Entrepreneurial Strategy

6 Choosing Your Identity

1
 Walk into an American Girl Place and you know who the customer is – 8 to
10-year-old girls and no one else. It is a seemingly vast retail space where your kid
can find a doll that looks like them, clothes for the doll, matching clothes for the
kid, accessories for both, a place to get their hair done (yes, both kid and doll) and
also a place to take tea. But also there are books that place each doll in some
American historical context. And not just mild stories but stories that involve
poverty, hardship, racism, child abuse and war. Suffice it to say, from a parent’s
perspective, the message is: “leave your wallet at the door, you won’t be needing
it anymore.”

The American Girl line of toys was the brainchild of Pleasant Rowland.
Rowland had been a teacher, a TV news anchor and textbook writer for two
decades before she founded the company that brought American Girl dolls to the
market in 1986. It was on a visit to Colonial Williamsburg that she had the idea
that girls might become interested in history if they could identify with dolls who
themselves came from different times.1 Soon after, she wrote out her vision and
became convinced that, as an idea, it was compelling – simply because she would
have loved it as a child and, as an adult, she would love to give it to children. While
Rowland was an unlikely entrepreneur, her instincts were strong and that pushed
her forward despite few her shared her vision.

The dolls Rowland envisaged were expensive ($82 then) and too large for
toy and department stores to stock them. So in that pre-Internet era, Rowland
chose to sell them herself through a catalogue; something that allowed her to
structure the marketing of the dolls around her historical vision.

1 https://www.youtube.com/watch?v=_ltX5W6eZYw

2
 "From its inception, it was a doll company, a toy company, a clothing company, a
publishing company, and a direct mail company all at once," Rowland told the 25th anniversary
crowd. "But in truth, from its beginning vision, it was a company that was bigger than the sum
of all those parts. It was a girl company, and anything that was good for girls, was ours to give
them."2

The product was an immediate success with $1 million in sales that year.
But, something that is very rare in toy markets, it was an enduring success; a brand
that would continue to grow over the next three decades. Rowland built that
foundation and in 1998 she opened her visionary stores and then sold the company
to Mattel for $700 million. Today, American Girl generates more sales than
Mattel’s other famous brand, Barbie.

Whatever one might think about toys that are geared towards gender, what
American Girl shows is how important the identity of a company can be to the
success of a startup. Rowland had an idea for a product that might be appealing
to girls. But at the same time, all of the decisions regarding customer (targeting
children at an age that was impressionable), technology (launching not only dolls
but books and other accessories with historical detail) and competition (doing it
herself to maintain control over that vision) all cohered around Rowland’s choice
of identity.

What Does It Mean to “Choose” An Entrepreneurial Identity?

In this chapter, we examine an entrepreneur’s choice of identity as a critical

part of their strategy. While it is sometimes thought that identity is inherent within
the entrepreneur (and indeed many accounts of entrepreneurship highlight a
unique passion of a founder), it is useful to consider what role choice plays in
terms of how a founder brings an idea into reality. In the case of Pleasant
Rowland, little in her earlier career (which while successful had been focused
neither on entrepreneurship nor on girl’s toys) indicated the specific purpose and
approach that she brought to American Girl; instead, Pleasant Rowland used the

2 http://www.racked.com/2015/6/29/8855683/american-girl-doll-store

3
opportunity presented by American Girl to choose an identity for her company
and for herself as an entrepreneur that cohered with her underlying idea.

The general conception of identity is that it is what makes you, you. For an
entrepreneur, that connotes the notion of your vision and what you stand for.
However, in terms of strategy, the function of your identity goes beyond that. The
best way to see that is to equate your choice of identity with how you communicate
what you are doing.

When we talk about communication, it is natural to ask: to whom? Our

usual conception of identity is a means of simply communicating what you are
doing or, perhaps more importantly, what you will not do, to yourself and your
closest team. That is, it is a statement of your purpose and a commitment to it. For
instance, Rowland placed historical affinity and learning at the core of the
products she was developing at American Girl. This would be essential in ensuing
she was not building just another doll company but something more. Not
surprisingly, this choice will be guided by the entrepreneur’s own personal traits
but not exclusively so.

However, as with all communication, it is how you present and signal to

others that is critical. Your objective may be useful for your closest colleagues but
you also need to signal to the rest of your organization. In particular, internally,
people in your startup need to be guided as to where to allocate their own attention
and efforts. While it is possible, especially at an early stage, for the entrepreneur
to guide all such decisions, it is rarely the case that they have the time to be a micro-
manager. Instead, the emphasis has to be on what capabilities should be developed
and prioritized over others. Thus, beyond your objective, a key part of a startup’s
identity are the capabilities that it will push to develop. For instance, as we
recounted earlier, an Amazon, Bezos made a continual decision that it was going
to be a company that worked out how to deliver its products at low prices. This
emphasis communicates to internal teams that raising prices will not be the route
to higher profits and figuring out how to lower costs along the value chain is where
they should place their attention.

4
 But beyond the internal communication is an issue of external positioning.
In the competitive strategy literature, this is, in fact, the main issue. How are you
going to be positioned relative to competitors? Will you emphasize a distinctive
product, as American Girl did, or will you emphasize lower prices, as Amazon
did? In particular, as we will describe in more detail below, what you have to
decide here is precisely the market you are competing in. Amazon, for instance,
could have been just trying to have lower prices than other internet sellers. Instead,
it chose to have lower prices than all sellers.

Finally, there is a broader form of communication that allows you to

associate yourself with others. Thus, your startup may be located in a particular
area – e.g., the canonical Silicon Valley startup – that suggests to others something
about what you are trying to do and who you are dealing with. But equally, your
startup may be associated with a broader eco-system; perhaps in developing a new
technology, being part of a standard or being part of a movement. All of these
decisions are part of your choice of which eco-system your startup will belong to.
Thus, it becomes the fourth facet of your choice of identity.

Founder Purpose

One of the most powerful tools founders have is to associate themselves

with a trait or a value. The mobile ride sharing company, Uber, has consistently
identified itself with competition in both its market and regulatory fight with

5
traditional taxi companies. Internally, it has developed a “win at all costs” culture.
There is a sense in which this is not surprising given co-founder, Travis Kalanick’s,
own public competitive traits; for instance, he became the second highest ranked
player in the world in Wii Tennis (a computer game) and regularly vanquishes
unknowing challengers by playing with his non-dominant hand. This competitive
message demonstrates to all what to expect when dealing with Uber and likely
underpins its strong growth as well as a brand that is not free of controversy.

Cases such as these have underpinned the conventional wisdom that

entrepreneurial identity is not something that is chosen but happens to be
embedded within certain people. Competitiveness is one such trait as are things
like an appetite for risk, an inspirational communicator or someone who can
manage many moving parts at the same time. But this psychological view, while
it can fit into a narrative for success, we believe undermines the choices
entrepreneurs face. Thus, we do not think it is predetermined that those who love
risk should be entrepreneurs and those who do not cannot. Instead, what we want
entrepreneurs to do is to think about their idea and ask what is it about you that
will allow this idea to create value? For Kalanick, his competitiveness was likely
that feature and Uber, as a result, chose a strategy that pitted it against others
rather than sought to cooperate with them. Thus, choosing your identity does not
amount to giving yourself a range of personality tests. Instead, it requires you to
think about your idea and commercialization paths and what attributes you have
that can be leveraged. You may not have every attribute of every successful
entrepreneur but that does not mean you cannot find the path forward that
leverages what you have.

Consider, for example, Anita Roddick who founded The Body Shop chain
of cosmetic stores in the late 1970s. Roddick came to entrepreneurship in a
relatively unplanned fashion having decided to open a small store selling some
skin care products she had found interesting while her husband pursued dream
of riding horseback through South America. In what she called “a series of brilliant

6
accidents”3 sales boomed with the products’ distinctive smell, the Body Shop’s
unassuming name and green branding that only came about because that was the
only color Roddick could find that would cover up mold in her first store. Even
recycling was a cost saving matter. But it was during that period that Roddick saw
an opportunity to tie her company to social causes – the most prominent of which
was to reject products that were developed using animal testing. In so doing, she
was a pioneer in targeting the ethical consumer.

This ‘no compromises’ identity translated into marketing and branding.

“I have never felt that beauty products are the body and blood of Jesus Christ,” she once
said. “Nothing the Body Shop sells pretends to do anything other than it says. Moisturizers
moisturize, fresheners freshen and cleansers cleanse. End of story.”4

This, at a time, when cosmetics and, indeed, most products aimed at women
were marketing with attributes associated with glamour. Roddick, by adopting a
set of objectives that ruled out traditional product development and marketing,
created a distinctive brand that grew into over a thousand shops world-wide.

The Body Shop exemplifies how a founder’s objectives can guide

entrepreneurial strategy. While it is likely the case that Roddick embodied the
values that were embodied in her stores, she did not begin with that as a mission.
Instead, it likely gave her perspective to try doing things differently and the
foresight to understand what was working. In this particular case, it was a
sufficiently good idea that her objectives could itself guide the other elements of
strategy in a coherent manner. In that sense, it represented near perfect
communication.

Put in other terms, we often view “culture” as a fixed attribute of an

organization. For example, Ed Schein made famous the idea of corporate culture
as an “iceberg” with both visible and more hard to discern “levels,” with the
implication that the job of those working with an organization would be to

3 Macintyre, James (11 September 2007). "Anita Roddick, capitalist with a conscience, dies at 64".
London: The Independent. Retrieved 25 September2009.
4 http://www.nytimes.com/2007/09/12/world/europe/12roddick.html?_r=0

7
understand that culture. At the same time, leaders and entrepreneurs often talk
about the work that they do to “create” and “choose” the culture of the company
they are building. But, who can culture simultaneously be a fixed entity while also
something that can be created or managed?

We would argue that the key is to understand that startups are choosing
their culture and identity. Rather than being a fixed attribute of the founding
team’s personality, founders must actively choose among the personality
dimensions that they bring to an organization of what values to imprint, what
traits to select on in terms of employees, partners, and investors, and what
behaviors and routines to routinize. This simple insight – that culture is
something that is chosen rather than given – has important insight for a range of
organizational choice dimensions, including what capabilities to invest in, what
positioning to take in the market, and what ecosystem to leverage.

Internal Capabilities

If Anita Roddick became an entrepreneur unexpectedly, then the right

counter-point is Ingvar Kamprad. Kamprad, as a child started off, slow but quickly
made himself.
As a youngster, Ingvar Kamprad was always reluctant to drag himself out of bed in the
morning to milk the cows on his father’s farm. “You sleepy head! You’ll never make anything of
yourself!” his father would say. Then, one birthday, Ingvar got an alarm clock. “Now by jiminy,
I’m going to start a new life,” he determined, setting the alarm for twenty to six and removing the
“off button.”5

As a young boy, he sold matches in Sweden taking advantage of low prices

for bulk quantities in Stockholm to sell at higher margins in his hometown of
Agunnaryd. In his teenage years he sold fish, Christmas tree decorations,
stationary and seeds. But when he was given a cash reward for success at school
by his father, the 17-year-old Kamprad founded IKEA and moved, just a few years
later, into furniture sales.6 After an employee struggled to fit a table into his car,

5 http://www.newyorker.com/magazine/2011/10/03/house-perfect
6 http://www.newyorker.com/magazine/2011/10/03/house-perfect

8
he had the bright idea that he could save on transportation costs and also cost to
the consumer by selling flat packed items; proudly claiming the “[w]e hate air.”
Starting with mail order catalogues, IKEA opened the first of its eponymous stores
in 1965 in Almhult before expanding worldwide in the decades that followed.
Kamprad became one of the richest people in the world.

IKEA’s success was driven by intense frugality. This was reflected in stores
that were laid out in a manner that tightly integrated demonstration stock and
inventory. The stores were large and located in cheap suburban land. The flat
packs themselves were manufactured in regions to ensure the lowest cost. And the
whole operation was driven by a design ethic that emphasized utility.

This frugality drove IKEA’s internal capabilities: a belief that costs could be
kept down and waste minimized. But as if to emphasize the point, Kamprad built
this into his own personal life. He lived in a modest home furnished with IKEA
products. Kamprad and his wife went to low cost restaurants and haggled over
prices of things at the market. Driving around in 2012 in his 1993 Volvo, Kamprad
embodies IKEA’s slogan of lista which means, in Swedish, “making do.” Thus, it
is no surprise that its management travel coach and that its employees are the
models in IKEA catalogues. Indeed, some have suggested that IKEA was all about
commercializing frugality.

Kamprad’s choice sends a message internally regarding where IKEA’s

capabilities should be. And it means that there are places its capabilities are not.
For instance, flat packed furniture may be cheap but there is nothing like the
daunting horror of assembling a children’s bunk bed when you return home. That
said, you also know that you won’t be paying too much for Swedish meat-balls as
you trek through an enormous store.

But all startups will face a choice as to the internal capabilities they want to
pursue and their identity is how they communicate that choice to those who work
closest with them. Very often this translates into a working culture. At Google,
everything it has done is to try to keep employees happy at work. Free food,
cleaning, child care; all to keep you at your desk working. In stark contrast,
consider, Brunello Cucinelli, the Italian manufacturer of cashmere sweaters with a

9
founder that shares its name. With sales in the hundreds of millions of dollars,
Brunello Cucinelli is modelled on the traditions of Italian crafts the company
eschews modern information technology.7 Cucinelli himself believes that his
employees should not work 24/7 and they are forbidden to come in before 8am
and do anything after 5:30pm. No coming in on a weekend. In return, he asks for
face to face communication (no group emails) and when there is a meeting, 100
percent attention (no mobile phones).

This notion of treating people well pervades the company:

Our cashmere blazer costs $3,000 retail, but the profit must be dignified. It needs to respect
the raw material producer, then the artisans, then those working for the company. The consumer
also needs to be respected. Everything must be balanced.

At its heart, where Amazon tried to work out how to deliver at low prices,
Brunello Cucinelli appears to be working out whether it can pay people and
suppliers well; figuring out how to deliver something at high prices. Thus, he
pursues artisanal work habits along with a time horizon that expands into
centuries.

The point of these examples is not to drive home the point that capabilities
and culture are important. They clearly are. Instead, we want to emphasize that
what internal capabilities are developed is a choice the entrepreneur faces. To be
sure, that choice, like all strategic choices considered in this book, must cohere
with others. But the role of this choice is to communicate expectations within the
startup; absolving the need for the entrepreneur to make choices consistent with
that on a day-to-day manner.

External Positioning

Yale Strategy Professor Barry Nalebuff likes to get his MBAs thinking about
whether markets really work to get all options covered. This is a challenging
question as economists, of which Nalebuff is one, tend to presume that obvious
opportunities get filled pretty quickly by enterprising entrepreneurs. However, as
it turns out, it is not that hard to find gaps in markets. Then comes the challenging

7 https://medium.com/backchannel/no-mobile-phones-you-must-look-me-in-the-eye-1c743fa8b137

10
question of why that gap exists. Is it because the gap is an illusion pointing to a
product that no one wants? Or is it a missed opportunity?

It was during one of those classes discussing the beverage industry, that one
of Nalebuff’s students, Seth Goldman, wondered why there weren’t drinks with
‘intermediate sweetness.’ Drinks appeared to have 0 or 140 calories but nothing in
between. Goldman found this puzzling as he often liked to water down his
cranberry juice with club soda. It turned out that many in the class felt the same
way.

It was three years later that Goldman took this lesson from class and
proposed to Nalebuff that they try and brew, market and sell an iced tea that fell
into this market gap. It was at that point that Honest Tea was born. With their “just
a tad sweet” label, Honest Tea became an established brand over the next decade
going all the way to the White House as Barack Obama’s beverage of choice. In
2012, it had achieved over $88 million in sales per annum and by that time had
been acquired by Coca Cola.

Goldman and Nalebuff had stumbled upon a missed market opportunity

with Honest Tea. But key to their strategy was their choice of identity. To be sure,
they wanted to provide an iced tea with characteristics that were not available in
the market with sufficient customers to make entry viable. However, they did so
be an explicit choice of identity to be the “anti-Snapple.” Snapple were the leading
iced tea brand in the US at the time but sold products heavy with sugar and, as
such, very sweet. While Snapple saw itself as a competitor in the beverage market
as a healthier alternative to sodas, Honest Tea positioned itself as a healthier
alternative to Snapple. Moreover, to build off the notion that their tea was being
brewed to more traditional principles – think tea from India versus tea from South
Carolina – they reinforced this with organic ingredients and, like The Body Shop,
ingredients sourced in ways that reinforced the ‘honest’ part of their brand –
including fair trade.

11
 It is instructive to compare this choice
based approach with the approach to positioning
as it is normally described in mainstream
strategy. In that approach, a firm is asked to take
their customers, suppliers, current rivals, future
rivals and potential substitutes as set in stone and
think about how to position their own product in
relation to them. For instance, if your rivals are producing products at a high cost,
you should think about whether you can produce a low cost alternative.
Alternatively, if your rivals produce a product that targets one set of customers,
you should product one that targets a different set of customers. The lesson from
this strategy or five forces framework is that you should examine your competitive
environment and position yourself in a manner that will make the most profit over
the long-term; in particular, a position that minimizes industry rivalry.

While the five forces framework is very useful for classifying and
understanding what determines the intensity of rivalry in a market, as with many
tools, from an entrepreneur’s perspective, it can fail to expose the choices an
entrepreneur has. For instance, Goldman and Nalebuff chose to think of their
rivals as other iced tea makers and hence, positioned themselves relative to those.
This drove their choice of identity. However, the could have easily positioned
themselves in the market for beverages and thought about how to position
themselves in competition, not only with Snapple, but with Coke and Pepsi and
the like. Those products tended to be sweet as well. Of course, this may have
entailed a drastically different approach to almost every decision Goldman and
Nalebuff took but that is precisely the point. While the Honest Tea identity worked
out for them, at the time their startup was formed, there was no information to
distinguish that opportunity from a very different one.

The point here is that external positioning is important because it

communicates to other precisely what market you see yourself in. Peter Thiel has
written that new startups should look to markets that will make them the
monopolist. This is essentially the same logic as the five forces approach – that is,

12
the most lucrative markets are ones where you are dominant. However, this
message subsumes the choice of the market itself. Now every business can define
its market and rivals so narrowly as to make itself a monopolist ‘in name’; after all
every firm is unique in some way. But when you are looking to build a business,
you can choose who essentially your closest rivals are.

As another example, Tesla could have positioned itself as operating in the

narrow market for electric vehicles. In this situation, on all measurable metrics, it
market share would have looked larger. But more critically, this would drive its
decisions on other dimensions. For instance, to compete in that market it would
have to produce a better electric car. However, instead, Tesla identified itself as a
competitor in the broad automobile market. This meant that it had to produce a
car that would cause buyers to switch from gasoline cars to electric cars. That is a
different product design proposition and, of course, more challenging. But the
potential upside is to change the entire car market and not just a segment of it. At
the same time, this decision led it to react differently to its electric car rivals when,
in 2014, it opened up its patent portfolio to use by them.8 Whatever its other
motives, an advantage of this strategy was to strengthen the entire electric car
segment in competition in the broader car market. Thus, your external position is
a choice and it is one that assists in defining your identity.

Entrepreneurial Ecosystem

Finally, founders also have a unique degree of choice in the geographic

ecosystem they want to participate in. There is a well-established literature on the
economic agglomeration of entrepreneurial activity (e.g. in centers such as Silicon
Valley and Boston) driven by factors such as lower fixed entry costs and a higher
concentration of entrepreneurial peers and auxiliary services (Saxenian, 1996;
Delgado, Porter and Stern, 2010; Feldman, 2001; Glaeser, Kerr and Ponzetto, 2010).
These studies however, examine growth entrepreneurship at an aggregate level
and should not be interpreted directly as identifying “optimal” ecosystems for an
individiual start-up. Instead, applying entrepreneurial strategy suggests there are

8 http://www.teslamotors.com/blog/all-our-patent-are-belong-you

13
actually multiple potential ecosystems that an entrepreneur could choose to
participate in, each that could lead the start-up to a different firm identity. As an
illustrative case consider Brint Markle, the founder of Avatech, an avalanche-
detection technology company. Originally launched in Cambridge, MA the
founders were in school, at graduation Brint and his team had to make a decision
about where to grow their business. On the one hand, the Boston area ecosystem
provided them with access to a rich engineering talent pool and exposure to some
of the most cutting-edge research in electronic sensors. On the other, cities in
Colorado and Utah provided the team with access to avalanche safety and rescue
experts as well as the foremost ski and snowboarding athletes in the country.9
Ultimately, the Avatech team envisioned building a company that would advance
snow safety for the backcountry community and chose to locate the company in
Park City, Utah. Overall, this simple example reiterates our argument that
applying this choice-based approach to entrepreneurial identity can help translate
and align the literature with practice. Choosing to situate in a particular location
opens an entrepreneur not only to local peer effects and knowledge spillovers, but
also begins imprinting the internal and external identity of the firm.10 Founders
therefore should view the ecosystem they participate in as a choice, and consider
how different geographic and network locations fit with other elements of their
firm identity.

Choosing Your Entrepreneurial Identity

Putting this all together, the concept that a founder can build a firm into
multiple, different identities implies that there is significant latitude for choice in
determining a firm’s identity. To be clear, rather than assume that a firm has a
given identity or “DNA” because of its observables (i.e. founders’ prior
knowledge) we propose thinking about identity as a choice between different
DNAs of the firm.

9 To be clear, both of these ecosystem options were better aligned with their vision for Avatech when
compared with the Sunnyvale, California ecosystem in Silicon Valley which is concentrated with high-
potential start-ups (Guzman and Stern, 2015).
10 For example, a choice of a particular ecosystem could influence a start-up to be more oriented towards

execution and competition whereas another would be more inclined towards control.

14
 Choosing an Identity. Entrepreneurs need to consciously choose the type of
identity they want to build rather than allowing them to haphazardly develop.

Furthermore, we argue that these different DNA or identities are each

combinations of distinct elements of identity: the purpose the founding team
commits to, the capabilities prioritized for development, the reputation and
positioning of the firm, and the broader ecosystem the start-up belongs to.

Overall, founders need to carefully choose their entrepreneurial identity as

their initial choices they make about their identity will exert a strong influence on
their top management team and overall future identity of the start-up (Beckman
and Burton, 2008). Rather than leaving something so ingrained to happenstance,
entrepreneurs should actively choose the identity that best accords with their
vision of the firm they want to build.

15