CDL (Strategy) Class 1

CDL (Strategy) Joshua Gans, 2014-15

Joshua Gans

Kristjan Sigurdson

Capitalised 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 capitalisation, and focusing on online grocery delivery

using existing chains, Peapod positioned itself as a

complement to traditional supermarkets

Two entrepreneurial companies…both having access to significant resources…

seeking to exploit the same opportunity….at the same time….

With fundamentally different strategies

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…

Why do some start-up firms earn extraordinary returns while others struggle to even survive?

What are the key strategic trade-offs facing innovation-driven entrepreneurs, and what factors should

guide strategy development and implementation?

How can I make informed choices that allow me to establish and sustain a long-term competitive

advantage?

Is Entrepreneurial Strategy Simply Coming up With a Great Idea?

“If a man can make a better mousetrap than his neighbour, though he lives in

the woods the world will make a beaten path to his door”

Ralph Waldo Emerson

Is Entrepreneurial Strategy Simply Coming up With a Great Idea?

“If a man has good corn, or wood, or boards, or pigs, to sell, or can make better chairs or knives, crucibles, or

church organs, than anybody else, you will find a broad, hard-beaten road to his

house, though it be in the woods.”

-Ralph Waldo Emerson

Paradox of Entrepreneurship

Paradox of Entrepreneurship

Coming to market requires:

1. Market Knowledge - the process of gathering knowledge2. Market Experimentation - inherently limits the scope of

competitive advantage

Paradox of Entrepreneurship

Coming to market requires:

1. Market Knowledge - the process of gathering knowledge2. Market Experimentation - inherently limits the scope of

competitive advantage

Entrepreneurial Strategy is the plan a founder (and theirteam) undertakes to identify a system for value creationand value capture before the opportunity for value captureis 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 NOT to do

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1.Separate out core idea from strategy

2.Envision alternative business models

3.Conduct strategic analysis on each

Idea

The 4 Choices that Shape Entrepreneurial Strategy

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The 4 Choices that Shape Entrepreneurial Strategy

Lytro Light Field Camera • launched in 2011 • large VC interest • Jobs approach • $90m funding

Chose to build own product rather than

license with a partner.

“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

Review: Lytro still in early-adopter territory

Alice Truong, 2013

“The first time I came across Lytro last spring, a member of the product team explained to me that this revolutionary camera — purported to let you shoot now and focus later — isn't just for early adopters….

“In recalling this moment almost a year later, I decided to pack Lytro into my bag as I was heading on holiday…not to say I don't see Lytro's lure, but the experience proved to me that this is still very much in early-adopter territory…..

The 4 Choices that Shape Entrepreneurial Strategy

If you work at Chipotle, or Panera, or McDonald’s you might think we’re crazy

At Clover we do a lot of things unlike other fast food companies. Why? For taste of course.

It’s hard to overstate how radically different we operate vs. our competitors. The way we operate is unheard of in our industry. I mean unheard of to the point that others don’t believe me until I show them around. No, really, there is no back-of-house, everything we do is visible to our customers. At Clover we:

• Have no freezers. In the entire company. Not one. • Change our menu day-to-day to stay in sync with the best tasting seasonal

ingredients. • Cut food as close as we can to when you’re going to eat (e.g., tomatoes are cut

when you order) • Keep your money in your region. (40-85% of our ingredients are from the Northeast) • Use an unheard of amount of organic ingredients (typically 30-60% depending on

time of year) • Don’t EVER use any preservatives, “natural flavors,” “flavor enhancers,” “artificial

flavors”* • Make food that will improve your health (no need to tell the kids, but that food is

good for them) • Allow you to see us making your food. We have no “back of house” anywhere in our

company. • 100% of what we hand you is compostable. OK, nothing to do with taste. But it’s

the right thing to do.

The 4 Choices that Shape Entrepreneurial Strategy

Hipstamatic was launched in 2010 as a $1.99 iPhone app

with over a million users paying for the app and enhancements.

Instagram was launched in 2010 as a free iPhone app

with an emphasis on sharing with over two million users.

In 2011, Hipstamatic refused acquisition offers from Twitter and

changed to focus on sharing.

Instagram was acquired by Facebook in 2012 for around

$700 million.

OTI Lumionics

Michael Helander, CEO

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Maximum Consumer Is “Willing to Pay” for the Product

Price the Consumer Ultimately Pays for the Product

Production Cost Spent by the Firm on the Product

Number of Consumers who Purchase the Firm’s Product

“Traditional” Value Creation and Capture

But, this assumes we know the B and the C …

For a start-up innovator, the first task is figuring out how much value is being created (and for whom)…

The Challenge of Entrepreneurial Strategy

TRADITIONAL STRATEGY ENTREPRENEURIAL STRATEGY

Clear understanding of customers and willingness-to-pay

Clear relationship between value delivery (“B”) and cost structure (“C”)

Static Industry Structure

Sufficient resources and time to achieve operational effectiveness

Potential opportunities to establish a position that can then be made immune to competition

Diffuse understanding of customer needs and potential willingness-to-pay

Significant uncertainty about how investments and other costs shape value delivered

Highly dynamic and uncertain industry structure

Limited (and uneven) resources, unstructured organization, and limited time

The Paradox of Entrepreneurship

Your individual challenge …

Find a recently established venture (2011 or later)

Describe what they are doing

Identify their core idea

Identify their business model in terms of the 4 choices