Have you ever watched those YouTube videos of downhill mountain bikers shooting down a massive hill like it’s no big deal? Or free solo climbers casually scaling a vertical cliff without falling? You probably have. But have you ever then tried to replicate the same stunts yourself? Probably not.
When you see someone performing these potentially life-threatening tricks, you know instinctively that they practiced countless hours before riding off that cliff and successfully capturing it on camera.
How many times have you read about a certain strategy or a specific method that some company successfully used to take over a market? How many times have you started to apply the same method yourself too soon without fully knowing its associated risks and requirements? Guilty as charged.
I have come across failed land grab strategies in the start-up world too often. Therefore I wanted to share my thoughts on the risks that come with them.
Land grab strategy is an appealing but risky strategy
Hypothesis: Generally speaking, land grabbing is an appealing strategy, but rarely a successful one.
A business executing a land grab strategy starts to push its product to the market forcefully and aggressively. It invests a lot of resources into maximising its market share and acquiring a large user-base. This is done at the expense of long-term product development and establishing a sustainable business model. The pressure on fast product development results in an incoherent, messy product. Such a product isn’t good enough for anyone and often poor quality too. You cannot sustain growth with a half-finished product.
The US-based company ScaleFactor illustrates this point well. It set out to create a cost-efficient bookkeeping service for small businesses by harnessing artificial intelligence. It had managed to secure 100 million dollars in funding, but it failed to make its product to actually work. Former employees revealed that in reality, customers’ bookkeeping was done manually in the company by real humans because the A.I. application didn’t work as planned.
The idea of scaling fast and early on is central in land grab strategies. But when you bulldoze ahead, saying yes to all customer segments, problems you might have with pricing could be masking bigger problems in the product itself and its customer fit. Expanding a failing business into new geographic areas and customer segments only burns more cash and increases losses. Scaling a failing business really does mean scaling your losses too!
Land grab strategy works if you know exactly what you’re doing
Land grabbing can work if you know everything that is needed to make it work.
A good example of a successful land grab strategy is the Finnish food and retail delivery company Wolt. Wolt’s growth has been fast, but controlled. It has invested a lot in technological development and logistics optimisation.
The business world is full of stories about ‘rags to riches’. Small start-ups turning into multi-billion-dollar companies by scaling fast. It might look easy, but that it certainly isn’t. Succeeding by chance is nearly impossible.
A land grab strategy tends to fail when entrepreneurs are tempted, for example by investors, to execute one without fully understanding the level of expertise it requires.
Don’t assume your product vision is right and that your customers will love your product as long as you sell it cheap. Instead, keep in mind Ash Maurya’s ‘love the problem, not the solution’. This simple piece of advice alone will help you get far.
A few tips for planning or implementing a land grab strategy
Make sure you have worked out your success metrics. For example, they might include a product-market fit in a very specific customer segment. Bear in mind though that there is no universal definition for product-market fits. Prepare to do some research and create a definition that best suits your business. In its simplest form, it could mean the number of weekly regular-price paying users in a particular geographic area. You could also take the Ellis test by using this tool, as long as you remember to pay attention to quality customer feedback in addition to numbers. After this, ensure you achieve your business model fit. And only then start scaling!
Companies that have successfully used land grab strategies for growth are always clear on their internal success metrics. They know which specific customer segment they are trying to succeed in and when. Testing is controlled and based on carefully considered criteria. One of the most important success metrics is unit economics. It measures the profitability of one unit of your product or service. If you have worked out your unit economics metric for profitability and are closely monitoring it, your land grab strategy might result in success.
To implement all of the above, you need data-driven decision-making. You need data from multiple sources and preferably in real time. In digital services, this means things such as active user data, financial data (detailed profit and loss accounts), marketing and sales conversion rates, customer satisfaction numbers, stats on product support and development. All of this filtered by the customer segment whose profitability you are analysing.
This takes us back to our earlier comparisons around downhill biking and solo climbing. People who manage to pull off those stunts successfully are the very best in what they do. Just like people who manage to successfully execute land grab strategies for growth.
Finally, some words of support for those who don’t want to or are too afraid to get into land grabbing against, say, a heavily financed competing start-up. A company that offers exceptional user experience is never too late to the market. Some great examples of this are Southwest Airlines in the commercial aviation market, and Apple in the mobile phone market.
In fact, when you have your company’s success metrics and data-driven decision-making in order, there are several strategies you can succeed with.
In case you feel this is something you should pay attention to, contact me and let’s talk more about it.
As always, if you feel your company is just phenomenal in this, please let me know as I want to learn from you.
