Start-up Strategies
A Systematic Approach to Analyze Business Strategies
Introduction
A strategy should help to win customers, markets or displace competitors. This should be achieved by building competitive advantages. Strategies include long-term, future-oriented decisions. Defining a “good” strategy is very difficult because need to align the goal of the strategy. For example, a strategy is to create competitive advantages, acquire customers and markets or displace competitors. There are three actors in determining competitive advantage.
Customers compare the price / performance ratio of the products in the market. A company has a competitive advantage in offering a product that will bring more value to the customer than comparable products. This difference in performance must also be perceived by the customer and assessed as significant.
Competitors try to destroy your competitive advantages by imitating competitive advantages or they enhance the price / performance ratio.
Companies: The activities of thecompetitors force the company to defend or renew his competitive advantage. These are only useful if the customer want to pay for it. This added value must exceed the associated costs in the long term.
A competitive advantage is a perceived feature from the customer’s view. Besides the features, the cost position is an important competitive feature. Another feature is the duration of the competitive advantage. The most important sources of competitive advantages are special product quality, product image, global presence, a high price-performance ratio or even high competencies.
Leading indicators of success are potential for success. Success potentials can be divided into external and internal success potentials. External success potential derives directly from the desired competitive advantages. They are to be generated by a market-oriented strategy to achieve a competitive position. Internal success potentials describe the costs and performance potential of the company. They should be extended by measures to design the resource base.
All decisions to extend and maintain potential for success will affect the subsequent success over time. This requires a long period of time, but usually it can not be shortened.
Strategy Analysis
Strategies are developed on the basis of strategic analysis. They determine the strategic situation and identify the change in the company, in the business environment and in comparison to competitors.
The following strategic analysis can be carried out:
Environmental Analysis
The corporate environment consists of a variety of factors that are often interdependent and change over time. One change can affect several other factors, so this analysis is very complex. Therefore, the environment is divided into five segments (political, economical, social, technological, environmental and legal analysis).
Political and legal include state-defined framework conditions. These are commitments for companies. They include the economic and employment policies as well the labor law.
Economic environmental factors include national and international economic development and have a direct influence on the sales and procurement market. Important factors are economic development, interest rates, inflation rates, exchange rates, employment in the labor market. The importance of the economic environment determines the distribution of investment and employment.
Social environmental factors include the values, attitudes and norms of society. The company is in a relationship with employees, customers and suppliers as members of the society.
Technological environmental factors have an increasing speed of technology development. It can be an opportunity and a risk for a business. The change can lead to completely different business processes.
To analyze the corporate environment, effective influencing factors in these segments are determined. The segments and factors must be continuously expanded and adjusted.
Industry Analysis
The industry analysis examines the attractiveness and dynamics of an industry. Industry performance is explained by Bain’s structure-conduct-performance paradigm. The performance of a company depends on the industry structure, which determines the behavior of companies. Which industry structures are attractive is explained by the forms of microeconomic.
Offer monopoly: The service is only offered by a company. In a monopoly high prices with little advertising and low service can be implemented.
Offer oligopoly: A small number of companies offer a largely similar product in a oligopol. Companies can differentiate themselves by cost, service or quality.
Polypol: A large number of competitors offer comparable services for many customers.
To derive a structure within an industry, the structure of the industry should be known. An analysis should determine the criteria that have an impact on the entire industry. The common parameters are called competitive forces. There are five different competitive forces:
Bargaining power of suppliers: The more intense of the bargaining power of suppliers, the lower the profit margin of the company.
Bargaining power of the customers: The bargaining power and thus the power position of the customers is particularly high if the supplier strength in favor of the customers is pronounced.
Danger of substitution goods: Indicates the threat that goods can be replaced by another industry.
Threat of new competition: In addition to existing competitors, new competitors may be added. The attractiveness increases due high entry barriers.
Rivalry between existing competitors: With low capacity utilization, different products in one industry, high time spent changing products, high exit barriers from the industry and a harsh industry culture, the attractiveness of an industry is declining.
The strength of the five competitive forces determine the average profitability of an industry. Ultimately, attractiveness is reflected in the profitability of an industry.
Customer Analysis
The identification of existing and future customer requests and the long-term commitment of valuable customers are a prerequisite for a successful strategy. After the frequency of the purchase, a distinction is made between existing customers, who repeatedly purchase a service and potential customers, who have not yet purchased but it is possible that they purchase the product.
In addition, the customer value can be determined, which should show the company the profitable customers. To analyze the customer value, various methods are available.
ABC analysis
In an ABC analysis, customers are divided into three groups.
A-customers: They are very profitable. As a rule, 20% of customers generate two thirds of sales.
B-customers: 35% of the customers generate about 30% of the turnover
C customers: The remaining 45% of customers contribute 5% to sales.
By dividing them into different groups the attention can be directed to the customers with the highest turnover.
Customer income statement
Costs and revenues to a customer are compared and a customer contribution is determined. From this you can create a ranking list of the most profitable customers. Further details such as reference or growth customer should be added to other factors.
In the next steps of the customer analysis is to clarify how customers can be permanently attached to the company. The duration of the bounding often depends on the customer satisfaction, so it has to be measured. There are qualitative and quantitative methods. Qualitative methods inform about the satisfaction of the customer. Complaints describe the dissatisfaction of customers. In addition, all events that influence the satisfaction of the customer can be recorded and assessed from his perspective. You can alsp introduce your product to test customers and then describe their feelings, thoughts and experiences. Quantitative methods measure the customer satisfaction. Frequently, customer surveys or questionnaires are used.
Competitor analysis
In the long run, a company can only survive if it fulfill the needs of its customers better than its competitors. The target of the competition analysis is to assess the competitors strategies and their chances of success, as well as to predict their reaction to the industry. The competitors can distinguish between current, new and potential competitors.
Current competitors are existing market participants. The substitutability can be measured by the cross-price elasticity of demand. It indicates how the percentage change in the price of a product has one percentage effect on the demand for a good.New competitors have only just entered the market. Here is an increased competition and lower earnings are to be expected. You should use indicators to estimate goals of the competitors. In addition, the cooperation behavior, conflict behavior, evasive behavior and adaptation behavior of the competitor should be analyzed. The analysis of the strengths and weaknesses of the competitor show its potential and an understanding. Moreover its values and mission should be developed in order to understand his decisions.
Company analysis
It should be developed an overall impression of the company. The examination criteria correspond to those of the competition analysis.
SWOT analysis
The results of the previous analyzes going in the S (strength) W (weakness) O (opportunities) T (treats) analysis as chances and opportunities.
This is done in the following steps
1. Summary of opportunities and risks.The previous analyzes summarize opportunities and risks.
2. Summary of strengths and weaknesses. The previous analyzes summarize strengths and weaknesses.
3. Prioritization
The summaries are being sequenced to focus on essentials.
4. Comparison of opportunities and risks to weaknesses and strengths
5. Standard strategies are derived from the portfolio. The rule is: “emphasize strengths avoid weaknesses”. There are now four fields with the most important strategic action requirements.
The following fields have been created:
S-O strategy: Represents the ideal case. The company should expand its competitive position.
W-O strategy: Represents the situation of eliminating or eliminating internal weaknesses.
S-T strategy: Use its strengths to protect against risks.
W-T strategy: In order to avoid a threatened existence, the weaknesses should be reduced.
An advantage of the SWOT analysis is the systematic overview of strategically relevant factors A weakness is the subjective assessment of the ranking.
Example of a SWOT-analysis
Below is a SWOT analysis for our start-up. In our start-up, we built an app using augmented reality glasses to support the cooks. First, the chef can select a menu and during cooking, he is supported by the glasses. So he knows how to cook any recipe without knowing a recipe. You can read the detailed description of our start-up in this article.
Results of the SWOT analysis
S-O strategies: In order to further develop the time advantage and introduce it to the customers, it must be further developed. In addition, the glasses can be used as a central element of the kitchen in cooperation with kitchen appliance manufacturers. This gives us a more strong reference partners.
W-O strategies: To bring the technology closer to the customer, it is a great way to visit it and show them the glasses. In addition, we can develop a app on a TV to get a new market and more popularity.
S-T strategies: Due to the low purchasing power of the industry and the strong competition, a price analysis must be made. This have to determine what price the customers would pay for the glasses.
W-T strategies: New customers should be won to survive in the market.
