In the case study ‘Avatech’ you encountered an entrepreneurial company that had to choose between four distinct commercialization strategies. By what general principles should companies choose between such strategic choices? How do strategic and financial choices interact?
Avatech have four different distinct commercialisation strategies including an intellectual property strategy, a value chain strategy, a disruption strategy and an architecture strategy if mapped on to the four strategies from Gans, Stern and Wu (2016). I would agree with the methodology proposed by Gans, Stern and Wu (2016), which suggest that choice matters at an early stage as firstly, it is impossible to pursue all strategies as many are path dependent and also they usually require a commitment of resources. This is in contrasts to the lean start-up method by Blank (2012) which suggests that the initial business plan is of limited importance as one must engage with customer and respond iteratively to customer feedback until a viable strategy is found. This ignores the fact that there may be multiple viable strategies for a firm as there is for Avatech. It is then important for the founders to evaluate what strategy best aligns with their core competencies and can make best use of their resources to generate a strategic advantage. Once this is done, then it is true as stated by Blank (2013), that this will be an untested hypothesis which will require experimentation and a leap of faith to validate once it meets the customer.
It is important to founders to think about their core competencies as this could shape their own position in the firm in the future. For instance, as outlined by Wasserman (2008), founders are unlikely to maintain their position as CEO, as the firm grows and the requirements of the role diversifies unless they can demonstrate that they are indeed, the best candidate for the role. If founders can take strategic decisions early on to steer their company towards the direction that will increase their chances of being both king and rich, probably every entrepreneurs dream. Although, this is not always possible and if founders truly want success they must be willing to adapt and iterate with the demands of the customer. It is then a matter of destiny, as it was always, whether they can actually reach the position of being a rich king.
If the founder finds out it is unlikely that they are going to reach the rare success of Jeff Bezos or Richard Branson as a rich king, then they are still left with a strategic decision to make. Do they seek to maintain control and be king but lose out on financial returns or do they maximise financial returns by sacrificing their position as the decision maker? If the founder seeks financial returns and growth, they will need funding. This will require large investments from investors who will inevitably slowly take control of the arena, slowly taking control of the board and voting rights. However, often in this case, founders will often end up with a more valuable, but smaller, slice of the pie. On the other hand, if founders seek control then they will normally have to sacrifice growth and financial returns as growth usually requires low profit margins to attract customers and many cash expenditures which translates to an extremely high burn rate (Da Rin and Hellmann, 2017). For instance, in the case of Avatech, if Brint desires to maintain control he is left with not many options. An architecture strategy requires strong investment in control, building a market-changing technological product which will not be possible without large investment from investors who demand control. Building a Ski platform requires dominating the market as it is characterised by ‘winner takes all’ network externalities, which can only really happen by a low profit margin and capital expenditures to attract customers. A value chain strategy is feasible if Avatech can use revenues from selling to retailers to continually adapt and iterate their product. Furthermore, a disruption strategy is also feasible for the same reasons, but in this case revenues will be directly from customers and Avatech will need to continually respond to their feedback.
Consequently, entrepreneurs need to determine an initial direction or strategy that aligns with their motivations and competencies. They then need to take a leap of faith, experiment and execute and respond to feedback, pivoting to success when necessary.
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