To change, or not to change your strategy? Five principles for strategy shifts.
This is the question that founders, CEOs, entrepreneurs, owners or anyone responsible for a business is asking all the time: “Do we have the right strategy?”
The question is triggered by frustrating and slowing revenue numbers, new competitors and products moving in undercutting your position, the wish to be in another more attractive segment, the seducement of new market opportunities, the paranoia that you are going to fail unless you do something different, lost faith in the business, depression, lack of persistence, too much innovation and ideas, restlessness, fear of losing investors money and other relevant or irrelevant reasons. Very often, as Ben Horowitz of VC firm Andreessen Horowitz, has noted, “there are no silver bullets”. You just have to work harder at what you are doing.
Then again, sometimes, the absolutely right thing to do is to change. When Ben Horowitz abandoned the company he started, Loudcloud (servers), to bet on a new company, Opsware (software originating from the old company), it was the right thing to do and instead of failure he exited at over a billion dollars.
I have been in countless management and board meetings debating if we are on the right track. Very often, I have been guilty of raising the question since I believe on continuous strategy discussions. In a dynamic technology market, you always live in two parallel worlds: One is the strategy you are currently following, the other is the alternative path that you could take, thus questioning the current strategy. If you are the leader of a company, you must support the current strategy, and be careful not to confuse your organisation by brainstorming to many new ideas, until you eventually adopt a new strategy. Some courageous companies nurture an innovative idea culture involving everybody in the future products of the company, like Google and 3M.
In any case, the trick is the balance between having a sense of direction, being able to evolve and change with the times, without losing oneself, or changing to often, or for the wrong reasons. As my teacher at Stanford used to say, “there is not a paradigm shift every day”. You have to distinction between noise and signals.
Intel did a dramatic strategy shift from memory chips to microprocessors in early 1980s, practically shutting down the old memory business, a move that became a great success in the new and booming PC market. The huge market opportunity that the PC revolution offered, and the volumes of microprocessors needed, was a strong signal for strategy shift. Indeed, “only the paranoid survive”, as Andy Grove, one of the Intel founders, noted. Likewise, when Apple launched the iPhone, the shift from desktop to mobile had already started. Today’s tech market is faster and more disruptive than ever, with increasingly shorter life cycles for companies, triggering the eternal “Do we have the right strategy?”.
Chinese consumer brand Li Ning made a strategy shift that did NOT work out. Once one of the most prominent consumer brands in China and a rising star, Li Ning is today struggling with slowing sales. The reason? The wrong strategy shift. Li Ning was successful as a “value for money brand”, cool with street cred and at the right price for millions of Chinese looking for casual wear. The strategy shift to be a premium brand, at a higher price, to compete with Western brands like Nike and Adidas was a flop. At a higher price, it seems consumers would rather buy the Western brand, while Li Ning left the market wide open for new Chinese value for money competitors. Today, as an analyst noted, there is not a strategic need for Li Ning in the market, they are stuck in the middle, neither cheap nor differentiated.
Does your company fit a strategic need in the market? When you sit there, confused with your struggling startup in a dynamic market, looking for solutions to survive and prosper, urging for a fresh strategy, how should you think? Here are five suggested principles for strategy shift to consider before you go ahead.
1. Don’t fix what works. The heavy metal band AC/DC have successfully run their business for decades with an efficient rock’n’roll concept that need no changes.
2.There are no silver bullets. Ask yourself, is the solution a new brilliant strategy, or simply to pull yourself up, work harder and sell more? Persistence is the golden rule of entrepreneurship.
3. Look for signals, not noise. It’s easy to fall for new fads in the market, but you cannot change every day. Is the shift a new mobile revolution happening, consider to move with it.
4. Do not change for the sake of change. In innovative startups, there is an abundance of ideas and wishes to change just because it’s new, exciting and fun. The old can be boring. But, resist the temptation.
5. The strategic need. Is there a real, unserved market segment for your product? Has the market changed, new competitors entered or any other substantial changes occurred? If yes, review your strategy.
The last point is important. I’m working with a SaaS company that was at first filling a real gap in the market, an affordable online ad tool for the mid market, when a major partner soon started offering a similar product for free. The strategic need for my company was gone, and we had to move to another product and strategy. There was no choice really.
Also, when you start a new company, your investors will like to know what strategic need in the market you address. Make it simple. When I started my first venture-backed company Fondex, a mutual fund marketplace in 1998, we wanted to fill the strategic need for “all funds, in one place”, which did not exist at the time but was made possible with the Internet. The company was successful and exited at a good multiple, and the strategic need was soon fulfilled by new online financial players offering full-service products (including funds). We would not have survived as a standalone company.
Sometimes external market dynamics changes the strategic need for your product, and you have to adopt, at other times a strategy or new product will change a whole market as Google did with Adwords, creating completely new market opportunities. Forcing strategy changes for others. It’s an ever changing game.
Image: Andy Grove, Robert Noyce and Gordon Moore in 1978. Intel.