Your Startup Should Try a Switchback Strategy
When it comes to startup strategies, many entrepreneurs assume there is one optimal path. They may need to experiment or “pivot” initially among alternatives, but once they fix on an ideal strategy they simply need to execute. For example, a startup attempting to commercialize a new technology faces the strategic choice of whether to “go it alone” or cooperate with existing companies. Entrepreneurs are often taught to settle on a single strategy rather than trying to do too many things at once, but for some new ventures it may be advantageous to adopt multiple strategies—sequentially.
A new way to look at strategy involves the concept of a “switchback.” Think of a hill that is too steep to directly climb. An alternative is to proceed diagonally up the grade, eventually reversing direction, similar to mountain trains like the Darjeeling Express. It may seem like a slower path—and may even involve some backtracking—but in the end the climber reaches the top rather than getting stuck when trying to go directly.
This approach can work for entrepreneurs too. If the climb to their ideal commercialization strategy is too steep, they may build a “strategic switchback” in that they initially pursue a different strategy—which would be suboptimal in the long run—but which enables later switching back to their ideal strategy.
This is different from the popular notion of “pivoting,” where the entrepreneur iterates through a series of experiments to find potential approaches to the market. While pivoting involves trying multiple approaches in a trial-and-error fashion, switchbacks depend on the success of the initial strategy—not failure. It’s only when that initial strategy works that the startup is able to switch to its originally preferred strategy.
The startup FINsix (founded by MIT graduate students) is an example of a company using a switchback strategy. The founders designed a lightweight laptop charger which promised to eliminate the heavy “brick” we all hate carrying around. To achieve scale, their ideal commercialization strategy seemed to be partnering with laptop manufacturers. However, such a new venture might have been concerned with its lack of negotiating leverage (in part because its patents had not yet issued) and could also have been worried about becoming an invisible component with no brand visibility. Would Dell, HP, or Apple commoditize them? Instead, FINsix initially built and marketed the product itself. Now, having won awards at the Consumer Electronics Show and gained some traction and success in the market, it may be able to switch back to the preferred strategy of partnerships/licensing.
Another example is the startup Genentech, which was co-founded by MIT Sloan alumnus Robert Swanson. The founders wanted to start a large pharmaceutical company, but lacked the knowledge and expertise to be an integrated drug company on day one. So they used a partnering/licensing approach. As part of the licensing deal, the other company let Genentech employees observe and learn about the process of bringing a drug to market, including the complicated process of navigating clinical trials. A few years later, Genentech was ready to handle the process completely in-house and could switch back to a self-commercialization strategy.
An important question when using a switchback strategy is how to begin. If you want to be a product company, then you first need to ask yourself if it is hard to build or sell the product, or if there are complementary assets you need, like expertise or money. If the answer is yes, then you may need to partner in the initial stage, but with an eye toward learning from your commercialization partner (if they will allow you to do so). Moreover, if you later switch from partnering to self-commercialization, will you alienate your former partner?
On the other hand, you may ultimately want to focus on technology development and team up with a partner to bring the product to market. However, you may find you have to go it alone in the beginning because of lack of credibility. Qualcomm founder Andrew Viterbi found it impossible to convince cell-phone manufacturers to build handsets using his CDMA protocol after a Stanford professor claimed that Viterbi’s approach “violated the laws of physics.” Qualcomm reluctantly built its own cell phones and cell-phone towers, but after a few years sold its hardware businesses and switched back to its ideal strategy of technology licensing. Even if others do not doubt that your technology works, there could be many other companies with similar approaches in a market that has not yet tipped.
The takeaway is that strategy shouldn’t be considered an “either/or” proposition. There is no single strategy plan that guarantees success. Instead of seeing these challenges as unchangeable obstacles that determine a permanent strategy, entrepreneurs should take actions that can change those external constraints and enable the ideal strategy in the future. The switchback approach is less direct, but it may provide the best chance for long-term success.