The entrepreneurial mode of strategy-making

How does the entrepreneur form the right strategy for his startup? What guides him and how does he bring his strategy to life? To answer this question, I had to go on quite a search and ended up with two of the great management masterminds, Henry Mintzberg and Peter F. Drucker. To my astonishment, the recent management literature has not provided me with any satisfactory or convincing answers. Fortunately, however, both Mintzberg and Drucker have dealt with these questions more intensively a while ago, so that I was able to find convincing answers to my questions. The following article takes up their thoughts to create an article that I hope you will also find valuable.

Strategic direction and vision

In early-stage startups in particular, strategy development depends on one person - the founder or entrepreneur. The path that the startup takes to become successful depends on the intention of this individual leader. The weal and woe of the startup depends on his decision about the strategic direction and vision. Developing a new strategy is a synthesis process that is most efficiently and effectively carried out by a single person - the entrepreneur. The entrepreneur who will be most successful in identifying and defining a successful strategy is the one who has already gained extensive experience on the subject at hand in the past. Experience is based on repetition, because the right strategic direction and vision of the startup is not based on luck, but on endless experience in a specific context. Success is based on the entrepreneur's deep knowledge of the entrepreneurial context in which he or she operates. Because a clear, imaginable and integrated strategy and strategic vision is based on the inclusion of detailed and specific knowledge of the entrepreneur. It is impossible to translate this type of leadership into a formula. (cf. Mintzberg 1989, p.116-130).

Making strategy 

Effective strategists are constantly on the lookout for changes in the way industries operate in order to identify either business opportunities or the need to adapt their own strategy. Care must be taken not to focus too much on the strategy monitoring. There is a risk that without a certain view from a distance, important changes can be overlooked despite all efforts not to do so. The trick here is to identify only the changes that really matter. And this recognition, in turn, has more to do with the informed intuition of the entrepreneur than with a specific technique or science. Once the strategic direction of the startup was defined, the entrepreneur must bring his strategy to life through what he does and says. Because finally strategy is also the vision for the startup's objectives expressed in words and actions. (cf. Mintzberg 1989, p.116-130).

„4“ entrepreneurial strategies 

According to Peter F. Drucker, there are four entrepreneurial strategies that are clear and distinguishable from one another. Drucker named them exactly as follows:

„

1. Being ”Fustest with the Mostest“;
2. ”Hitting Them Where They Ain‘t“;
3. Finding and occupying a specialized “ecological niche“;
4. Changing the economic characteristics of a product, a market, or an industry.

“

(cf. Drucker 2006, p. 209)

In the following, I will only briefly discuss the aforementioned strategies, which are not mutually exclusive. Basically, it can be said of the strategies mentioned that entrepreneurs often combine these strategies to form a uniform strategy. This also blurs the boundaries between the strategy elements that flow into the overall strategy. So it is not always entirely clear whether we are still dealing with strategy 2 or 4 from the above list. But this is just for clarification. At this point, it is important to know that the overall strategy of a startup can often be a combination of the aforementioned strategies, and that each of these strategies has its own limits and risks that must be taken into account by the entrepreneur and determine their actions in a certain way.

So what characterizes the aforementioned strategies? I will summarize this for each strategy below:

Being „Fustest with the Mostest“

• Considered as the entrepreneurial strategy par excellence.
• Must aim at creating something entirely new, a true “innovation”.
• Especially followed by tech entrepreneurs.
• It’s a moon shot endeavor; if you miss the moon as symbolized target it misses altogether.
• All efforts have to be focused on one clear-cut goal and once the efforts start producing results, the entrepreneur needs to invest resources massively.
• Requires thought and careful analysis; a sudden flash of inspiration that is implemented will not lead to success.
• Aims at market or industry leadership, if not at dominance.
• High risk but highly rewarding if successful.

Hitting them where they ain’t 

• Strategy of “creative imitation” that exploits the success of others.
• As an entrepreneur you wait until somebody else has established an innovation already, but only roughly. 
• Your startup then comes out with what the innovation really should be in order to solve the customers problem and makes him willing to pay for it.
• The objective finally is to have the creative imitation becoming the set standard that is taking over the market.
• Aims at market or industry leadership, if not at dominance.
• This strategy carries less risk, as the market has been already identified by others and the demand has already been created.

Finding and occupying a specialized “ecological niche“

• This strategy aims at control in the sense of obtaining a monopoly in a small area.
• Your goal as an entrepreneur in the ecological niche is to remain anonymous. 
• In the most successful ecological niches, the aim is to be so inconspicuous with your indispensable product that no one will try to compete with you.
• Successful entrepreneurs that follow this strategy have created either a product that is essential to a specific process that the risk of not using it is greater than the cost of the product/service or to offer a specialty skill built around a product or market or around the specialized knowledge of a market.

Changing the economic characteristics of a product, a market, or an industry

• This strategy is not about introducing an innovative product as it’s the case with the entrepreneurial strategies 1-3. This time it’s the strategy itself that’s the innovation.
• The product or service might exist for a while already. But the “new” strategy converts the “old” product or service into a new one.

 (cf. Drucker 2006, p. 207-243).

The risk in the new

It is in the nature of things that ideas on which startups are founded are characterized by uncertainty. At the beginning of the venture, no one will be able to say exactly how and when they will be successful. The probability of success of a truly new idea does exist, but the risk of failure is always there too. But that should not deter anyone from getting started. New ideas must be both uncertain and risky, otherwise they would not be suitable ideas for the future. However, knowing about the possible entrepreneurial strategies can help to gain some orientation and find the right path to the desired success. (cf. Drucker (1) 2006, p. 73-85)

Reference(s)

Drucker, Peter F. (2006): Innovation And Entrepreneurship. Practice and Principles, Neuauflage: 9.5.2006, New York (HarperCollins Publishers). 

Drucker, Peter F. (1) (2006): Die Kunst des Managements, 3. Auflage, Berlin.

Mintzberg, Henry (1989): Inside Our Strange World of Organizations, New York (THE FREE PRESS, A Division of Simon & Schuster Inc.).