How do you develop a meaningful strategy for your startup? What should founders be putting on the agendas of board meetings? Let’s explore how to craft a good strategy for your startup.
Strategy in Startup Land
We are lucky to work with a bunch of super talented founders tackling big problems. When you are trying to change the world, the to-do list is never-ending. So we try to help our founders get their strategy right, as this helps prioritise their activities and make sure that all the hard work translates into tangible results.
What’s the Problem?
Recently I was working to solve a thorny business problem, and I reached out to a good friend (and highly accomplished entrepreneur) for advice. I talked her through the business’s current status, some relevant aspects of what we were working on, and then asked her for her thoughts. What would you suggest, I said? Well, she replied, that depends on what problem you are trying to solve.
Because being clear about the problem we are trying to solve is essential to coming up with the right solution. It is also, often, much more challenging than one would think.
More than half a century ago, IBM’s founder Thomas Watson Sr. said: “The ability to ask the right question is more than half the battle of finding the answer.” This might seem obvious. But the essential insight is still helpful. Namely that we should often spend a little more time thinking about what problem we are trying to solve before we charge headlong into looking for the “answer”.
In 2011, Professor Richard Rumelt codified this insight in his book Good Strategy/Bad Strategy. Here, he presents a simple four-step framework for strategic analysis. I will discuss below how we use this with startups.
Getting back to the conversation with my friend, I could see how I had fallen into the trap of looking for suggested solutions without being clear about what problem I was trying to solve.
Strategy and Startups
There is probably no environment as chaotic as early-stage startups. Founders are bombarded with an endless series of existential questions, they often find themselves burning their candles in both ends in an attempt to simultaneously boil the ocean and create an overnight success.
Building a successful startup is super hard. It isn’t surprising that founders are sometimes struggling to see the wood for the trees. Because of this, they often bring this endless set of activities into the board room. The implication is that directors spend board meetings talking about a long list of operational matters. These are seemingly important, but they can take focus away from the big things that truly make a difference: namely pivotal decisions that will likely determine the future success or failure of the startups themselves.
To help our founders, we often work with them to go through Richard Rumelt’s strategic framework. It is deceptively simple, but surprisingly powerful if you make an effort to apply it to your business problems. Because it turns out that the hardest thing often isn’t so much identifying and prioritising a set of activities. Rather, it is to acknowledge what challenges you face as a business, and prioritise which problems are the biggest obstacles to achieving success.
The Historical Context
To put the value of strategy in perspective, it helps to consider the origin of the word strategy. Derived from ancient Greek, the word Strategos means “general” or (literally “army leader”). Today, the word strategy is used in a plethora of contexts. But to the ancient generals, the idea of strategy was clear: namely to develop a plan for overcoming obstacles (e.g. having a small army, suffering from a lack of supplies, only possessing inferior weapons) to achieve an objective (defeat the enemy, or — perhaps — simply to survive). Today’s embryonic field marshals (startup founders) can similarly think about strategy as the means through which fledgeling startups overcome incumbent behemoths by making good decisions about how to deploy the limited resources they have.
A Framework for Strategy Formulation
So — how does one do this in practice? Rumelt’s framework consists of 4 steps:
- Define your proximate objective
- Identify the challenges to be overcome to achieve the objective
- Formulate a set of policies on how to overcome the challenges
- Create a coherent plan of action for implementing the policies.
Let’s step through an example.
1. Define your Proximate Objective
This step in itself has multiple layers – starting with defining your long term purpose as a business, and then identifying a shorter-term milestone (also known as a “proximate objective”).
At its essence, this step is about formulating your long-term business objective (also known as business “purpose”). One of the beautiful things about startups is that founders have such wide latitude in defining their companies’ long-term visions and purposes. Unencumbered by the legacy of an existing organisation or customer set, you can treat this exercise as a blank sheet of paper and truly dream big. Some well-known examples of this are Elon Musk’s objective at SpaceX (making humanity a multi-planetary species) or Larry Page and Sergey Brin’s objective at Google, which was to catalogue all the world’s information. Defining the right purpose (or mission) is one of the most powerful levers founders have in setting the businesses on a trajectory for success. But having a compelling long-term vision and purpose for your business is not enough.
You also need a proximate objective, by which we mean something close enough at hand to be feasible. To continue the SpaceX example from above: it’s impossible to go from being a fledgeling startup to making humankind a multi-planetary species in one step. First, you need to prove that you can even get a rocket into orbit. So the key here is to define a purpose for your business that is big enough to be meaningful and compelling for you and your team. And then define a proximate objective that you can feasibly achieve within a defined amount of time. A well-defined proximate objective helps prioritise and coordinate all the activities of your business. Choose it well.
Defining your proximate objective is such a big topic that I will cover this in a separate article. But once you have determined the business’s proximate objective, the strategic analysis becomes a relatively straightforward (if emotionally challenging) exercise for founders.
2. Identify the Challenges to be Overcome to Achieve the Objective
Correctly identifying the major challenges is often the hardest exercise for founders. To be a successful founder, you have to live in a little bit of a dream world. Who in their right mind would attempt to launch with a team of 2–3 people and no financial or branding resources to speak of, in an attempt to take on the corporate behemoths of this world? It’s a little bit like trying to defeat the Roman Empire with a ragtag band of adventurers. Noble, but perhaps a bit foolhardy? I say this with all love and respect, having myself been one of those adventurers on a foolhardy quest! But to succeed in the overthrow, you need to have slightly reckless courage to even make the attempt. This is the superpower and Achilles’ heel of entrepreneurs.
On the one hand, you need to be courageous (/reckless) to keep up the conviction required to push through all the adversity you will encounter. On the other hand, you need to have enough self-reflection to acknowledge the very real challenges that stand in the way of getting to your objective. And this is the hard part. Because how can you keep up hope that you can defeat Goliath against all odds, yet still be ruthlessly honest with yourself about all the things that don’t work?
When we work with our founders, this is often one of the more challenging exercises we go through. There is inevitably a temptation to stay at the superficial level (“our only real challenge is that we don’t have enough cash”). But if you don’t drill down one layer, you won’t get to the insights that genuinely help you identify the problems you need to solve.
So how do you get there? The important thing is to be brutally honest. Maybe you don’t have a working product? Perhaps you don’t even know what your customers want? Write those things down. And get help from trusted outside mentors and advisers to go through this, if need be. An honest inventory of the things you need to address is your best chance at formulating a successful strategy.
A typical list for an early-stage startup might have some of the things below:
- We don’t really know what our customer prospects most important business problems are
- Our product doesn’t yet solve our customer’s business problem
- Or we have a working product, but we don’t yet have any reference installations from customers
- We only have six months cash in the bank (and the company we think we are competing with head-on have just raised $30m)
Develop a good and detailed list of 2–8 things. If you have more, it is possibly because you are including problems that are more long-term in nature (and less critical to the immediate attainment of your next milestone). Focus is key.
Once you have the list, prioritise your top 3–5 challenges. These should be the challenges you absolutely must solve to reach your proximate objective.
3. Formulate a set of Policies on how to Overcome the Challenges
Once you have a prioritised set of challenges, you’ve likely accomplished at least half of the challenge in coming up with a good strategy. Now the fun begins. Step 3 is all about making real decisions about how you will overcome the obstacles that stand in your way. What could these decisions look like?
If the challenge is: we don’t know what our customers want, the policy could be so say that we will:
- define a hypothesis of our ideal customer profile, and then interview 30 prospective customers with that definition,
- hire someone with a background in this industry, or
- choose another target segment we know better (which then creates a new challenge that needs to be overcome).
Be super clear about which problems you are addressing and how you plan to tackle them. All policies are not equally good, and there are lots of patterns and best practice on how to solve common startup problems. But a good board meeting (or conversation with your startup mentors) can be about going through a list of challenges and proposed policies for tackling them. You hopefully have good advisers and mentors. If you do, they will have a lot of relevant experience of how other companies in your situation have tackled and overcome similar challenges. These examples might not apply to you, but that’s fine. Don’t take what comes from your advisers and investors as gospel.
Instead, treat the conversations as a source of inspiration for how to solve the challenges you face. This will likely lead to a much more fruitful discussion than if you present a long list of operational activities. “Here are all the marketing activities we plan to do next quarter” might stimulate debate. But my bet is that it won’t be the most productive use of your time with the board.
4. Create a Coherent plan of action for how to Implement the Policies
Step four is the operational foundation of running and building your business. Did we decide on a policy of working with new channel partners rather than hiring more inside sales reps? Does this mean that we need to hire dedicated channel managers? Well, what is the detailed plan for doing that? Do we advertise on LinkedIn or use a recruiter? How do we interview and onboard the new channel expert? In startup land, no plan survives contact with the enemy. But plan definitely beats no plan. And the good news is that — if you are super clear about
- why you are looking to do something,
- what problem you are trying to solve, and
- how you are going to address the issue at a strategic level (your policy), then
- the detailed who, how and what of the action plan are much easier to get right.
Your detailed action plan often lends itself to iteration, in case you don’t get it quite right on the first go (we didn’t manage to find the right resource? Let’s tweak the plan and try again). This is not to say that execution isn’t essential, but just an honest reflection of how unpredictable and uncertain things can be in the startup world. As a result, we have to adjust the detailed execution along the way.
President Eisenhower (someone who knew the value of both military and civilian strategy) said that “Plans are worthless, but planning is everything.” And as we discuss above, the plans you make for your startup are unlikely to survive contact with the enemy (or the reality of rapidly evolving business conditions). But even so, it is essential to identify and prioritise your strategic obstacles, and then decide how you will address them. Otherwise, you leave your business’s success to chance, with you as founder hoping for success. And — as the saying goes — hope is not a strategy.