Entrepreneurial Strategy Joshua Gans Fiona Murray Scott Stern January 2014

1. Entrepreneurial StrategyJoshua GansFiona MurrayScott SternJanuary 2014

2. Capitalized with great fanfare as a disruptive start-up aimed at overturning traditional grocers, Webvan positioned itself as an integrated substitute for supermarkets With a much smaller capitalization, and focusing on online grocery delivery using existing chains, Andy and Tom Parkinson positioned Peapod as a complement to traditional supermarkets

3. Two entrepreneurial companies… both having access to significant resources… seeking to exploit the same opportunity…. at the same time…. With fundamentally different strategies

4. Webvan ultimately burned through ~ $1 billion and went bankrupt less than two years after its IPO… Peapod established a partnership with Ahold (Stop&Shop), who ultimately acquired majority ownership. Highly profitable niche business, with Parkinson brothers still in direct operational control of the company…

5. The challenge of innovation-based entrepreneurship is not about coming up with great ideas….

6. The hard part is commercializing the idea in a way that creates unique value for an end user while allowing the entrepreneur to capture value on an ongoing basis Idea Generation Idea Selection Commercialization What do we Do and Not Do in Commercializing Our Idea?

7. The Paradox of Entrepreneurship Coming to market requires market knowledge; the process of gathering knowledge -- market experimentation – inherently limits the scope of competitive advantage

8. What is Entrepreneurial Strategy? • Entrepreneurial Strategy is the plan a founder (and her team) undertakes to identify a system for value creation and value capture before the opportunity for value capture is dissipated. • Combines systematic experimentation and learning with escalating strategic commitments • Not a passive process, but the active choices that allow a firm to establish priorities, achieve internal coherence, time irreversible commitments, and ensure value capture • A plan for choosing what NOTto do

9. Do Entrepreneurs Need Strategy? • Many start-up companies find their growth path guided not by design but by circumstance • The Customer is Always Right • Money Talks • And, there has long been skepticism among entrepreneurs in the lessons from “strategy” for their fledgling ventures • Who can afford another expensive study? • My industry / setting moves so quickly – those static tools are not very helpful! • Isn’t this just my business plan? • Our objective is to offer a novel framework that allows entrepreneurs to choose how their company evolves, and helps to align the disparate decisions made during the earliest stages of a venture.

10. The Four Choices that ShapeEntrepreneurial Strategy

11. Selecting Your Entrepreneurial Strategy The Entrepreneurial Strategy Canvas ORIENTATION COMPETITION COLLABORATION CONTROL INVESTMENT EXECUTION

12. Agenda • What is Entrepreneurial Strategy? • Entrepreneurs Need Strategy • Choosing Your Competition • Choosing an Entrepreneurial Strategy • Putting the Framework to Work

13. Entrepreneurs Need Strategy • Prioritization • Internal Coherence • Irreversible Commitments • A Field Guide for Experimentation and Evolution

14. Prioritization

15. Internal Coherence

16. The Timing of Irreversible Commitments

17. Commitments and Expropriation

18. A Guide for Experimentation and Evolution Dr. Yet-Ming Chiang

19. A Few Thoughts… • Execution is fundamental to any business…the pay-offs to execution are higher when guided by strategic priorities and internal consistency • Experimentation and learning are fundamental to the evolution of any new venture…the value of experimentation is far higher when guided by strategic priorities, and allows more effective staging of irreversible commitments • More generally, because they have more freedom but fewer resources, the marginal returns to “strategy” are higher for entrepreneurs than for established businesses

20. Agenda • What is Entrepreneurial Strategy? • Entrepreneurs Need Strategy • Choosing Your Competition • Choosing Your Entrepreneurial Strategy • Putting the Framework to Work

21. Two Broad Dimensions for Choosing With Who and How you Compete…

22. Control Versus Execution

24. Tactus Technology has created a tactile user interface that combines the elegance of touchscreen with the physical sensation when typing Swiftkey has developed a powerful predictive algorithm that dynamically updates keyboards on a stroke-by-stroke basis

25. Tactus Technology has focused on establishing a strong IP position, with 15 issued and 45 pending patents. “We made a choice to go with intellectual property…” Swiftkey has focused on bringing their product to market, with three software generations over the past four years, and significant follow-on innovation in the area of predictive text

26. Investing in Control Versus Execution The Benefits of Control The Benefits of Execution Time-to-Market Feedback and Experimentation Lower Commercialization Cost • Increased “Appropriability” • Ensuring the “Vision” of the Founder • Facilitating Value Capture with Key Partners

27. Oriented Towards…. Collaboration Competition

28. Oriented Towards Compete Versus Cooperate? Benefits from Collaboration Benefits from Competition More Control Fewer Bargaining Hassle High-Powered Incentives Potential for Increased Value Capture (as a Share of Value Creation) • Enhanced Value Proposition • Reduced Costs • More Focused Incentives • Higher Product Market Profits

29. Agenda • What is Entrepreneurial Strategy? • Entrepreneurs Need Strategy • Choosing Your Competition • Choosing an Entrepreneurial Strategy • Putting the Framework to Work

30. Choosing an Entrepreneurial Strategy Selecting Your Entrepreneurial Strategy ORIENTATION COMPETITION COLLABORATION CONTROL INVESTMENT EXECUTION

31. Intellectual Property Strategy Objective Internal Organization • Use Control over Key Intellectual Property Assets as a Means for Extracting Significant and Sustainable Revenue Streams • Capabilities focuses on innovative capacity and IP management • Integration and collaboration between technical workers and IP managers • Focus on the technology S-Curve rather than the Market S-Curve Scope External Position • Entrepreneurs Role is Limited to Invention, IP Management, Technology Transfer, and Perhaps Standard-Setting • Global Approach to Implementation and Commercialization of Innovation • Potential for Exclusive or Non-Exclusive Arrangements • Competitive advantage is premised on bargaining power rather than market power. • Reputation and commitments for enforcing control over knowledge assets • Exploit comparative advantages in invention versus commercialization Investing in Control, Oriented Towards Partners

34. Disruptive Strategy Objective Internal Organization • Exploitation of new Technology S-Curve through the development of a novel value chain • A focus on experimentation and execution. Integration of customer insights into the technology development process • Capability Development focuses on building out an organization to serve key customer groupings . Scope • Must consider how to create and deliver value to key consumer groupings, with a particular focus on consumer segments poorly served by existing products • Often involves the development of a novel and integrated value chain, with an explicit focus on differentiation and isolation from established players • Early focus is often on local markets External Position • Strategy as Hustle! • Avoiding detection and early response by established firms • Choosing a lonely place on the strategic frontier Investing in Execution, Oriented Towards Competition

36. Value Chain Strategy Objective Internal Organization • Integration of an Innovation into an Established Value Chain to Enhance Market Power (for the Chain) and Establish Bargaining Power (for the Innovation and Entrepreneurial Team) • Not Simply a Technology but a Team and Organization to Support the Deployment of the Innovation within the Value Chain • Integration between innovators, business development, and supply chain partners Scope • Scope follows the strategic logic of the value chain you will join • Often involves establishing a commitment to serve a particular “horizontal” piece of the value chain (but not others) and depends on commitments by others not to encroach on your piece of the value chain • Leveraging the Technology S-Curve to serve the established Market S-Curve External Position • Exclusivity: Enhancing and Reinforcing the Uniqueness and Distinctive Positioning of the Value Chain you Join • Bargaining Power: Enhancing the Exclusivity & Isolation of the “Piece” You Contribute to the Value Chain Investing in Execution, Oriented Towards Cooperation

39. Architectural Strategy Objective Internal Organization • Exploitation of new Technology S-Curve by architecting a new value chain • Often involves a separation between Job 1 (grow the ecosystem) and Job 2 (monetize the core) • Coring involves a combination of technology and market design; tipping involves a combination of market design and tactics Scope • Careful choice of which stages of the value chain to participate in (or not) and taking responsibility for the coordination and integration of the entire value chain • Very often must consider how to create and deliver value to stakeholders within the eco-system, both through your technology and as a broker • Often involves the development of a platform core that allows multiple side to interact and exchange easily and transparently External Position • Platform architects serve a crucial role at the “hub” of multiple stakeholders through control over an interface or access point • Platform Architects Compete For the Market Rather than In the Market Investing in Control, Oriented Towards Competition

40. Architectural Strategies

41. Different Entrepreneurial Strategies Involve Different Priorities and Commitments Value Chain Strategy Disruptive Strategy Exploiting a New Technology S-Curve through the development of a novel value chain Focus on customer segments poorly served by existing value chains Need to execute quickly enough to avoid response by established players • Integrating your Innovation into an Existing Value Chain • Reinforces Value Proposition of Already Existing Consumers • Emphasis on Exclusive Relationships and “Horizontal” control

42. Agenda • What is Entrepreneurial Strategy? • Entrepreneurs Need Strategy • Choosing Your Competition • Choosing an Entrepreneurial Strategy • Putting the Framework to Work

43. “I am thrilled to finally draw back the curtain and introduce our new light field camera company, one that will forever change how everyone takes and experiences pictures. Lytro’s company launch is truly the start of a picture revolution.” • Ren Ng, Lytro Product Launch, 2011

44. Entrepreneurial Strategy: The First Stage of Strategic Experimentation Selecting Your Entrepreneurial Strategy ORIENTATION COMPETITION COLLABORATION CONTROL INVESTMENT EXECUTION

47. Disney and Entrepreneurial Strategy Selecting Your Entrepreneurial Strategy ORIENTATION COMPETITION COLLABORATION CONTROL INVESTMENT EXECUTION

48. Parting Thoughts… • The power of entrepreneurship is the ability to not only identify and implement exciting opportunities but to make choices that allow you to create real value for the world and capture value for your stakeholders • The more exciting and disruptive the innovation, the more important those choices are for your ability to commercialize and build a new company with competitive advantage • The process of choosing an entrepreneurial strategy requires a venture to come to terms with the core value that it will create, and the logic of how it will capture value on a sustainable basis

49. Thank You!