VI. Blue Star Start-up Strategy for Emerging Business Opportunities - Corporate Intrapreneurship

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Contents

    Part I - Blue Stars

        1) Introduction

        2) Portfolio Classification

        3) Seven key questions

    Part II - What makes for success?

        1) An empirical study

        2) Four criteria

        3) Winners' check-list

Part I - Blue Stars

1) Introduction

     

                  The constellation Taurus, the Bull, and its blue star cluster Pleiades, the Seven                                           Sisters, were known to the Persians and Chinese, the Maya and Aztec.1

 

    

2) Portfolio Classification

 INSERT BCG MATRIX WITH COMMENTS

 

3) Seven key  questions

   KISS, Keep It Strategically Simple, is a leitmotiv that definitely also applies to start-ups. There are seven key questions. The second, third and fourth are the ones IBM considers critical for strategic clarity:2

 

1. -  What business are you really in? How do you define it in terms of solutions?

    Shoes, bicycles, cars and airplanes are all solving transportation problems, getting from A to B, as different as those industries are from one another. An aspect common to most solutions, including those provided by the transportation industries, is the role premium branding can play - Bally & Gucci, Bianchi & Coinago, Ferrari & Lamborghini, Lear & Concorde.

 

2. - What's the pain point for the customer?

 

3. -  Who are you going to come up against in the marketplace?

 

4. -  How can you deliver more value to your customers than our competitors?

 

5. -  Is your strategy specific about where to compete, which market niches?

 

6. -  Does your strategy lead to real commitment - "being on a mission," versus having a mission statement? 

Is that commitment balanced with the flexibility to account for uncertainty? You have to be able to pivot!

 

7. -  Is realizing your strategy tied to an immediate action plan with budgets, milestones, and people held accountable for specific strategic targets?

 

Part II – What Makes for Success?

    1) An empirical study

    "Those who do not learn from history are doomed to repeat its mistakes." An interesting historical perspective about the Key Factors for Success (KFS) for new ventures is given by a PIMS study of the 1980s from the Strategic Planning Institute1(SPI). (PIMS refers to Profit Impact of Market Share, explained on the linked subpage at "B. Market Strategy Fundamentals.)  Data were analysed from 117 start-up ventures in North America, Europe and Australia. For an on-going  KFS study in Silicon Valley, see the subpage "4. Internet Start-ups: the Berkeley Stanford Genome Report" at "B. Blue Star Strategy for Entrepreneurs."

     The ventures of the PIMS study were manufacturers of both industrial and consumer products and had both standard and new technology. They were entering:

            • both stagnant and dynamic markets

            • both fragmented and concentrated markets

    The distinction between "winning" and "losing" start-ups was determined on the basis of the market share achieved by the fourth year of operations. Successful operations tended to turn the corner to a positive return on investment (ROI) in year five. Below is a summary of the findings of this study.

 

    2) Four criteria

    More likely to succeed were start-ups with:

 

    1) a goal of achieving a high share of a rapidly growing market


    2) and the production capacity to support that goal.

 

    To comment on these two points:

    1) Marketing: Achieving high market share is a critical driver to profitability. The more important the product is, in terms of its share of the customer's disposable income, the harder it is to gain market share. Customers are less likely to try a new product or switch suppliers on big ticket items than on relatively minor purchases. The fastest way to achieve significant market share is to sell to key major customers. In other words, carefully aiming a sniper's rifle on a major retailer, such as a Wallmart´s with its huge multiplier effect, is more effective than going after the general public with a shotgun.

    Winners spend heavily and early on marketing. However by year four, their marketing spending has come down to the "normal" level of their competitors.

    2) Production: Having good quality in of itself is not enough, as the quality offered by competitors may also be good. You have to be perceived as significantly better. Quality refers, of course, to the total customer experience including payment terms, timely delivery (no stock-outs) and after sales service. The reward for the perceived "quality gap" of the winners was a chance to charge premium prices while being regarded as providing value.

    The resulting healthy cash flow enabled the winners to spend heavily on developing even better products (R&D). The above points confirm conventional marketing wisdom. The next two points are a little more surprising.


    3) Start-ups were more likely to suceed when faced with tough competition, ideally a dominant, market-leading competitor, a sort of David versus Goliath scenario.


    4) High sales force expenses did not lead to high market share. Specifically, start-ups which spent 3/4 of their marketing budget on the sales force and related expenses and 1/4 on advertising, promotion and other marketing did significantly worse than those which spent less than 1/2 on the sales force.

 

3) Winners' Check-list

    From these four points one may make a bullet point "winners' check-list."  Winners tend to:

  • enter a rapidly growing market (Which regional or customer market segments show the highest growth rates?)
  • face strong competition (Is there a dominant competitor and if so why?)           
  • have stretch market share objectives (Demanding, but achievable, ones need to be set, by market niche.)
  • provide products that do not make up a large percentage of the customer's purchases (Target successful customers.)
  • budget heavy marketing expenses for the first two years (Hit the ground running.)
  • support the product with outstanding service (Service is key for customer loyalty.)
  • charge a premium price (Provide corresponding value.)
  • have sufficient production capacity (Potential bottlenecks?) 
  • budget heavily for R&D (Innovation needs to be on-going.)

 

1 Taurus and Pleiades may have been depicted in Paleolithic times. Dr. Michael Rappenglück of the University of Munich (LMU) makes this case for a painting in the Lascaux caves in France, which are dated at about 15,000 BC to 16,000 BC. The constellation and star cluster definately appear in Babylonian star catalogues in 2300 BC. They are also mentioned in Homer's Odyssey.

Taurus, from Urania's Mirror, an English set of constellation cards, ca. 1825. *

    The nine brightest stars of Pleiades owe their names to Greek mythology. Atlas and Pleione, the parents of the seven sisters, appear on the left of the blue photograph at the top of the page. In the middle are Alcyone, and, below her, Merope. On the right, top to bottom, are Sterope, Taygeta, Maia, Celaeno and Electra. Zeus turned the sisters into stars, along with their 15 half-sisters, the Haydes, who together form the constellation Taurus. The Seven Sisters of the Pleiades are reduced by one and revered in Hindu mythology as the mothers of the war god Skanda.

    Pleiades is primarily made up of hot blue stars formed 100 million years ago. It is one of the closest of the star clusters (about 440 light years from earth), and the most visible one. Astronomers expect it to disperse in about 250 million years. (Wikipedia, 2011) The striking image is from NASA (cf. the copyright below).*


1 The Strategic Planning Institute (SPI), founded in 1974 as a non-profit organization, manages and develops the PIMS (Profit Impact of Market Share) database. It is explained on the subpage "PIMS" under "Marketing Strategy."  An excellent overview is given in the 38 page pamphlet "Market Position and Competitive Strategy" by Bradley T. Gale of SPI and Robert D. Buzzell of Harvard Business School, Oct. 1987, as well as on the website http://pimsonline.com.

 

2 The source for the IBM triad about strategic clarity is the twenty page “Emerging Business Opportunities at IBM (A)” by David A. Garvin and Lynne C. Levesque, a Harvard Business School case. It has two supplements, which they also wrote, a (B) of two pages, and a (C) about a specific EBO (Emerging Business Opportunity), Pervasive Computing, of six pages. (A), (B) and (C) were published March 2004 and revised Feb. 2005. 

    The series can be purchased for a modest fee of about $15 for all three as pdf downloads (cf. the preceding link). A brief two-page summary of key points from the case is presented at "A. Blue Star Start-up Strategy for Intrapreneurship" at VI. Start-up Strategy.

 

 

            * © Pleiades, NASA, ESA, AURA, CalTech Palomar Observatory, www.hubblesite.org, 13.09.2009,                                     public domain; Taurus,  www.ianridpath.com, 21.05.2009, public domain; Gyan Web Design 2010