Will Traditional Business Strategy Take Us to Mars?
By Jessica Lis
Rethinking Strategy in Nascent Industries
Companies in today’s nascent industries like autonomous vehicles, space tourism, in-space services, quantum computing, commercial drones, and advanced robotics are working to shape the future of humanity, but how will they shape themselves? The conventional rules of strategy may as well not apply. Delivering better value than your competitors becomes impossible when what that value is has not yet been established.
The points of distinctiveness that will become most important to customers will remain unknown for years, even decades in some cases. Competitors are equally unaware of where they should focus their value.
If we take a look at commercial space companies, we see that companies are exploring different types of business models and are focused on developing their technologies. Space tourism companies are focused on trying to get their technology off the ground (pun, intended) before determining long-term target customers and differentiation points. Space resource mining companies are not yet fully committed to any specific celestial bodies or minerals. In-space service companies have not identified a customer niche or committed to one service offering.
SpaceX has a niche market model with a specialized customer segment and clear differentiation points. However, this is just for their launch part of the business. SpaceX’s other activities, like developing an internet satellite constellation, selling tourism trips, and building Starship are not as well differentiated or strategically focused. SpaceX makes it clear that everything they do is to get humans to Mars and while, if successful, that success will distinguish them from early competitors, where value will be for customers is still unclear. Using established parts of a business to generate profit to fund the nascent segments is not a new idea but is pivotal to the success of long-term space companies.
Blue Origin is developing two rockets, engines, a lunar lander, and satellites. They intend to carry payloads for customers, take tourists to space, and develop their own satellite constellation for internet service. It is clear that they are not sure what will be most profitable first. The focus is on developing technology first and finding differentiation later. However, end use-case is an important consideration for technology design so this is a balance companies will need to find.
In the urban air mobility (UAM) market, especially in the passenger carrying air taxi segment, companies are unsure where the most value will be when the market matures and are testing out different business models. Which types of routes will be most lucrative? How many passengers is optimal? Some companies are straddling both the passenger and cargo markets before making a commitment. For example, Joby Aviation and Volocopter are both developing solutions for passenger and cargo. In their early marketing, players attempt to differentiate themselves through range, weight, passenger number, and routes- but none have fully nailed this down as they do not have evidence to determine what will actually drive value for customers yet. These companies have general business models established but the strategy specifics remain up in the air.
In contrast to the traditional study of business strategy, Michael Porter’s five forces- existing rivals, the bargaining power of suppliers and of customers, alternative offerings, and new entrants- are less likely to apply when they are in constant flux and may suddenly change. Porter has acknowledged that the needs of customers, products and services are uncertain in new industries.
Harvard Business Review conducted more than 200 interviews with entrepreneurs and corporate innovators and learned that the most successful of these pioneers follow the same set of implicit rules and share specific behaviors. Their behaviors defy conventional methods of strategy and business case formulation. In the eyes of the researchers, these patterns amount to a new strategic framework. Inspired by early childhood, they call it ‘parallel play.’
Successful parallel play consists of three behaviors: borrowing ideas, test and commit, and pause, watch, and wait.
‘Borrowing ideas’ stems from the premise that children learn individually but often imitate each other. They do not try to outdo each other, but bring different ideas from the group setting to their individual learning. The practice of borrowing contrasts with the conventional strategic imperative of differentiation but putting too much focus on differentiation too early can lead companies astray. Treating other companies as peers instead of competitors, borrowing baseline ideas, and focusing on established substitutes can aid companies in creating a realistic value proposition.
‘Test and commit’ stems from the premise that children innovate through experimentation. The researchers learned that in a new market, high-performing ventures didn’t just test and learn, but instead used their learning to choose one business model for creating and capturing value. Traditional strategic thinking holds that the lost cost of flexibility in commitment cannot be justified in uncertain markets. It turns out that this commitment is a key to success in nascent markets- as long as companies test alternative business models first. Committing without testing and hedging bets by pursuing more than one business model leads companies astray.
This element can be seen in Aero, an aviation startup looking to disrupt the luxury travel market. They hired an industry veteran as CEO who brought expert knowledge and ran a series of successful market tests. This included a summer trial where Aero partnered with an EU air carrier to offer flights between Mykonos and Ibiza- the first nonstop route between the two. During the tests, they discovered that more than 80% of the bookings were purchased through mobile devices. With this knowledge from the market tests, they plan to build a mobile-first booking, ticketing, and boarding pass system and commit to mobile-first bookings.
‘Pause, watch, and wait’ stems from the premise that high performing innovators in new markets behave similarly to children in that they stop periodically to reflect on their projects. After committing to a general business model to create and capture value, those successful in nascent markets pause and look around before deciding the specifics. They specify the basic elements but leave optimizing it for later to maintain a different kind of flexibility.
If we look at a company like Astroscale, who aims to remove space debris caused by other companies and governments, we can see this approach begin to play out. They have established a general business case but are actively researching new ways to commercialize their underlying goal and technologies.
Companies in nascent industries also have to worry about regulation more than companies in established industries. New technologies are poorly understood by regulators, which creates a higher barrier to entry for these companies because they also often have to undertake costly lobbying, education, and outreach. For example, many emerging space companies set up operations in Washington DC to increase government relations presence once they reach a certain size. Regulation is often a barrier before a competitor is.
Technological development adds an additional element to the strategic decisions of these companies. Many are founded well before their technologies are anywhere near developed enough to start bringing profit. Astroscale has yet to launch a satellite. Joby has a battery problem. SpaceX doesn’t have a rocket that can get to Mars. Strategy is not the most critical element to success for these companies today, it is rather ensuring their technology develops to where it needs to be.
The practice of traditional strategy will always have a place, when these industries and companies within them reach maturity.
