Startup Strategies

Although the concept of a startup is not unique to the technology sector it does hold a special place in its hierarchy of organisations. Many IT professionals will have worked for or with a startup at some point during their career.

The journey for a startup to become a successful organisation, or unfortunately the potentially more likely outcome of failure, can take different paths depending on the startup itself and the market it is trying to operate in.

If I was able to offer foolproof strategies to deliver success for startups then I probably wouldn't be writing this blog, what is presented below are simply thoughts on the patterns that tend to manifest themselves as startups try to grow.

Get Big Quick

Commonly startups will attempt to execute a land grab, trying to gain substantial market share in a short time period. The need for this approach is generally indicative of a startup operating in a new market with a low barrier to entry.

In this situation the startup needs to gain market share quickly before competitors enter the market. Generally this will require large amounts of capital as the startup is attempting to grow faster than profitability levels would normally support.

Returns are based on the future potential of the market as the products or services being offered become commonly consumed. At this stage the startup can convert its dominant market position into profitability. Selling this future vision of where the market will eventually end up is often the key to securing funding.

The risk of this strategy comes from the large initial capital outlay being ultimately for nothing if the market doesn't develop as predicated or competitors become more effective at gaining initial market share.

Slow Burn

The opposite approach of slow and steady growth is usually a result of a startup operating within a well established market that already has many competitors. In this situation although clearly the startup will still require funding, simply trying to gain growth via large capital investment is unlikely to succeed since existing competitors already have established market share.

The fact that the market already has many established competitors means the success of the startup is dependent on exploiting a competitive advantage. This might be based in some intellectual property that the startup has developed or by attempting to implement a disruptive strategy to change the direction of the market.

If this competitive advantage can be exploited then success will come from the steady accumulation of market share or by selling access to the startups intellectual property to competitors. The risk obviously comes from the inability to find the competitive advantage or for it to be based on technology that is easily copied or replicated by competitors.

Whereas startups operating a Get Big Fast strategy that fails may tend to go out in a blaze of glory, startups operating a Slow Burn strategy will often be subject to a slow and painful death.

Make Noise

Sometimes a startup will be based around the development of a significant new technology that has potential with a given market place. However to be able to exploit this potential advantage the startup would require large amount of capital or existing influence within the market place.

In these situations it is often unrealistic to formulate a strategy for the startup to grow to a point where this is a realistic possibility. Therefore the exit strategy of these startups is not for the startup itself to exploit the new technology, it is instead to make a lot of noise in the market place in the hope that a larger more well established organisation decides to acquire the technology.

Organisations can decide to take this action either because the technology is truly transformational or because it would require a large effort to reproduce it that would risk others gaining the advantage first.

As previously stated this is not a guide to startup success it is simply a description of the common exit strategies that can be seen when observing startups. The choice of strategy is usually influenced by the size and maturity of the market the startup is operating in along with the nature of the startups perceived technological advantage. Choosing with strategy to employ and successfully executing it is essentially the key to success and is a non-trivial problem.