The two reasons why tech companies fail (Part 1)

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The two reasons why tech companies fail (Part 1)

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Though the content of this post applies universally to any business and industry, the lessons served for technology firms are pointed ones. Fast-paced, capital-guzzling and exponentially expanding, the tech industry is characterized by perilously short product life cycles and even shorter market attention spans. A misstep in another industry can often lead to a business fatality in the technology sector.

There are only two reasons for tech failures

Consider every situation that comes to mind – fallout among founders, lack of funding, price slashing by a large competitor, patent claims, sales turnover, customer churn, an economic downturn, or dozens of others. These, and anything else you can think of, can be grouped under two headings:

  1. Inferior strategy
  2. Inferior implementation

I’ve yet to find an exception – a third category. Viewing every situation as an issue of either inferior strategy or inferior implementation makes for clear-headed analysis, identification of root causes and, importantly, effective solutions.

A word about “inferior”

Inferior is a relative term that implies a ranking compared to something else – as in “inferior to …”. The implied comparator here is competition.

Buyers have choice. The enabler of choice is competition.

As experienced strategists know, development of line-of-sight strategies that involve only the company and its potential customers is flawed. For better or worse, competitors level the playing field – and often dominate it.

Viewing strategy through a competitive lens

Thirty years after it was first published, Michael Porter’s Competitive Advantage is still the gold standard. The jewel in its crown is Porter’s simple premise: formulating strategy (and its implementation) cannot be done in isolation from competition. The picnic is always a party of three: Company, Customer and Competitor.

The book’s core thesis (At 536 pages it is a daunting read in a 140-character world – yet one I highly recommend) is the simplicity of a company’s three strategic choices – vis a vis those available to competitors – that it describes:

  1. Cost leadership: being the low-cost leader in an industry of segment.
  2. Broad market differentiation: being unique in buyer-valued ways that competitors cannot easily match.
  3. Focus upon a market niche: serving a niche so well that it is not profitable for either competitive cost leaders or differentiators to pursue. (Of Porter’s three competitive strategies this is the difficult one to understand. To help, for “cost” niche, think of a retailer like Marshalls. For differentiator niche, think of an online A/V specialty retailer like Crutchfield.)

The overarching learning from my experience helping dozens of tech firms define or refine their strategies is this: strategies developed in the context of the 3 Cs – Company, Customer, Competitor – yield more effective and durable go-to-market plans.

Competitive advantage coupled with marketing strategy

This is where – at least for someone like me – a fine Bordeaux is paired with an exquisitely prepared chateaubriand. Like the meal, this is not easy to do. It requires subtlety, mastery of the craft, and a fine appreciation for the quality of ingredients and preparation that goes into it.

A sound and durable marketing strategy cannot be developed without regard for competition. Blending the two frameworks together – Porter’s and marketing – serves as the foundation for creating the kind of competitive moat that Warren Buffett searches for in his investment targets.

Strategies born of thoughtful and rigorous consideration of the 3 Cs – Company, Customers, Competitors – are far more likely to be superior strategies.

Strategy coupled with implementation

This is a topic that is rich enough in detail and texture to be handled in the next post – Part 2.

Bottom Line

No approach to developing strategy for a tech business is bullet proof. Yet, firms which from the get-go develop their strategies with a vigorous and in-depth assessment of the competitive landscape are the ones who view the “also-rans’ in their rear view mirrors.

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Written by Michael

Michael Douglas has held senior positions in sales, marketing and general management since 1980, and spent 20 years at Sun Microsystems, most recently as VP, Global Marketing. His experience includes start-ups, mid-market and enterprises. He's currently VP Enterprise Go-to-Market for NVIDIA.

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