provide data for businesses to monetize keywords through offed ads. Those businesses then bid on keywords, which pay publishers to produce content that the search engine users consume.
No business strategy is perfect. The best strategies are emergent and use signals from the market to adjust where in the market the organization will play and how it will succeed. Encourage your leaders to fall in love with the problem and the process of solving it because innovations are gradually commoditized, as shown by the Kano model. The value is in the repeatable process of discovery and not in the discovery itself.
Use the following four-step checklist to create an effective business strategy:
- Ensure that the starting point of the strategy creation is your vision and mission.
- Outline how you will compete in the market in a way that will help you achieve your mission. Use the Business Model Canvas as a starting point if you are short on ideas.
- Ensure that your business strategy encourages systemizing continuous innovation and customer interaction rather than big bets or trendy functionalities.
- Especially for a new business, think about how you can leverage a transitional business model to execute your strategy in phases.
A business strategy and model are inputs for a product strategy. In the next blog post, we will take a look at what is a product strategy and how organizations can create effective ones.
Rahul Bhattacharya 
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