The notoriously analytical entrepreneur and angel investor Chris Dixon outlined a thesis for understanding market incumbents*. I recommend reading it, although I came away with the conclusion that specific decision making strategies are unique to each startup.
Here's a highlight of the points I found most interesting:
- Being on an incumbent's strategic roadmap is a double-edged sword. On the one hand, they might copy what you build or acquire a competitor. On the other hand, if you build a valuable asset you could sell your company the acquirer at a "strategic premium."
- Incumbents that don't yet have a successful business model (e.g. Twitter) might think they have a strategy, but expect it to change as they figure out their business model. An incumbent without a successful business model is like a drunk person firing an Uzi around the room.
- Try to focus on features/technologies that the incumbents aren't good at. Facebook is good at social and social-related (hard-core) technology. Thus far they've kept their features at the "utility level" an haven't built non-utility features (e.g. games, virtual goods, game mechanics). Google thus far has been weak at social and Apple has been weak at web services.
- Take advantage of incumbents' entrenched marketing positioning. The masses think of Twitter as a place to share trivial things like what you had for lunch (even if most power users don't use it this way) and Facebook as a place to talk to friends. They are probably stuck with this positioning. Normals generally think of each website as having one primary use case so if you can carve out a new use case you can distinguish yourself.
Chris spends a few paragraphs discussing details about acquisition and partnership philosophy of incumbents. I believe that effort is an ongoing marketing issue. For startups we're better off focusing limited resources on our clients first and other businesses strategies later (or never). As long as we're guessing at other company road maps, we're not focusing on our own, and will be pay dearly when we guess wrong. We can try to predict changing winds or start rowing towards an island. I say row first, and throw up a spinnaker if the winds are at your back.
I'll leave off with my comment to Chris' post.
After reading several thousand posts from a hundred or two really sharp successful entrepreneurs and investors, a quote comes to mind.
"Unfortunately no one can be told what the Matrix is, you have to see it for yourself" -Morpheus
All the advice in the world is meaningless outside of the context of a particular business. On the other hand relationships with entrepreneurs, proto-founders and investors, and deep market knowledge are well worth investing time into.
An exit strategy is only as viable as the duration of the opportunity pursued.
*= Last year I was alerted to Chris Dixon's main blog after being referred to it by Fred Wilson. A few months later I dug through Chris' writing and added my two cents in the peanut gallery (comments). My regular reading was triggered by a splash post highlighting Chris' favorite posts of the year and why he thought each was important. I went hog wild, read and rated them all at once while out walking. Problogger Darren Rowse was right about the effectiveness of such a guide.
I'm not certain why Chris forked this startup content from his own domain to Posterous, beyond that he's an investor. I'd prefer he dual post as it's easier to follow single origin sources.