Startups in the Age of Transient Advantage
How can a startup compete in today's VUCA / TUNA world.
One of the most widely taught models in strategy courses across B-schools globally, is Michael Porter’s work on competitive strategy. Porter advocated that companies establish a set of core competencies and work towards maintaining an advantage over competitors by building defensible barriers.
For decades, sustainable competitive advantage has been chased as the holy grail of business strategy. Increasingly though chasing this holy grail is seen as a futile attempt. Today, any competitive advantage is likely to be transient.
Don’t get me wrong. There are companies that still expend considerable bandwidth on maintaining their advantageous positions. However, these are mostly industry behemoths who can afford to spend resources on continually exploiting their market position. Google, Amazon, Microsoft, Apple, Coca-cola and McDonalds are prime examples that come to mind.
But look beyond this limited set of companies and you will see that striving for long term competitive advantage is akin to Waiting for Godot. This is especially true for startups.
Once there was VUCA. Then came TUNA.
An oft-used term in B-schools is a VUCA world, i.e. the times are Volatile, Uncertain, Complex and Ambiguous. No sooner had one learned what VUCA stood for, that there came about a new acronym. TUNA — which stands for Turbulent, Uncertain, Novel and Ambiguous. No matter what the acronym, the idea is clear. Product ecosystems evolve rapidly.
What worked yesterday, might not work tomorrow. In this VUCA or TUNA world, new competition can come in and upend your position. Thus, any advantage you hold today is likely to be transient. How do you as a startup compete in such a scenario?
Growth in Fast-Moving Markets.
Rita McGrath tackles this subject in her book, The End of Competitive Advantage. According to Ms. McGrath, today disruptions happen more frequently and the competitive environment is in continuous motion.
One reason for this is that technology has reduced the barrier to entry for most sectors. McGrath, who has been named as the one of the foremost management thinkers by Thinkers50, suggests a couple of approaches to manage transient advantage.
Compete in Arenas. Most businesses today think of themselves as belonging to a certain industry. Fintech, Edtech, Automotive, Social Media and so on. According to McGrath, this is a mistake because often the disruption you face may come from some other industry. Rather, she urges companies to compete in arenas rather than industries.
McGrath defines an arena as a combination of customer segment plus value proposition delivered through a medium which could be physical or virtual.
For example, Stanford may count Harvard as its competition while attracting prospective MBA students. It may also look at platforms such as Coursera and Udacity as potential threats.
But what if Netflix tomorrow figures out the best way to create a web series that teaches strategy and marketing and operations in a fun and engaging way? Could it potentially act as a competitor to Stanford and Harvard and Coursera? Food for thought.
Continuous Reconfiguration. McGrath also advocates companies to continuously reconfigure themselves. What does this mean? McGrath suggests that companies who are successful over a long period of time are not characterized by any major restructurings.
Rather they are the ones who change and adapt in small ways in a continuous manner. These are the companies who see industry evolution as an opportunity to exit old businesses and enter new high growth segments.
One example of a company that has undergone continuous reconfiguration is Wipro. Today the fourth largest Indian IT service provider, Wipro started off in the 1940s as a manufacturer of vegetable oils. In Wipro, you can clearly see the pattern of entering new and higher growth segments, while it simultaneously disengages from older traditional sectors.
Today Wipro has sold off its initial core business of Sunflower Ghee and is now focused on segments such as IT services and consumer products such as home lighting.
Developing Strategic Foresight
As an entrepreneur, there are a few things you can do to ring-fence your startup from disruptions. For starters, plan with the assumption that any existing advantage you currently hold, will come under pressure. Hold conversations with people from within and outside your company that force you to re-look your existing perspectives.
As a startup, speed of execution often determines success or failure. So, it is better to be fast and roughly right rather than waiting for all the stars to align. By all means, exploit any advantage you have but also seek out continual shifts in your business.
Scenario Planning. One the tools to develop strategic foresight is scenario planning. Herman Kahn originally developed it for the US Military. It was subsequently adopted for the purpose of formulating public policy and business planning. Shell famously used scenario planning to better deal with a future which would have an uncertain oil supply.
Anyone who wants to know more about the process can read this article from MITSloan which does a terrific job at detailing out the steps involved in scenario planning. It is a slightly long read but well worth the time.
Startups today need to compete based on the idea of transient competitive advantage. You need to continually think about where you compete (medium), how you compete (value proposition) and whom you compete for (customer segment). Admittedly, you won’t get it right every time. But, by internalizing the process of continuous reconfiguration, you will be able to better tide over any slump.
I hope this article was helpful. If it was, feel free to follow me on Twitter where I share thoughts and articles on product management and leadership. You can also check out my startup https://komenco.in, which is dedicated to helping products scale from zero to one.