3 Tenets: Choosing a Strategy

November 2, 2012

”Strategy is all about commitment. If what you're doing isn't irrevocable, then you don't have a strategy -- because anyone can do it... I've always wanted to treat life like I was an invading army and there was no turning back. --Troy Tyler

 Bill Gates immortalized the ‘sell and then build’ mantra, by selling a version of BASIC to Altair before it was even written. Then Gates worked tirelessly with Paul Allen and Monte Davidoff to develop it and Microsoft was born.  Steve Jobs at Apple was also famous for changing the digital landscape forever with his innovative solutions because his belief was that if ‘you build it they will come’. Two scions of the computer age, both wildly successful with polar opposite approaches. What works?

Many factors will affect where you will be in the spectrum of approaches.  Number one: is your product revolutionary or evolutionary?  Do you have a first mover advantage on the kind of product you are bringing to market?  If your market research prove that your product is a game-changer and an outlier in the solution space in your target market, you are bringing to market a revolutionary product that can afford you more of a choice of an execution strategy.  The more innovative the product, the longer the time you can choose to bootstrap while you teach yourself how to sell the product most effectively.  Evolutionary products are harder to bootstrap for too long as there are existing competitive pressures and often times the hurdles to market entry are low. 

For the rest of this article, I focus on factors affecting the choice of execution strategy for a revolutionary product.

Risk Appetite

If you are impatient and have a high risk threshold, you will want to raise more funds early so that you have the financial wiggle room to learn from your mistakes and yet make forward progress.  There is the possibility that the higher risks will yield higher returns in the long run.  The bootstrapping strategy, on the other hand, often requires patience and takes a lot more time to capture the full value of your solution.  It is also better for those with a lower risk threshold because it allows you to mitigate your execution and market risks as you go along, allowing you time to reassess your situation on a periodic basis.  Don’t be influenced by what pundits say the ‘right’ thing to do is.  Your risk appetite is what it is.  Whichever end of the spectrum you choose, always be honest with yourself and look hard at why you are making the choices you are making.  As an example, if you recognize that your lack of a risk appetite is holding you back from the strategy that is more beneficial for the growth of your business, then I would advise that you find a partner who will complement you.

Market Validation

There is nothing more powerful than paying customers saying that they are excited about your product and the value it brings.  If you have this kind of market validation early in your business cycle, you should make heavy investments early in areas necessary to continue innovating and bringing a complete product to market.  For tech firms, it is clearly in human resources.  For other types of businesses, it might be machinery or something I have not considered. There is value in keeping the customers engaged with your product and have their excitement continue as you can now afford to introduce new features to your product on a regular basis.  This will help with creating an early, loyal and installed customer base that become excellent references for the late adopters for your product.  If this market validation is slow in coming, it is a smart business move to bootstrap until you have learnt enough about selling your product. 

Financial Efficiency

How good are you with your cash management?  You need not look further beyond your personal financial planning to have a gauge of your cash management skills.  If you are confident in being able to establish good cash accumulating strategies, then bootstrapping is a very viable strategy for your business, provided that all aforementioned conditions are also met. If you know that you are not confident about your cash management, but have strong convictions about your product, then raise money early and build an execution team around you while you chase your passions. 

No one can give you a fool-proof prescription on what to do for your success.  There are several indigenous factors that will define which strategy will work for you.   Whichever path you choose, stick to it, follow through with everything you have and that is how you create a higher likelihood that you will get over to the other side of the chasm of uncertainty. 

--©Copyright 2012 Maheen Hamid


3 Tenets: Getting it Done

April 10, 2012