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Switchback: The Startup Strategy That Might Be Right For You

Switchback: The Startup Strategy That Might Be Right For You
Credit: RawPixel/Shutterstock

When launching a new technology or product, entrepreneurs typically can choose to bring it to market on their own, or partner up with others who have more expertise in the field. However, new research suggests that the best approach might be a combination of both.

Instead of deciding between a self-commercialization or partnership/licensing strategy when they're getting ready to bring their new creation to the marketplace, entrepreneurs should consider a "switchback" approach that allows them to switch from one to the other, according to a study recently published in the Research Policy journal.

"Many startups seek to compete directly in the product market, but lack the assets necessary to do so effectively, and others want to work with partners in bringing their product to market, but find obstacles to a cooperative approach," Matt Marx, one of the study's authors and an associate professor at the MIT Sloan School of Management, said in a statement"It turns out that the best strategy choice may be less straightforward than we thought — and involve sequencing the two approaches."

The researchers compare this strategy to one that many climbers take when scaling a mountain. Instead of trying to go straight up, some climbers build a switchback that allows them to move sideways up the incline. Marx said that with this approach, there are times that climbers even have to backtrack or move in an opposite direction before they start up the hill again. [Borrow or Fundraise? How to Fund Your Startup ]

"Similarly, we suggest that entrepreneurs aspiring to a particular commercialization strategy but facing obstacles to implementing their ideal strategy may construct a 'strategic switchback,' the study's authors wrote. "In this approach, they initially pursue a nonideal strategy — but only on a temporary basis — in order to eventually enable their ideal strategy."

The authors note that this differs from a pivot strategy, where startups try different approaches in a trial-and-error fashion, because when you use a switchback strategy, you are changing directions because of your success, not failure.

"In a switchback, both strategies are planned as a sequence and the later strategy critically depends on having implemented the earlier one," the study's authors wrote.

A real-life example of this strategy is the startup FINsix, which developed a "brickless" laptop charger. The study's authors said that although the product seemed ideal for a partnering strategy with laptop manufacturers, FINsix lacked bargaining power and patents to negotiate with larger companies. So instead, the company decided to manufacture the charger on its own, with plans to potentially switch to a cooperative strategy once it had built a reputation.

Conversely, the researchers said the startup pharmaceutical company Genentech began with a cooperative licensing approach and later switched to a self-commercialization strategy after it gained the complementary assets needed to become an integrated drug company.

"[The switch] became possible only later as the firm developed experience in navigating the process of clinical trials as well as skills in marketing and sales," the study's authors wrote.

When considering a switchback approach, there are several factors entrepreneurs need to look at before they decide which route to take first, Marx said. Startups must first determine how difficult it will be to manufacture and market their product on their own. Marx said if a startup doesn't have all of the necessary complementary assets, such as platform technologies or expertise in distribution or regulatory approval, then the company may need to pursue a partnership approach in the initial stage.

Those entrepreneurs who are thinking about starting with a licensing approach must consider whether they have enough bargaining power to get an appealing agreement, according to the research. If they don't, they may need to start off on their own.

Marx believes the research shows that startup strategies don't have to be an either/or proposition, because there is no single 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," Marx said. "The switchback approach is less direct, but it may provide the best chance for long-term success."

The study was co-authored by David Hsu, a professor at the University of Pennsylvania's Wharton School.

Chad Brooks

Chad Brooks is a Chicago-based writer with more than 20 years of media experience. A graduate of Indiana University, Chad began his career with Business News Daily in 2011 as a freelance writer. In 2014, he joined the staff as a senior writer. Currently, Chad covers a wide range of B2B products and services, including business phone systems, time and attendance systems, payroll services, and conference call services. Before joining Business News Daily and business.com, Chad spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago. Chad's first book, "How to Start a Home-Based App Development Business," was published in 2014. He lives with his wife and daughter in the Chicago suburbs.