Strategy for Startups: what is strategy and why is it important? (1/3)

Eminent VC and start-up commentator Fred Wilson says, “don’t think you are going to win in business with a better product, more capital, or a bigger team…The winner in a market most often has the best strategy and executes it well”. The takeaway point being that strategy is important, even for startups. But what is strategy?

Defining strategy in one blog post is an impossible task, but think about it like this. Building and scaling a successful startup is like erecting a skyscraper. However, whilst you have an overall image (your Vision) of what you would like the tower to look like and what purpose it will serve, you don’t have any detailed plans to follow, know what material you need or exactly what team will be required to make it happen. Despite this, you must ensure that all the interconnected parts of the structure come together in a supporting fashion. Get one component of the structure wrong and everything comes tumbling down. Throw in the odd metaphorical hurricane along the way and all this is quite a challenge.

Staying with the analogy, in its purest form, strategy is a framework to guide the building of your skyscraper. A good strategy, combined with an effective strategic plan and the right team to execute to it, helps you to navigate the uncertainties that you are faced with and ultimately build a tower that is better than everyone else’s. You achieve your Vision.

What I see so often in start-ups as they move into their growth stage are flurries of disconnected activity that don’t adhere to any overall framework of action. And of course, good strategy is about more than just coordinated planning. It is about analysing and understanding the market, your customers, competitors and business model to allow you to make informed decisions which leverage competitive advantage. Still with the skyscraper analogy, fail to get these things right and the result is a disjointed structure that doesn’t really get off the ground. This is why most start-ups fail.

“But startups are inherently uncertain,” I hear you cry, “so strategy doesn’t work”. I don’t agree. In the world of startups, and this includes those following a lean startup methodology, the need for a considered and coherent approach is still important if you are to achieve your ultimate Vision. Because of the pace at which startups iterate and develop, there are two key distinguishing features between traditional strategy and the formulation of a more lean form of strategy:

1. Time: depending upon business maturity, strategic cycles must be rapidly reduced down into monthly and quarterly components.

2. Reacting to validated learning: analysis takes place on a continual cycle following launch as part of the process of validated learning. Startups that do strategy well interpret and adapt the findings from their journey and tweak their strategy accordingly.

It is hard to find any conclusive studies but the brightest business brains seem to agree that good strategic thinking (and execution) greatly improves the chances of success. With that in mind I’ll leave you with a final anecdote about why strategy is important for startups: because it improves your chances of investment (and therefore growth). For all the uncertainties, iterations and pivots, investors will be very interested to understand the broad direction in which you intend to take your business. An experienced investor will be able to spot only too well a founder with a Vision for their business, the leadership skills to build and inspire a team, and an effective strategy for how they will get there, even though they know that it WILL change on the way.

image credit: sccm.cc

Editor’s note: This is a three-part series. Read the series here

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Richard Hughes-Jones is a former Deloitte management consultant and UK Treasury civil servant. He is a trusted advisor to entrepreneurs and organisations that support entrepreneurship. You can find out more about his work at www.firewerks.co and follow him on Twitter @rhughesjones