Entrepreneurs should focus on Core Competency, then Expand

Last Friday, I was invited to be a judge for the finals of the NTU Business Plan Competition: Creative Lab. The competition was very well-organized and professional, reminiscent of the Peking University and MIT business plan competitions that are held strictly for students, staff and alumni within the university. Of course, every time when I turned up as a judge for the local business plan competitions in NUS, NTU and Insead, I learned something new. Here are the three interesting lessions (plus some of my counter-intuitive thoughts about what could have been done): (i) You should focus on what the position of your company product is the strongest, (ii) There is a distinction between “must have” and “will be good to have” and (iii) Please don’t take the investors as fools by showing us you can break even within a year. In a three part series, I will focus on the first point about core competency using a hypothetical idea.

Core Competency and Expansion of a business

The first thing I want to talk about is a company’s core competency. If your company sells a product that is totally new to the market and rely on a particular peripheral, the question for the team is whether the company should produce the peripheral. Without drawing the examples from the business plan competition, I will illustrate using the key and lock analogy (or hypothetical example of a technology product I dream up with). Suppose I have come up with a technology for a lock that can allow my mobile phone to open the door to my house, the question to ask is whether I should make the key for the house by creating a new mobile phone. Let me squeeze the analogy down further. Suppose your lock requires a chip to be inserted to every mobile phone, the question is whether you should create a new mobile phone.

Most young entrepreneurs will take up the most naive position of trying to be “Bill Gates” and try to create both the lock and the mobile phone (which is the key). I will attempt to convince you that you should not make a mobile phone for your lock and just focus on making the lock work seamlessly. In addition, I will suggest to you to license the chip to all mobile phone makers (Samsung, LG and Nokia). The naive entrepreneur will ask, “But if I sell the lock only, I can’t enter into the mobile phone market later.” I will tell the entrepreneur that there is no point in getting investment to manufacture a new mobile phone. It is a waste of resources and all the other mobile phone makers out there will beat your company to it. The way to get around this mentality is to focus on selling the locks and make sure that every phone has that functionality. Your company can focus the energy in selling more locks and innovating upon the lock and chip. The naive entrepreneur will counter that the company will be forever stuck in that phase of just building the lock.

Here is the part which most people don’t grasp and I am going to explain why some people succeed and some people don’t. The key to success in this hypothetical example, is to sell as many locks as possible and then earn enough revenue to acquire a mobile phone manufacturer. Then you can inherit the expertise of the company without the need of re-inventing the wheel. The moral of the story is to always focus on your core competency, keep the expansion in mind, and till you accumulate enough capital, then acquire without the need to reinvent the wheel.

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