Recently I met with a Venture Capitalist to discuss how his portfolio of startup investments could benefit from the advisory services of Maranville Enterprises—The Venture Creation Corporation. My expertise is strategic management—the process by which a venture learns and gains competitive advantage. So, naturally, we began our conversation by talking about “strategy” to which the VC asked a bemusing question:
“The startup ecosystem talks a lot about business models, but not about strategy. Why is that?”
He’s right; business models are mainly the table topic at meetings of founders and investors. Strategy is rarely considered. In fact, if the word “strategy” is even spoken, it’s mostly used incorrectly. (more about this point in my next blog post.)
Those conversations would be much more productive if guided by the venture’s strategy rather than its business model.
On the one hand, it’s understandable how a venture’s business model so easily becomes the focus of conversation. A business model is the blueprint for how a venture generates a profit. Where will revenue come from? What expenses will be incurred? That’s pretty pragmatic. Founders and investors can get their brains around these concrete details.
On the other hand, competitive strategy is a bit more abstract. It’s the economic thesis that establishes the business model’s logic. The competitive strategy encompasses all the market’s inferences and assumptions that determine what the business model should be.
For example, a particular venture’s business model might entail a customized product (revenue) designed and built by highly-skilled craftsman (expense). The strategic thesis that underlies this business model is that the venture is differentiated from its rivals through quality as its source of competitive advantage. Said another way: The venture’s generic competitive strategy is differentiation. That strategy is grounded in quality as the source of competitive advantage. And, to execute that quality advantage, the venture is hiring highly skilled craftsmen to design and build a customized product for its buyers.
Yes, most business ideas emerge before a competitive strategy is fully developed. However, converging on a business model before formulating a substantive competitive strategy is not good business logic.
While the philosophical debate over whether the chicken or the egg came first will no doubt continue, the logic that underlies competitive strategies and business models should be clear. Putting the business model ahead of the competitive strategy is akin to telling a story without a plot—abounding in facts but lacking an integrated theme that leverages those facts.
Please share your thoughts about startup strategy with me. Dr. Steven James “S.J.” Maranville is Chairman of Maranville Enterprises—The Venture Creation Corporation. He is The Guide by the Entrepreneur’s Side. As a Strategic Advisor, Dr. Maranville guides entrepreneurs through the V.U.C.A. of starting and scaling their unicorn-bound ventures. Connect with Dr. Maranville on LinkedIn!
