Even a scale-up needs a strategy. But it must be short and flexible.
These guys came to me for advice. There were three of them, and they launched their first startup seven months earlier. And even before they told me what they wanted from me, when they were presenting me with their ideas, they started arguing about their brainchild’s future. I listened to them for some time and then asked them what their main problem was.
“This is the problem,” one of them said with a sad smile, “we can’t agree on anything.”
And I told them that I believed I had a solution.
Strategy is simpler than you think
What do you see with your mind’s eye when you hear the word “strategy?” I bet you envision a 200-slide PowerPoint presentation or a thick document. And that’s true when it comes to enterprises such as General Electric, Wells Fargo, or AIG.
But if a young startup begins to formulate a five-year strategy, it will waste precious time and energy on a document that will become obsolete faster than the ink dries up.
But it doesn’t mean that a startup doesn’t need a strategy. It does, but what it requires is another type of strategy.
If you ask 1000 entrepreneurs to give you a definition of strategy, 999 of them will tell you that it is “a blueprint for how to reach your long-term goals.” And that’s the fundamental problem.
Our ability to achieve long-term goals is highly overrated. And the fast-changing environment is only a part of the problem. Our long-term thinking is heavily biased by our minds’ traits. That’s one of the reasons why some 60–90% of strategic plans never fully launch.A startup lives in conditions of constant changes. And they don’t come only from outside. Founders often reconsider their products, customers, and priorities on the go. So, a blueprint that seemed brilliant yesterday may end up in a trash bin today.
The problem seems unsolvable as long as we see a strategy as a document.
But, first and foremost, a strategy is agreement about the following:
What will we do to develop our startup?What won’t we do?
So, if you have such an agreement, and all the team members agree on it, you have a strategy. I developed a simple structure that consists of five questions to help startup founders reach this understanding.
Garbage and disagreement
A friend of mine launched his startup together with his two friends. They found a way to revolutionize the waste collection industry. Investors loved the idea, and the founders got seed investments exceptionally quickly.
All three agreed they needed an Uber-like mobile application and other features. But as soon as they delved into details, it turned out that they saw them very differently. They disagreed about everything, from core customers to software features.
This made the investors nervous. And one of them told the team that they wouldn’t receive more investments until they developed and presented a strategy for their project.
The founders read some books on strategy and attempted to devise their long-term plans. They used SWOT analysis and a couple of other tools inapplicable to the situation. It didn’t help. They gave up and called me.
I offered them to reduce all the strategic matters to five crucial questions:
Core marketsCustomer needsCustomer valuesCritical assetsCrucial processes
It took them five weeks to find all the answers and to reach an agreement. Then they built up a short presentation, discussed it with the investors, and got their approval. Last year they sold their startup to an industrial leader, and my friend told me the deal was very successful.
Let’s look at those five questions in more detail.
You may read in the news that the “car market” (or phone market, or any other market) in a country grows (or declines). It means that the number of cars sold in the country last year was higher (lower) than the year before.
This economic market definition is not applicable for strategic purposes (if you’re interested, you can read about the matter in more detail here). To describe your target market, you need to break the issue down into four questions:
What customers have a need you would like to satisfy? Who are they?Where do they live or work?How many are there?How much are they ready to spend for a solution to their need?
To calculate the volume of your core market, multiply the number of customers within your target territory by the amount of money they are willing to pay for your solution.
Those startup founders interviewed several dozen people who worked for retail chains in their country. They found out that store managers experienced difficulties with the garbage disposal and were happy to pay for a fast and convenient fix. A simple database search let the team learn the number of such organizations that worked in the country.
The guys researched some other domains but agreed to focus on the retail market.
Needs are conscious or unconscious desires that your customers have, related to your possible solution (you can read more about customer needs here).
It is important to keep in mind that even if your direct customer works for a company and buy your goods or services for corporate purpose, they always:
Satisfy their own wishes alongside corporate needs. They don’t only follow the instructions. As I show in the example below, people are always people. That’s why I’m not too fond of the B2B acronym and prefer H2H — Human-To-human.Have emotional needs along with rational ones.
The second point is very important. Startup founders tend to underrate human emotionality and forget that people don’t stop being people at work.
They need positive emotions.They want a raise and promotion.They would like to be respected by their colleagues and superiors.They want to do less and earn more.
Those startup founders spent long hours having deep conversations with their potential customers. They found out that besides the obligation to do their work, the decision-makers also wanted:
To save time for doing boring things like organizing garbage disposal;To save mental energy — they wanted the job to be done quickly and easily;To keep calm. They didn’t want to be reproached for mountains of used boxes in their tiny utility rooms;To be praised by their superiors for being efficient.
These were core needs the startup founders decided to base their strategy on.
Even though there is the word “customer” in the phrase “customer values,” they are not what customers have. Instead, customer values are about what a company offers to its customers to satisfy their needs.
For instance, if consumers have a need to save time, a fast delivery service may be one of the customer values.
My mentees decided to propose to their customers the following list of values:
A user-friendly mobile application that speeds up a process;The 24/7 customer support;Paperless document management;A predictive analytics system to help users plan ahead for garbage collection.
Strategy is always about choice. A company’s resources aren’t unlimited (even if our investors are generous). So we always need to choose assets we must create and develop first. We can’t waste money across the board, and we need to focus on crucial assets.
My mentees discussed these points for several days, and the decision was hard for them to make. But finally, they agreed that primary assets for them would be:
The mobile app;The server software;Their brand;The pool of subcontractors.
So, they agreed to concentrate on these assets’ creation and development.
Every company is a chain of processes that must create value for its customers. But different workflows contribute to customer value differently. For instance, if you work for an IT company, software development will undoubtedly be one of the essential processes, whereas you may consider accounting as a less critical one. But accounting may seem more valuable if you work for a traditional bank.
As in the case of assets, a company’s leaders need to define crucial processes they will invest in. And the number of those workflows shouldn’t be large.
My colleagues from the startup made the short list of high-priority processes:
Software developmentCustomer acquisitionCorporate culture maintainsBranding and networkingSubcontractors managementThe loyalty program building
Building a list of priority processes means these procedures shouldn’t be underinvested. And the leaders must provide all the resources these processes need.