Joshua Gans — Another choice: The Intellectual Property Strategy

Over the past two weeks, I have been outlining broad strategic options for entrepreneurs of which a disruption strategy is just one choice. The concept is that a given entrepreneurial idea can be commercialised in many different ways. The key to entrepreneurial strategy is to identify the feasible set of choices available to start-ups and to write a business plan for each. After all, you can’t have a strategic choice without actually having a choice and I maintain that entrepreneurs often have many more choices than they think at the outside.

Thusfar, I have considered two options that have in common that they are focused on execution. Recall that being focused on execution means that a start-up embraces potential and on-going competition and formulates a plan to continually beat that competition by developing and continually re-investing in capabilities that allow the venture to beat the next wave of competition on quality, cost or some combination of the two. However, in choosing to focus on execution, a start-up can choose whether to be oriented towards competition (and building out a new value chain in competition with established firms) or to be oriented towards cooperation (and work within existing value chains). These two strategies were termed disruption and value chain respectively and each might be the appropriate one to be matched with an entrepreneurial idea.

Today I want to turn to strategies that are based on investing in control rather than execution. As I pointed out in a previous post, investing in control represents a somewhat familiar — or textbook — path to earning monopoly rents (or competitive advantage) as it involves undertaking a strategy that gives the entrepreneur control over key resources or assets that themselves allow the entrepreneur (or others) to create entry barriers. Thus, in contrast to focusing on execution, control involves more investment upfront but then, if successful, an easier competitive life later on as the venture can live off the future monopoly rents as it would an annuity because its customers would have fewer options to switch out to in the future.…

Digitopoly
Another choice: The Intellectual Property Strategy
Joshua Gans

(h/t Mark Thoma at Economist's View)