The Entrepreneurial Strategy Compass & Pivoting

Innovation & New Business Proposal - TUHH Institute of Entrepreneurship & Institute of Innovation Marketing, Hamburg · part of my Technology Management MBA · study notes for revision.

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The canvas and the pattern libraries are tools for describing a business model: they tell me which boxes exist and which ones I have filled in. What they do not tell me is which of the many possible models I should actually pick. That is the gap the Entrepreneurial Strategy Compass fills. It starts from an uncomfortable observation: the same technology, the same insight, the same clever prototype can be taken to market in several ways that share almost nothing with each other, and each of those ways demands a different company.

That is worth sitting with for a moment. A founder normally says “my idea is X” as if the idea determined the business. It does not. The idea supplies the raw material; the strategy determines what gets built with it. Picking one route means giving up the others, at least for a while, because they call for different partners, different capabilities, different customers and different ways of defending yourself. So the choice is not a detail to be settled later, it is the entrepreneurial decision.

The compass makes that choice visible by asking only two questions, and then naming the four combinations of answers. Once I have the four names, I can generate real alternatives instead of arguing about one plan, compare them honestly, and later describe a change of course, a pivot, as a move from one square of the map to another.

Tip

The one idea to carry through. One technology equals many possible businesses. The compass reduces the choice to two questions: do I want to work with the players who already run this market, or take them on, and do I want to invest in owning and defending the innovation, or in building and running the operation. Those two answers give four strategies, and each one implies its own customers, partners, capabilities and source of power. Choosing between them is the entrepreneurial strategy, and a pivot is a deliberate move to another square while keeping everything learned in the last one.

1 · One idea is not one business

The starting insight is simple to say and easy to forget: a single innovation supports multiple choices of competition and of market. The technology itself is neutral about how it reaches the world. Somebody has to decide whether it is sold as a right to use, as a component, as a finished product, or as the centre of a platform that other people build on.

Two consequences follow, and both are practical:

• Comparing alternatives beats defending one plan. If I can only articulate one business model for my idea, I have not thought hard enough. The compass is a generator: it forces at least four candidate businesses out of the same starting point.
• The choice commits real resources. Each route pulls the venture towards a different set of partners, skills and cost structures. Drifting between them by accident is expensive; moving between them on purpose is a pivot.

2 · The two axes of the compass

Axis 1 - Orientation who do I stand next to?

• Collaboration: work with the established firms that already own the customer relationships, the distribution and the scale. I add something to a value chain that keeps running.
• Competition: go after those firms directly, on my own terms, with my own route to the customer.
• The trade-off: collaboration buys speed, credibility and reach but shares the value; competition keeps the value but has to build everything.

Axis 2 - Investment what do I spend my scarce money on?

• Control: put the money into owning the innovation and being able to defend it - patents, a protected core, a position nobody can route around.
• Execution: put the money into building and running the operation - people, delivery, speed, learning by doing.
• The trade-off: control is slow and legalistic but durable; execution is fast and concrete but copyable.

The two questions behind the compass. Orientation runs from collaboration with incumbents to competition against them; investment runs from control over the innovation to execution of the operation. Every venture answers both, whether or not it does so consciously.

3 · The four strategies at a glance

Crossing the two axes gives four named strategies. This is the picture I want in my head before any case discussion.

Intellectual property collaborate + control

• Invent, protect, and hand the innovation to the firms that already serve the market
• Power comes from a strong bargaining position and a reputation for enforcing rights
• Archetype: the ideas factory, an arms-length supplier of new innovations

Value chain collaborate + execution

• Become the one link in the chain that nobody else can supply, and run it well
• Power comes from being an irreplaceable linchpin, not from legal rights
• Archetype: core competency, the preferred partner everyone wants

Disruption compete + execution

• Build a separate chain that makes the old one irrelevant, serving customers the incumbents do not serve
• Power comes from incumbents being unwilling or unable to respond
• Archetype: creative destruction, a judo strategy that uses the giant’s own weight

Architectural compete + control

• Build and own an entirely new ecosystem around your technology, and coordinate everyone in it
• Power comes from control over the core innovation the whole ecosystem depends on
• Archetype: zero to one, the value chain architect

4 · The four strategies in detail

Same four columns, compared attribute by attribute. This table is the compass written out, and it is what I would reproduce from memory in an exam.

What to compare	Intellectual property	Value chain	Disruption	Architectural
Position	Collaborate + control	Collaborate + execution	Compete + execution	Compete + control
Basic logic	Enhance value inside the existing value chain	Establish a new value chain to compete	Render existing value chains obsolete	Establish a new value chain to compete
Value created	Defined value for existing end users	Novel value for existing end users	Novel value for new customers	Defined value for novel combinations of customers
Technology approach	Innovate generalizable, transferable technology	Integrate new and old technologies	Innovate along a new technology trajectory	Build an ecosystem around a new technology
Place in the chain	Transfer novel innovations into the chain	Serve a unique, vital link in the chain	Develop a novel, isolated chain	Coordinate and integrate an entirely novel chain
Source of power	Strong bargaining position and a reputation for enforcement	Being an irreplaceable linchpin	Incumbents will not or cannot respond	Control over the core innovation underlying the ecosystem
Capabilities demanded	Integrated team of innovators and IP managers; specialised innovation and deal-making expertise	Scarce talent and capabilities; access to value chain players	Lean start-up hustle and experiments; untapped talent and users	Insight into many different stakeholders; leading and shaping an ecosystem
Archetype	Ideas factory, arms-length supplier of new innovations	Core competency, preferred partner	Creative destruction, judo strategy	Zero to one, value chain architect

Intellectual property strategy

The venture stays out of operations almost entirely. It invents things that are generalizable and transferable, meaning they work in many hands and can be handed over cleanly, and it pushes them into a value chain that continues to run exactly as before. The end users are the ones the incumbents already serve, and the value delivered to them is well defined rather than surprising. Because the company sells rights and not products, its whole position rests on being able to negotiate hard and to be believed when it says it will defend those rights. Internally it looks like an ideas factory: innovators and IP managers working as one team, with deal-making treated as a core skill rather than an administrative afterthought.

Value chain strategy

Here the venture puts itself inside the chain as a link and does the work. It stitches together new technology and existing technology so that the end users, again the incumbents’ users, get something genuinely new. The point of leverage is uniqueness of position, not legal protection: if I am the only party who can do this step, and the rest of the chain cannot be assembled without me, I have bargaining power with nothing patented at all. That power is fragile in exactly one way, and it is worth remembering: it evaporates the moment somebody else can do the same step. Hence the emphasis on scarce talent, a genuine core competency, and privileged access to the other players as the partner everyone prefers to work with.

Disruption strategy

This one refuses the existing chain altogether and builds an isolated one alongside it, aimed at customers the incumbents are not serving today. The technology follows a new trajectory, so measured on the incumbents’ usual yardsticks the offer may even look worse at first. The protection is behavioural rather than legal: the established firms either do not want to respond, because responding would damage their existing business, or they cannot respond fast enough. The working style matches - lean experiments, hustle, and the use of talent and users that nobody else has bothered to tap. The judo image is the right one: you win by using the size and the commitments of the bigger player against them rather than by matching their strength.

Architectural strategy

The most ambitious square. The venture builds a new value chain and keeps control of its core, then coordinates and integrates everyone in it. The customers are not new in the sense of never having been served, but they are combined in a new way, and what each of them gets is well defined. Doing this requires understanding a lot of different stakeholders at once, because an ecosystem only works if every participant has a reason to stay. Power comes from owning the piece the whole arrangement depends on. This is the zero-to-one move: expensive, slow, high risk, and the only one of the four where the venture ends up as the architect rather than as a participant.

5 · One idea, four different businesses

The clearest illustration in the session is a single idea, rethinking the bicycle, taken to market four ways. Notice that none of these is a different invention. They are four businesses built on the same insight, and each one lands in a different quadrant.

Licensing to wheel manufacturers collaborate + control

• Protect the design, then let existing manufacturers make and sell it
• Revenue from rights, not from production
• Intellectual property strategy

Supplying wheels to bike companies collaborate + execution

• Actually manufacture the component and sell it into the existing bike industry
• You become a link the bike brands depend on
• Value chain strategy

A crowdfunding campaign compete + execution

• Go straight to end users and bypass the industry entirely
• Fast, cheap, experimental, and no incumbent is asked for permission
• Disruption strategy

A smart bike community compete + control

• Build a platform of riders, data and services around the new bike
• Own the core that the whole community depends on
• Architectural strategy

The second illustration in the deck does the same trick with wording rather than with products. One venture is framed four times, and each framing quietly commits it to a different quadrant:

a proprietary analytic toola peer-to-peer intermediarya portal for laggard dealershipsa concierge service

Read them slowly. Proprietary signals control and something to defend. Intermediary signals sitting between existing parties, so collaboration plus execution. A portal for laggards signals serving the customers the mainstream players ignore. A concierge signals doing the work by hand for people, high-touch execution. The lesson I take from this slide is that the elevator pitch is not marketing decoration: the noun you choose has already picked your quadrant.

6 · Pivots: moving between quadrants

A pivot is a deliberate change to a core element of the business model that keeps the learning from what came before. That second half is what separates a pivot from starting over. If the founders throw away the customer knowledge, the content, the brand and the relationships, that is a new company. If they keep those and change what the venture sells, or to whom, or how it earns, that is a pivot.

Current modelone filled-in canvas, sitting in one quadrant

→

Change one core elementthe buyer, the need, the technology, the way you earn

→

New model, often a new quadrantcarrying over customers, skills, content and relationships

A pivot in compass terms. Because the four strategies differ in orientation and investment, changing a core canvas block usually moves the venture on the map. Naming the destination quadrant is how I check whether the new model is really different or just a cosmetic edit.

The most useful way I found to name a pivot is by the canvas block that moves:

Pivot type	What changes in the model
Customer segment	Same offering, a different buyer, for example consumers to enterprises
Customer need	Same buyer, but a different problem gets solved
Zoom-in	One feature of the old offering becomes the whole product
Zoom-out	The old offering shrinks into one feature of a bigger one
Platform	A service delivered by hand becomes a platform clients operate themselves
Value capture	Who pays, for which unit, and on what basis changes
Technology	The same value is delivered by a different technical route
Value chain position	The venture occupies a different link, or several links, of the chain

Caution

A pivot is not a change of mood. Two tests before calling something a pivot: (1) can I point at the specific canvas block that changed, and (2) can I say which quadrant the venture is in now, and whether that is a different one from before. If neither question has a clean answer, the team has probably just added a feature.

Case corner

CampusHash: the venture and its current model

CampusHash was started in December 2012 by two computer science students who noticed that their engineering curriculum was well behind what the software industry actually used, so graduates struggled to look industry-ready in campus interviews. They taught themselves current technologies, ran informal sessions for their peers, and turned this into two-day, hands-on training workshops at engineering colleges. Read as a canvas, the model at the start of 2016 looks like this:

Canvas block	CampusHash today
Customer segments	Engineering students at Indian colleges who pay to attend; colleges that invite the workshops; IT firms that benefit from the interns but pay nothing
Value proposition	Two-day hands-on training in technologies the curriculum skips, aligned to campus recruitment interviews, with take-home assignments that get evaluated, follow-up by email, and since 2014 a hackathon on day two plus a possible internship
Channels	In-person delivery on campus, invitations from colleges, word of mouth, and the visibility of being official training workshop partner of PyCon India 2013
Customer relationships	Personal and trainer-led, with direct contact after the workshop
Key activities	Building and refreshing the content, delivering the workshops in person, running hackathons, spotting strong programmers, approaching IT firms
Key resources	The founders themselves as trainers, their programming skill, the course material, the brand, and the third partner’s industry network
Key partners	Colleges, PyCon, and IT companies such as Goibibo that sponsor events in exchange for social media publicity and take the referred interns
Revenue streams	Participant fees only: INR 1,000 per head at the start, raised to INR 1,250 once the internship route lifted attendance from about 20 to about 40 per program; sponsorship in kind; nothing charged for the internship referrals
Cost structure	Travel, content development, and the founders’ own unpaid time; margins of about 70 per cent early and about 60 per cent net now, but only because no founder draws a salary

The pain point is stated plainly in the case: over 75 programs have been run and the workshops are popular, but delivery depends on scarce, high-quality trainers standing in a room for six to eight hours, so revenue cannot grow without adding people of the same calibre. The founders also worry that hiring outside trainers would put both the quality and their intellectual property at risk.

Where the current model sits on the compass

Value chain strategy Orientation is collaboration: colleges, PyCon and IT recruiters are all partners, and nothing about the model attacks anybody. Investment is in execution: there is no patent, no licence, no defended asset, only the ability to deliver an excellent workshop and to recognise good programmers. CampusHash has made itself a small but real link between engineering students and IT recruiters. The bargaining power is exactly the linchpin kind described in that quadrant, and it is exactly as fragile as the theory says, because the linchpin here is two or three individual people.

Alternative 1: recruitment screening for IT firms

Leave training behind and sell hackathon-based candidate screening to IT companies as part of their campus and lateral hiring. In canvas terms the customer segment flips from students to IT firms, so revenue moves from many small participant fees to fewer large business-to-business contracts; the key activity shifts from teaching to designing assessments and running many hackathons in parallel; a business-to-business sales team becomes a new key resource. The case records an internal argument about scope. One view keeps it narrow: prepare the test questions, hand over performance reports, and let the client judge logic, code quality and semantics, costed at roughly INR 10,000 travel, INR 5,000 lodging and INR 5,000 customisation per event plus about INR 6,000 per trainer day. The other view takes over more of the screening decision and charges about INR 100,000 per hackathon covering roughly 100 candidates, with one program per trainer per week and perhaps 16 assignments a month.

Stays in the value chain quadrant Still collaborative, still execution-led, but a far more vital link than before, sitting directly inside the client’s hiring process. Pivot type: a customer segment pivot (students to employers) combined with a zoom-in pivot, because the day-two hackathon, previously one feature, becomes the entire product, and a value capture pivot, because the unit sold changes from a seat to an assignment.

Alternative 2: outsourced software development

Use the founders’ real strength, writing and judging code, to take software development assignments from IT companies, break each one into smaller problem statements, and use those as the coding problems in the hackathons so that participants effectively produce the work. It would need four sales professionals at about INR 30,000 a month and five developers at about INR 50,000 a month to do quality control and select which submissions to deliver, aiming at two to three assignments a month at about INR 300,000 each and a gross margin of 50 to 60 per cent.

Value chain quadrant, weakest version Still collaboration plus execution, but the objection raised inside the team is the compass objection: why would an IT company pick a small, unknown venture as an outsourcing partner? Without a unique, vital link there is no linchpin power, and CampusHash becomes one interchangeable vendor among many. Pivot type: a customer need pivot (from making students employable to getting code delivered) plus a value chain position pivot. Note also the quiet structural change: students stop being the paying customer and become an unpaid production resource, which is a big assumption to test before building on it.

Alternative 3: an online assessment and talent management platform

The most far-reaching option. CampusHash would offer end-to-end recruitment support plus ongoing proficiency assessment of the client firms’ existing developers across technologies such as full-stack development, data science, artificial intelligence and machine learning. Clients would register on a platform, create their own tests or commission customised ones, and the growing question database would drive the marginal cost of each further assignment down, so revenue could grow without a matching growth in headcount and without anyone travelling to a campus. The case numbers: about one year and INR 1.0 million to build the platform, depreciated straight-line at 33 per cent, INR 100,000 a year to maintain, five salespeople at about INR 30,000 a month and six technical people at about INR 300,000 a month in total, roughly eight recruitment assignments a month at 500 candidates each priced at INR 200 per candidate, plus four employee-proficiency assignments a month at 300 employees each priced at INR 1,500 per employee, funded by about INR 7 million of seed equity.

Moves up the investment axis This is the only alternative that changes an axis rather than a position along one. The spending moves from execution towards control: the assessment models, the question bank and the platform become an owned asset that is defended and reused rather than a service performed by hand. Staying collaborative with the IT firms, that heads towards the intellectual property quadrant, an ideas factory selling a defended asset into an existing hiring chain. If CampusHash went further and coordinated colleges, candidates and employers on one platform it would be building an ecosystem, and it would end up architectural. Pivot type: a platform pivot above all, supported by a technology pivot (people delivering assessments becomes software delivering them) and a value capture pivot (per candidate and per employee pricing instead of per event).

Note

And the fourth option is to do nothing yet. The case also records the option of continuing as they are rather than expanding. It is a legitimate answer, and on the compass it means accepting the linchpin position and its ceiling. The counter-argument raised in the case is the one worth remembering: the more money, time and creative energy that go into the current model, the harder any later pivot becomes.

Apply it to your project

1. Write today’s model in one sentence per canvas block. Who buys, what they get, how it reaches them, what you do, what you own, who you depend on, how money comes in and goes out. Be honest about the resource that actually carries the business.

2. Answer the orientation question. Does your current plan work with the firms that already own this market, or against them? Say which specific firms, by name, so the answer cannot stay vague.

3. Answer the investment question. Is your money going into owning and defending something, or into building and running something? Look at your actual budget, not your intentions.

4. Mark your square and name the strategy. Intellectual property, value chain, disruption or architectural. Then write one line on where your bargaining power is supposed to come from, and check that it matches the quadrant.

5. Generate the other three. Force yourself to describe the same idea as a licensing business, as a component or service inside somebody else’s chain, as a direct-to-user offer aimed at people nobody serves, and as an ecosystem you would own. Two of these will feel absurd; write them anyway, because the absurdity is usually about your current capabilities, not about the market.

6. Pick your two most genuine alternatives and redo the canvas for each. For every one, state which blocks changed, what the venture would have to be good at, and what would kill it.

7. Name the pivot each alternative would be. Customer segment, customer need, zoom-in, platform, value capture, technology or chain position. If you cannot name it, the alternative is not different enough to be worth the exercise.

8. Add one more option from a pattern library. The session ends by asking for one additional alternative built from the business model pattern collection, which is a good way to escape the four options your own head keeps producing.

Key terms

Term	What it means in plain words
Entrepreneurial strategy compass	A two-by-two map of the ways one idea can be taken to market, so the choice can be compared instead of assumed
Orientation	The first axis: whether you collaborate with the firms that already run the market or compete against them
Investment	The second axis: whether your money goes into controlling the innovation or into executing the operation
Intellectual property strategy	Collaborate and control: invent transferable technology, protect it, and supply it at arms length to the existing chain
Value chain strategy	Collaborate and execute: become a unique, vital link inside a chain and run that link better than anyone
Disruption strategy	Compete and execute: build a separate chain for customers the incumbents ignore, and move before they can respond
Architectural strategy	Compete and control: build a new ecosystem around your technology and coordinate it as its architect
Linchpin power	Bargaining power that comes from being genuinely hard to replace in a chain, rather than from legal rights
Ideas factory	The organisational shape of the intellectual property strategy: innovators and IP managers working as one deal-making team
Judo strategy	Winning by turning an incumbent’s size and commitments against it instead of matching its strength
Zero to one	Creating something, and the whole structure around it, where neither existed before: the architectural move
Pivot	A deliberate change to a core element of the business model that keeps the learning gathered so far
Zoom-in pivot	A pivot where one feature of the old offering becomes the entire product
Platform pivot	A pivot from delivering a service by hand to providing a platform that clients operate themselves

Test yourself

1. Name the two axes of the compass and say, in one line each, what question they ask.
2. A venture patents a new battery chemistry and licenses it to established cell manufacturers. Which quadrant is it in, and where does its power come from?
3. In the value chain strategy, what is the source of bargaining power, and what happens to the venture if another firm learns to perform the same link?
4. Place the four bicycle options on the compass: licensing to wheel manufacturers, supplying wheels to bike companies, a crowdfunding campaign, and a smart bike community.
5. What makes a change of course a pivot rather than a fresh start, and what two tests can you apply?
6. For the CampusHash online assessment platform: which axis moves, in which direction, and which quadrant does the venture head towards?

Answers

1. Orientation: do I collaborate with the incumbents who already run this market, or compete against them? Investment: do I spend my scarce resources on controlling and defending the innovation, or on building and running the operation?
2. Intellectual property (collaborate plus control). Its power comes from a strong bargaining position over a generalizable, transferable technology, backed by a credible reputation for enforcing its rights. It never touches the operation.
3. Power comes from being an irreplaceable linchpin, a unique and vital link in the chain, not from legal protection. The moment someone else can perform that link, the uniqueness is gone and the bargaining power goes with it, which is why scarce talent, a real core competency and privileged access to the other chain players matter so much.
4. Licensing to wheel manufacturers = intellectual property (collaborate, control). Supplying wheels to bike companies = value chain (collaborate, execution). Crowdfunding campaign = disruption (compete, execution). Smart bike community = architectural (compete, control).
5. A pivot changes a core element of the model while keeping what has already been learned: the customers, content, skills and relationships carry over. Tests: can I point at the exact canvas block that changed, and can I say which quadrant the venture now sits in and whether that differs from before?
6. The investment axis moves, from execution towards control, because the question bank, the assessment models and the platform become an owned, reusable and defensible asset instead of work performed by hand. Staying collaborative with the IT firms, this heads towards the intellectual property quadrant; if the platform grew to coordinate colleges, candidates and employers together it would become architectural.

Revision summary

Tip

The one-minute recap

• One idea supports many businesses. The technology does not decide the company; the strategy does. Choosing among the possible businesses is the entrepreneurial decision.
• Two axes. Orientation: collaborate with incumbents or compete against them. Investment: control the innovation or execute the operation.
• Four strategies. Intellectual property (collaborate + control): enhance the existing chain, transferable technology, power from bargaining strength and enforcement, an ideas factory supplying innovations at arms length. Value chain (collaborate + execution): a unique vital link, novel value for existing users, power from being an irreplaceable linchpin, built on scarce talent and preferred-partner access. Disruption (compete + execution): a separate chain for new customers on a new technology trajectory, power from incumbents that will not or cannot respond, lean experiments and judo. Architectural (compete + control): a whole new ecosystem you coordinate and own, defined value for novel customer combinations, power from control of the core innovation, zero to one.
• The bicycle test. Licensing to wheel makers, supplying wheels, a crowdfunding campaign, a smart bike community: one idea, four quadrants, four different companies. Even the words in a pitch (proprietary tool, intermediary, portal, concierge) already choose a quadrant.
• Pivots change a core element of the model while keeping the learning, and usually move the venture to another square. Name them by the block that moves: customer segment, customer need, zoom-in or zoom-out, platform, value capture, technology, chain position.
• CampusHash sits in the value chain quadrant as a collaborative, execution-led trainer whose linchpin is two or three people, which is exactly why it cannot scale. Screening for IT firms is a segment and zoom-in pivot inside the same quadrant; outsourced development is a customer-need and chain-position pivot with weak linchpin power; the online assessment platform is a platform pivot that shifts investment towards control and points at the intellectual property quadrant, or at architectural if it grows into a full ecosystem.

Next: Segmentation, Personas & Market Potential → - who exactly is the customer, and how many of them are there.