In 2023, a staggering 5.5 million new business applications were filed in the United States, marking the most competitive landscape for U.S. entrepreneurs and business owners in history.
As competition heats up, the bar for success is rising.
Over the years, I’ve worked with a wide variety of businesses, from ambitious startups to established enterprises in complex markets. One observation I’ve made throughout my experience is that two elements primarily drive all business success. When businesses prioritize these two elements and implement them with fidelity, they’re more likely to thrive than those that don’t, and mastering them has never been more crucial.
The Two Elements of Business Success
The foundation of business success rests on two elements: business fundamentals and strategy.
Business Fundamentals are the essential components and systems that allow a business to operate profitably and sustainably. They include components and systems such as:
- A clear value proposition
- Strong product-market fit
- Sound financial management
- Standard operating processes
- Effective marketing systems
- Effective sales systems
Strategy—as I define it—is a series of coordinated actions and policies designed to leverage unique advantages or opportunities for the purpose of achieving a specific outcome.
Why These Two Elements Matter
Data underscores the significance of both business fundamentals and strategy. Here are a few brief examples:
On Business Fundamentals:
- Companies with written business plans grow 30% faster than those without one. (Source)
- Organizations with higher Operational Maturity Levels (OML) deliver earnings approximately three times higher than those with median OMLs. In contrast, businesses with the lowest OMLs often operate at minimal or negative profitability. (Source)
- A comprehensive literature review between 2005 and 2019 found that general marketing activities positively influence performance indicators like Return on Assets (ROA) and shareholder value. (Source)
On Strategy:
- Companies that set growth strategies to address all available pathways to growth are 97% more likely to achieve profitable above-peer growth. (Source)
- 71% of fast-growing companies utilize strategic plans or long-range planning tools. (Source)
- A survey by Nonprofit Pro found that 86% of leaders reported that having a strategic plan positively impacted revenue generation. (Source)
- In a study of 750 bankruptcies of companies with at least $500M in assets in the last quarter before bankruptcy from 1981 to 2005, the number one cause of bankruptcy in nearly 50% of the cases was bad strategy. In most instances, the avoidable situations resulted from poor initial strategies rather than incompetent execution. (Source)
Yet, despite their importance, I rarely see these two elements discussed in tandem.
Some may argue the reason for not seeing business fundamentals and strategy talked about together is that strategy is—or should be considered—a component of business fundamentals.
I disagree with this argument for two reasons: 1) strategy isn’t a fundamental skill set for operating a business, which leads to 2) it’s possible to operate a successful, sustainable business without strategy. Adding an additional layer to this, I argue it’s impossible to operate a successful, sustainable without components such as a clear value proposition, strong product-market fit, sound financial management, etc.
That said, I think it’s a significant mistake to overlook the interplay of these two elements, particularly in light of another emerging trend that I believe will transform the landscape for entrepreneurs and business owners forever.
To illustrate this, I developed a quadrant framework that maps the relationship between business fundamentals and strategy.
How Fundamentals and Strategy Shape Business Outcomes
By placing business fundamentals and strategy on two axes, any business, regardless of industry or size, can be positioned within a quadrant. I contend that a business’s location in this quadrant serves as a quick—and likely accurate—predictor of its future, assuming no changes or interventions.
With business fundamentals along the X-axis (spanning from flawed to impeccable) and strategy on the Y-axis (ranging from non-strategic to strategic), each business can be classified into one of four quadrants. I’ve named each quadrant so that I can quickly reference the type of business found within it and the commonalities associated with it:
A. Dysfunctional Businesses (Bottom-Left Quadrant)
Dysfunctional businesses inhabit the bottom-left quadrant. These businesses have flawed business fundamentals and no strategy. They often struggle with unclear value propositions, little differentiation, weak fundamentals, and/or poor execution. Without business fundamentals covered at even an elementary level, they face continual challenges in selling and delivering their products or services profitably and consistently.
B. Stable Operators (Bottom-Right Quadrant)
Stable Operators inhabit the bottom-right quadrant. Like Dysfunctional businesses, Stable Operators don’t utilize strategy, but unlike Dysfunctional businesses, they thrive on solid business fundamentals. Stable Operators thoroughly understand the value they provide to their customers, and they employ effective people, tools, and processes to generate consistent, profitable, and sustainable operations.
Good examples of stable operators are local service companies (e.g., HVAC companies, dry cleaners, and restaurants) that have been in business for many years. While many other companies in the area may provide the same service, the local community’s demand is enough to support all of them as long as they have solid business fundamentals. Strategy isn’t necessary to succeed.
C. Innovative Disruptors (Top-Left Quadrant)
The upper-left quadrant comprises Innovative Disruptors, often expressed as early-stage startup companies. These businesses excel at recognizing new opportunities and challenging industry norms through bold innovations. By harnessing their objective to seize new opportunities, Innovative Disruptors have strategy embedded in their DNA organically—even if it’s bad strategy.
However, Innovative Disruptors are usually strapped for cash as they clarify their value proposition and test product-market fit in real time. As a result, their business fundamentals are typically flawed, and they grapple with operational inefficiencies while pursuing their vision and striving to gain traction.
Uber and Airbnb, in their early days, are two examples of successful Innovative Disruptors.
D. Strategic Operators (Top-Right Quadrant)
In the upper right quadrant are Strategic Operators. These businesses seamlessly blend robust business fundamentals with good strategy. They utilize their impeccable business fundamentals to grow consistently and then leverage their strategic thinking to identify new opportunities to which they can reasonably allocate resources to accelerate their growth.
Apple and Amazon exemplify this quadrant. Both companies consistently embody sound business fundamentals while regularly identifying strategic opportunities for continued growth. Apple, for instance, started as a computer company and has seamlessly expanded into best-in-class consumer electronics, constantly refining its product offerings to maintain market leadership. Amazon started as an online bookseller and has developed into the online retailer and arguably the best distributor in the world.
The Likely Paths for Each Business Type
As I mentioned earlier, I believe a business’s location on this quadrant serves as a quick—and likely accurate—predictor of its future.
Dysfunctional Businesses face a grim reality. Most are started by individuals with a dream but lack the know-how to operationalize their vision. According to the U.S. Bureau of Labor Statistics, ~20% of new businesses fail within their first two years, ~45% within five years, and ~65% within ten years (Source).
Dysfunctional Businesses will likely take one of two paths:
- Evolve into Stable Operators by improving their fundamentals.
- Remain Dysfunctional until they inevitably fail.
Stable Operators often sustain long-term profitability, leveraging their solid fundamentals to deliver consistent results. With this, they technically don’t need strategy. However, if Stable Operators want to grow more substantially than incremental increases year after year, they must evolve into Strategic Operators.
Therefore, Stable Operators will likely take one of two paths:
- Maintain their status quo and achieve incremental growth.
- Evolve into Strategic Operators, unlocking their full potential.
Innovative Disruptors face high volatility. While some achieve exponential growth, many struggle to transition from vision to sustainability. Statistically, most Innovative Disruptors will fail; CB Insights reports that 70% of tech startup companies fail, often around 20 months after raising initial financing (Source).
Therefore, Innovative Disruptors will either:
- Gain traction and operationalize, moving into the Stable Operator or Strategic Operator quadrant.
- Fail to find product-market fit, falling into dysfunction and eventual closure.
Strategic Operators consistently find new opportunities to remain relevant and thrive. They navigate market complexities and maintain their competitive edge by combining strong fundamentals with strategic foresight. However, poor leadership or complacency could cause them to become Stable Operators or Dysfunctional Businesses.
Therefore, Strategic Operators will either:
- Continue to remain relevant and grow.
- Lose their strategic capacity and become a Stable Operator or Dysfunctional Business.
A Look Back: The Trend Line of Competition Through History
Having examined the relationship between business fundamentals and strategy, and their implications for the future of each business type, I want to highlight a crucial trend that I believe will greatly influence the business landscape of tomorrow, placing even more importance on the interplay between business fundamentals and strategy.
To understand tomorrow’s business environment, it’s crucial to trace how business competition has evolved. What began as isolated exchanges has intensified over centuries, culminating in a business landscape defined by rapid innovation and relentless rivalry.
The Ecosystem of Trade
Trade began with bartering, where goods and services were exchanged directly. Over time, commodity currencies like bronze ingots and cowry shells enabled larger-scale exchanges and the introduction of coinage around 650–490 B.C. standardized transactions. These advancements fostered regional trade networks but limited competition due to the localized nature of commerce.
The Rise of Small-Town Commerce
In the Middle Ages, small towns emerged as hubs of commerce driven by local demand and agricultural productivity. Merchant guilds set early business standards, regulating trade and ensuring quality. Typical businesses, such as blacksmiths and bakers, served their immediate communities. While permanent marketplaces brought some competition, it was largely contained within small, self-sufficient regions.
Regional Business Expansion
The Industrial Revolution of the 18th century marked a turning point. Innovations in transportation—like steam engines and railroads—reduced the cost of moving goods. Businesses expanded beyond local communities, evolving into corporations capable of mass production and distribution. Joint-stock companies attracted wider investments, allowing firms like the British East India Company to dominate international trade. This era introduced true regional and international competition.
Globalization and the Rise of Modern Competition
After World War II, globalization accelerated with free trade agreements and international regulatory bodies. Lower trade barriers spurred global commerce, and technological advancements further enabled international operations. By the late 20th century, the internet and e-commerce transformed consumer interactions, creating a fiercely competitive global market.
The establishment of the World Trade Organization in 1995 solidified frameworks for global trade. By the 2000s, globalization peaked as the internet became ubiquitous, integrating economies and industries worldwide. Global exports accounted for a significant share of GDP, illustrating the scale of interconnected competition.
Today: The Pinnacle of Competition
In today’s business environment, social media and the internet have dramatically amplified competition. Business-focused social media influencers like Grant Cardone and Codie Sanchez share approachable business models with the promise to help people “escape their rat race” and become financially free, inspiring millions of individuals to become business owners themselves.
Additionally, an increase in technological literacy and specialized software has lowered barriers to entry, and niche services have become more affordable, further driving record levels of entrepreneurship.
The U.S. alone has seen three consecutive years of record-breaking business applications: 5.4 million in 2021, 5.1 million in 2022, and 5.5 million in 2023.
As of 2023, there were 33.3 million small businesses across the U.S. alone (and growing).
What’s the point?
Well, competition has been consistently rising in numbers for thousands of years across the globe, and it’s showing no signs of slowing.
To thicken the plot, the recent mainstream adoption of AI is further intensifying competition. AI-driven tools and agents have quickly made specialized work such as copywriting, web design, customer service, and financial reporting cheap, accessible, and sometimes better performing than human employees. This has raised the baseline quality of business fundamentals, reducing traditional operational advantages.
The result is that business competition is increasing to unprecedented levels in quantity and quality.
Which leads me to my prediction…
Strategy Will Separate the Winners from the Losers in an Increasingly Competitive World
As we look to the future, the rapid rise of information and AI significantly levels the playing field for businesses of all types. With increased and more affordable access to information, tools, tactics, and even skilled work, Dysfunctional Businesses will more easily evolve into Stable Operators. Simultaneously, Stable Operators are empowered to improve the quality of their business fundamentals further.
While this will help more business owners succeed, this newfound empowerment presents a paradox: the risk of sameness and oversaturation.
When numerous businesses adopt similar technologies in comparable ways, they risk producing indistinguishable offerings, marketing, operational processes, guiding principles, and more. Companies may optimize in similar ways at similar speeds as the ecosystem evolves, thus homogenizing their value.
To illustrate how I predict this will impact businesses, I will flatten the quadrant onto a spectrum with Dysfunctional Businesses on the left and Strategic Operators on the right.
For the sake of illustration, let’s say that 55% of existing businesses are Dysfunctional Businesses, 10% are Innovative Disruptors, 25% are Stable Operators, and 10% are Strategic Operators.
I predict the following:
- The surge of entrepreneurship and business ownership in the U.S. will continue to increase competition.
- The increase in competition will be seen most prominently in the Dysfunctional Business and Stable Operator quadrants because that’s where most businesses end up as-is.
- Greater access to better information, tools, tactics, and skilled labor will boost the number of Dysfunctional Businesses that become Stable Operators.
- Greater access to better information, tools, tactics, and skilled labor will improve the overall quality of competition within the Stable Operators quadrant.
- The combination of 1–4 will disproportionately increase competition within the Stable Operator quadrant more than any other quadrant.
- Due to the increased quantity and quality of competition, it will become increasingly challenging for Stable Operators to sustain themselves solely on sound business fundamentals.
If this comes to pass, the future of business competition will resemble the following illustration. There will be fewer Dysfunctional Businesses as entrepreneurs and small business owners receive increased support to become stable operators. Consequently, the number and quality of competition within the Stable Operators quadrant will rise significantly, creating a much more crowded quadrant.
An increase in the number of Stable Operators leads to greater commoditization. Consumers will press Stable Operators to perform tasks more efficiently, rapidly, and at lower costs. If a business fails to meet this growing demand, it risks losing customers, as consumers have numerous alternatives that can fulfill their needs. This situation creates a downward spiral for Stable Operators, resulting in an unpleasant and unsustainable business model.
The solution?
Implement quality strategy.
If Dysfunctional Businesses, Innovative Disruptors, or Stable Operators want to succeed in the most competitive business era in human history, evolving into a Strategic Operator characterized by robust business fundamentals paired with effective strategy is no longer an option; it’s essential.
Strategy is what will empower Stable Operators to identify and build upon unique opportunities their competitors aren’t seeing. Strategy is what will help Stable Operators continually navigate a growing, more complex, and more competitive business landscape. Strategy is what will help differentiate businesses from their competitors, sidestepping the metaphorical piranha feeding frenzy in the Stable Operators quadrant.
Conclusion: The Future Is Strategic
Business competition is at an all-time high and continues to intensify. The mass adoption of AI is accelerating market changes at an extraordinary pace. While strong business fundamentals once sufficed to sustain success, future demands go beyond operational excellence.
To stand out in an increasingly crowded and competitive market, strategy is no longer optional; it is the defining factor that will separate the winners from the losers. Now is the time to integrate strategy at the heart of your business. By doing this and ensuring its implementation throughout your organization, you will be positioned to not just survive but thrive in the most competitive business era ahead.