For decades, most innovative projects brought to market were driven by a vision-based business strategy. That vision was the one that served as a compass and the strategy that was defined to carry it out was known as deliberate strategy . This implied that the initial vision is the one that marks the course of the business strategy, to achieve those objectives set at the beginning of the project. But, the big problem with the deliberate strategy is that almost at the beginning of the project a lot of questions had to be answered…
And of course,… with just one idea , who is capable of answering this?:
- Is the technology viable?
- what applications does it have?
- who is the target customer ?
- what is the optimal business model ?
- How do I get to my client?
- Will they use the product or service?
- Will they pay to use it?
It’s like trying to play poker without seeing the cards…
In the traditional way of doing things, it is in that initial phase when we dared to make a business plan responding to the future of the company from its inception to 5 years ahead. Market studies, like any scientific theory, are based on a series of hypotheses. It is these initial hypotheses that will direct the company’s future strategy. It is precisely there, where the real danger of a deliberate strategy lies : What probability is there that the initial business hypotheses are correct when our knowledge of market dynamics is negligible? The trend when entering new businesses is:
- Start with the wrong strategy.
- Moving to the next investment level too soon.
The statistics of the last 40 years in the innovative entrepreneurship sector are clear: 95% of business plans fail in their first approach to the market. 90% of innovative projects fail in the first 3 years of life and of the remaining 10% that succeed, almost 3 quarters launch a product on the market that has little to do with the initial business idea.
In the following graph we represent the amounts invested according to the status of the project. As we see in the case of deliberate strategy, the amounts invested when the knowledge of the market is less, are greater, therefore the probability of spending the money in the wrong direction is also greater.
While in the emerging strategy chart, the investments at the beginning, during the market knowledge and experimentation phase, the money spent is less and the heavy investment is made when the level of market knowledge is much higher. In this case, the probability that the investment is correct is much greater and hence this strategy gives better results than the traditional business strategy.
The emerging strategy applied to the business model .
The business model of a company is, in essence, the driving force behind its strategy. As we have said before, we must be aware that at the beginning of a new innovative project the strategy we choose will not be optimal. Like a new scientific theory, it will be based on a series of assumptions . It is precisely this, the base from which the emerging strategy starts . We will design the initial strategy as a starting point and from it we prepare, like a scientist who is about to prove the truth of his theory, a series of experiments aimed at verifying the viability of the strategy. There are many examples of emerging strategies, such as Davalor Salud, a startup in the field of optometry.
These experiments can be in the technical, marketing, commercial or strategic field. The goal of the experiments is to quickly find out what is wrong with the strategy while spending as few resources as possible. Thus, the focus of the project is on LEARNING what works as soon as possible through systematic experimentation of the most risky points of the strategy.
With each experiment, we discover new information that allows us to gradually modify the strategy, until obtaining the optimal strategy in an emergent strategy process . As we can see in the graph over time, the different experiments allow us to learn from the market what is necessary to convert our starting hypotheses into facts. This allows redirecting the strategy towards a different one, reducing uncertainty throughout the construction of the business and obtaining validated learning . These work philosophy have a lot in common with the Lean Startup methodology , which we use at Scrollthenews.
In short, what benefits do you get from applying an emerging strategy to the development of an innovative project?
- Learn more and better about the market, your customers and your product / service. You do the market study yourself .
- The total knowledge generated is much greater.
- Reduces the stress of the entrepreneur.
- Reduce the risk associated with the project.
- Reduce and optimize investment. It is only invested when it is really needed, as validated knowledge is acquired.
- The project review interval is much greater, that is, as it is an iterative process , the project is reviewed as a whole, much more frequently than with the traditional method.
In the next post on emerging strategy , I will explain in more detail all these advantages of using emerging strategy compared to the traditional method of launching projects to the market (delivered strategy).