Some weeks you need to wind back the clock to business school academics from the 1980’s in order to understand startup challenges of the present. Bear with me, we’re going to land this plane! Famed Harvard Business School professor Michael Porter is well known for his book Competitive Strategy and the “Five Forces” analysis. His writing is just as relevant today in analyzing modern business strategy & competition across industries. Oft-cited, stolen, repurposed, and even thrown into “original” blog posts…for decades now!

Anyway, this isn’t an academic piece but we’ve got to lay some groundwork before we get to the good stuff. Of note for this post is Chapter 2 where Porter outlines generic competitive strategies. Here’s a quick summary:

• Businesses can pursue three different types of generic competitive strategies in a given industry
  1. Overall Cost Leadership
  2. Differentiation
  3. Focus 
• Overall Cost Leadership is a strategy where you pursue a superior cost structure relative to your industry peers which helps defend against competition. You can do more with less.
• Differentiation is the perception of a unique industry offering through brand, technology, features, customer service, etc. which engenders brand loyalty and helps defend against competition. You are a unique snowflake.
• Focus is the pursuit of a more specific market segment within an industry and doing it *very well* via generic strategy #1, #2, or a combination. You are Rolls Royce.

For those more visually inclined, here’s the matrix snapshot from Wikipedia:

Source: Wikipedia

Ok, so that all makes sense. However, Porter makes one very large assumption that many reading this will know to be a bit of a problem. How do we know everyone in the company is aligned with the same strategy?!? What if there’s internal conflict about which strategy to pursue? Or, if culturally, they’re at odds.

In startups, like in life, conflict is everywhere. Here’s an example:

Pretend there’s a growing startup that operates in a very competitive industry. Not only is the industry competitive but the war for talent across tech is raging and it’s really hard to hire. Resources are scarce and customers, with all the choice available to them, are demanding.

On the engineering side of the house they’re trying to scale as fast as they can but are carefully measuring the ROI of hours spent, output per sprint, and overall allocation of resources. They’re trying to ship their roadmap and use their engineering talent most efficiently.

Over by the ping pong tables the commercial org is trying to figure out how they’ll sell this product, bugs and all, to the Fortune 500. Airbnb, Google, and Facebook across town have questions about their capabilities. Walmart down in Bentonville needs a security review. Amazon up in Seattle has a really long intake form. These customers all have a lot of budget but each have very different customized needs from approved vendors.

Basically, it’s not too far of a reach to say that many Lean Startup driven engineering orgs will pursue a Cost Leadership strategy out of the necessity of resource constraints. Commercial orgs in a growth stage startup, on the other hand, will be pulled toward a Differentiation strategy in order to match the customized needs of their deepest pocketed prospects. There’s quotas to hit!

You see the conflict now?

In order to be successful, at least by Michael Porter’s view, companies will need to align teams under one strategy or risk being stuck in the middle where the opportunity for profits is the least.

Commercial teams need to surface the needs that match the *most* prospects and customers. Engineering teams need to find ways to build features and customization that allow them to preserve their ROI mindset while still shipping a competitive roadmap. The communication, alignment, and infighting never ends!

For what it’s worth, a differentiated strategy sounds like a more fun workplace. Or I guess you could stay in the mid market? Unless that’s in the middle of your industry’s smiling curve.. 😁