11 December, 2012
How to position the product and choose a market to enter is very critical for any start-up. Yet many start-ups do not have good market-entry strategies. Some choose markets that are too crowded and competitive. Others enter into markets too small for their product potential.
We can classify market-entry strategies into four types by their positions relative to the incumbents, the major players in the market. The rationale is that the likelihood of success for a product depends on how it can withstand or avoid responses from the incumbents when that product becomes successful and poses a threat to the incumbents.
Frontal strategy positions a product to attack head-on the incumbent, with similar feature sets and the same target segments. This strategy elicits the most severe response, as it challenges the supremacy in the core market of the major player. It is the most risky strategy, most likely to fail, no matter how much resources the challenger commands. Google+ attack on Facebook is an example of such a strategy. It is at best an uphill battle, if not a lost cause, for the "Big G". The only case where frontal strategy works is when the incumbent cannot move fast enough to strike back, a very rare case.
Guerilla strategy is at the other end of the spectrum. This strategy calls for a focus on a niche, to stay below the radar screen. Facebook's original target users were university students, too small to get attention from MySpace, the king of social media at the time. Facebook purposefully chose to focus on universities for two full years, to solidify its position. Eventually, it opened its service to the general public and dethroned MySpace. This proves that, with a good strategy, even a start-up with an initially small focus can become a giant.
Bypass strategy is a strategy that targets an important yet still minor segment of the market. The incumbents will notice this, but it will be too distracting for them to take responsive action. Instagram has been focusing on iOS photo-sharing app, with digital filter features. It did not try to beat Facebook by matching the feature sets, despite its huge popularity. Facebook did not try to copy Instagram's features either. It could not afford to be distracted from building its core platforms. As we all knew, eventually Facebook bought Instagram for a handsome $1 billion (Bt30 billion).
Flanking strategy attacks the incumbent from the side, so to speak. This strategy targets a market segment that is a blind spot of the incumbents. They cannot do much to strike back unless they reverse all their existing positions altogether. LinkedIn is a competitor which Facebook is unlikely to eradicate. In contrast to Facebook's fun and friendly atmosphere, LinkedIn is a serious environment for professionals. It will be very difficult for Facebook to be fun and serious at the same time, hence the unlikely attack on LinkedIn from Facebook.
As the examples above show, market-entry strategies can make or break the start-ups. So think like a military strategist and choose your strategy wisely.
Posted on The Nation