Business Strategy 101: Definition, Types, and Implementation

What is a Business Strategy?

A business strategy is a comprehensive set of principles and actions that outline how your company will achieve its long-term goals and objectives. By creating your business strategy, you are making deliberate choices about:

• How do you compete in your market?
• How do we prioritize the allocation of resources?
• What value do you create for customers?
• How do you retain your competitive advantage?

A well-defined business strategy outlines:

• What is your target audience?
• Which problems will be addressed by your product?
• What is the unique value proposition that your company will deliver to customers?

If all of these sound familiar, they are the basic building blocks in the Lean Canvas.

Why is it important to understand business value creation?

Value creation is the cornerstone of your strategic plan. It means having happy customers, driving revenue, and growing your business. Understanding how you create value involves deeply internalizing the customers’ problems and underserved needs.

Business Strategy vs Business Plan vs Business Model

Business strategy, business plan, and business model are tightly connected concepts critical for a startup's success. Although you might see them used interchangeably, they have clear distinctions.

Focus

The business strategy focuses on achieving long-term goals and competitive positioning, while the business plan and model are more operational.

Scope

The business strategy is broad in scope and guides the organization's decision-making. On the other hand, the business plan is detailed and comprehensive, aiming to cover all aspects of the business. The business model focuses explicitly on value creation and revenue generation mechanisms.

Use Cases

• Business strategy: used by business leaders to steer the company in the right direction.
• Business plan: a must-have component when securing funding.
• Business model: applicable in multiple scenarios where the business’s financial operations must be communicated.

What are the 5 components of business strategies?

A business strategy may sound very sophisticated, but all business strategies boil down to five key ingredients. They might be mixed and matched in millions of combinations, but knowing there are just five things to consider is encouraging.

The most straightforward types of business strategy focus on just one of them, and depending on the product and the marketing you are using, this might be enough to win.

1. Cost

This component refers to how a business manages its expenses and pricing strategy to achieve competitive advantage. It includes a unit economics model that explains product costs, operational costs, and the pricing model that the company uses to attract customers.

Companies that focus on cost as a business strategy usually aim to offer the cheapest product in their category. This strategy is very popular for commoditized products like cloud services, utilities, or wholesale businesses. Low-cost flight companies like Ryanair or Southwest attract price-sensitive customer segments and displace traditional airline companies by offering the lowest prices at the expense of quality.

2. Quality

Quality here refers to the standard or grade of the business's product. It includes durability, performance, reliability, customer service, and the overall experience.

There are multiple types of quality strategies. Some companies rely on high-quality products at a premium price, while others reduce the quality to target a broader customer segment through lower prices.

3. Distribution

The company's methods and channels to deliver its products and services define its distribution strategy. This includes logistics, supply chain management, retail partnerships, affiliate marketing, and other strategies.

Effective distribution strategies offer and deliver the product when and where the customer needs it. For example, Amazon’s strategy uses an extensive logistic network, allowing rapid delivery of a vast variety of products.

4. Technology

Technology strategies consist of tools, platforms, and systems a business uses to create and deliver value through its products and services. These strategies could include customer-facing technologies or technologies that are part of the company's business processes.

Uber is an interesting example of introducing product innovation through a technology business strategy. It introduced a mobile application that drivers and riders can use to initiate and conduct business transactions. This strategy contrasts with traditional taxi services that use a phone to book a cab through an operator. Uber's specific technology strategy unlocked exponential growth opportunities.

5. Intellectual property (IP)

Intellectual property includes patents, trademarks, copyrights, and trade secrets to protect a company’s innovation, brands, and creative works.

Pharmaceutical companies rely heavily on IP protection to justify their investments in new drugs, which are often capital-intensive and require significant development time.

Creating a balanced business strategy is a delicate act of understanding the market's underserved needs and negotiating the trade-offs between the different strategy components.

Examples

Fender vs. Gibson

I started playing bass guitar a few years ago, and of course, I am very interested in the topic. Two of the most influential guitar manufacturers have distinct approaches to IP strategies.

• Fender is very relaxed about protecting its IPs. Multiple other manufacturers have copied the specific body shape of their products. Their rationale is that whoever buys a copycat product will immediately start to wonder what the real deal is like and will eventually buy an original Fender.
• Gibson, on the other hand, strictly protects its iconic body shape, which makes it immediately recognizable and gives its product a premium look. This is a strong differentiation strategy for Gibson’s products.

Both companies have been incredibly successful with these two completely opposing strategies. This demonstrates that there is no “one correct strategy,” and finding the one that works best for you depends on your customers, competitors, and the product you are building.

Tesla vs. GM (and every other traditional car manufacturer)

Tesla has been the biggest disruptor of the car industry in recent decades. To achieve that, they used a combination of product strategies:

• Cost
  Tesla uses technologies like batteries that make its product expensive, preventing it from offering the cheapest car immediately in a head-to-head comparison. However, they repositioned their strategy to compare the total cost of ownership of a car, and this is where Tesla excels in front of other competitors due to governmental aids, cheaper energy, and lower maintenance costs, which compensate for the higher upfront investment.

• Distribution
  As opposed to traditional car manufacturers who rely on dealers to sell their cars, Tesla sells directly to customers. This not only brings down the cost but also allows the company to manage the whole customer experience—not just driving the car but also how you buy it, service it, etc. Speaking of servicing, we slide into the next strategy.

• Quality
  The majority of car dealership revenue comes from regular maintenance and post-purchase services. Electric cars naturally have lower maintenance needs, which makes them unattractive to dealers.

By selling directly to customers, Tesla didn’t have to comply with the dealers' needs, which empowered them to deliver a better customer experience.

Of course, Tesla pushed hard on the other two aspects—technology and IP—to develop and protect the innovative technology products included in its cars.

Apple’s iOS vs. Google’s Android

iOS and Android are the two dominating smartphone operating systems. It’s interesting to dive into their business strategies to become market leaders.

Apple’s strategy bets on creating a closed ecosystem in which the company owns the full customer experience, from entering the shop to how third-party developers' applications work. This provides a premium customer experience and extreme product quality, which justifies the premium prices of their products.

On the other hand, Android is open source and has been adopted by multiple manufacturers for its smartphones. Through that vast network of partners, Android is bundled with a huge variety of products that cater to price-sensitive customers and those looking for premium products. The openness of the Android ecosystem allows vendors to adapt it to their own needs and build upon the basic functionality, which creates a healthy competitive environment.

How do you implement your strategy successfully?

1. Define clear goals and KPIs

To have a successful business strategy, you first need to define what you want to achieve—what success means to you and how you will measure it. These are your business's goals, objectives, or key performance indicators (KPIs).

2. Understand your strengths and weaknesses

Conduct a SWOT analysis for your business and competitors and point you to the right mix of strategies to win. Are you going head-to-head with existing market leaders? What niche market will you target first that you are in the best position to win? Many such questions can be answered by conducting market research (including not direct competitors).

3. Establish internal expectations and responsibilities

Set clear roles and responsibilities within your organization that support the business strategy. Each team and individual needs to know how they contribute to the company’s success.

4. Plan and allocate resources strategically

Make sure that teams and individuals are empowered to be responsible. Responsibility is not just giving orders. It’s ensuring the other person is able to respond, meaning they have everything needed to do their job. This is what resource allocation is all about.

5. Execute the plan and monitor it continuously

Are we there yet? That nagging question should have a reliable answer at any point in time.

How are you performing according to the plan? Where do you need to adjust? Proper metrics that are always observable should provide clear answers to these questions.

6. Make iterations if necessary

Nailing an effective business strategy rarely happens from the first attempt. Make sure you stay open to feedback from the market and can respond to that feedback by adjusting the business strategy and its execution.

How can Icanpreneur help you build a business strategy?

Icanpreneur offers a step-by-step guide to validating your business idea through customer problem interviews. It provides all the needed context, examples, and tooling to:

• Build your Lean Canvas, which contains the building blocks of your product strategy
• Create a hypothesis to express the underlying assumptions of your idea
• Conduct customer interviews to validate your assumptions and develop a business strategy with real-world data.