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In the third and final article of his Strategy for Start-ups series, Richard Hughes-Jones from Firewerks contrasts traditional and lean planning cycles that guide start-ups in their key decisions:

In his book Good Strategy / Bad Strategy, Richard Rumelt defines strategy as “a coherent set of analyses, concepts, policies, arguments and actions that respond to a high stakes challenge… Strategy is about how an organisation will move forward”. This definition is a very good one and is as appropriate to start-ups as it is to any corporation. But there are differences of course between such organisations, as Steve Blank reminds us, “a start-up is not a smaller version of a large company. A start-up is a temporary organisation in search of a scalable, repeatable, profitable business model”. So how should start-ups frame their strategic thinking?

Time: the speedboat versus the oil tanker

In a traditional corporate setting, a business would formulate strategy based on thorough analysis of its market, competitors and customers, setting the scene for strategic execution typically over a 3-4 year period. This worked very well for many years but competitive advantage is becoming increasingly transient and the ability of large corporates to remain in the top spot is being undermined. And don’t they just know it.

This is why start-ups have a profound generic competitive advantage when set against their corporate counterparts. It lies in their ability to change course rapidly. Some have argued that the pace of change, and associated uncertainty, means you don’t need a strategy. Having one means that you are rigid and inflexible. I don’t agree with this. Strategy remains an overarching framework in any business large or small and is necessary to guide key decisions. We just need to reframe how we think about it for a start-up and that comes down to having shorter strategic timescales with focused ‘proximate objectives’ (feasible targets you take actionable steps to work towards) at which point the strategy can be reviewed and changed if necessary.

Validated learning

Start-ups must integrate ‘product validation’ (ensuring the product answers a distinct problem or opportunity, and is effective and feasible) and potential pivots into their overarching business strategy. Going back to Rumelt, he views strategy as having an essential logical structure, called the kernel, which contains: a diagnosis, a guiding policy, and supporting coherent actions. In a traditional corporate sense, “the guiding policy specifies the approach to dealing with the obstacles called out in the diagnosis” and coherent actions are “feasible coordinated policies, resource commitments and actions designed to carry out the guiding policy”. We’ve discovered that in a corporate setting this has worked well in the past, but start-ups operate in a very different way. Methodologies like The Lean Start-up, flip Rumelt’s kernel around by placing the formulation of a guiding policy before the diagnosis. With a guiding policy in place, a start-up sets out to validate it via the Build-Measure-Learn process. If the guiding policy is disproven then the start-up pivots to a new guiding policy that it then retests via the same process.

So how should start-ups frame their strategic thinking?

Consider the two charts below. The first represents the traditional strategic planning cycle for a large corporate and the second is a suggested approach for a start-up.

 

Charts depicting the differences between corporate and start-up strategic planning (credit: Richard Hughes-Jones)

The differences between corporate and start-up strategic planning (credit: Richard Hughes-Jones)

In the first chart the corporate has a Vision for it wants to be, has set its course over a 3-4 year timeframe with a clear objective or set of objectives in mind and has a number of clear strategic actions in place. These can then be passed down to individual business units to implement (examples might be purchasing a new factory, acquiring a competitor and/or implementing a new CRM system).

In the second chart, the start-up has a Vision that is equally holy. However, strategic thinking and execution needs to be considered on a shorter term basis, guided by feasible proximate objectives, which all within the team are clear about and working together to achieve. This approach recognises two key things. Firstly that the course will change. And secondly that only when validation has occurred, and the business model has become more fixed, can the business move towards longer term objectives and focus on meatier actions. At this point the business is moving out of its start-up phase.

This approach does not reinvent the strategic wheel. It just helps bring a logical framework to the activities of an early stage business.

Let’s reconsider Fred Wilson’s breakdown of a CEO’s main functions (which I introduced in my previous article) in this light:

  • Sets the overall vision and strategy of the company and communicates it to all stakeholders (and in my opinion should take overall responsibility for its execution).
  • Recruits, hires, and retains the very best talent for the company.
  • Makes sure there is always enough cash in the bank.

With a clear strategic plan in place the early stage business can set about executing it, and benefit from a team that is fully on-board and aware of what is expected of them. This makes the leadership task much easier AND means you can manage your cash burn rate in accordance with your plan so you don’t unexpectedly run out of cash.

 

How well do you feel that methodologies like The Lean Start-up address the realities of growing an early-stage company? Are shorter planning cycles and proximate objectives the best match? Join us on Twitter @KPMGTechGrowth and @rhughesjones to spark the debate.