How to build a successful start-up
I started this series a late last year with the 1st blog on Generate an idea (but remember that it’s worthless) followed by In-depth observe (not interview) 5-10 potential customers, including 2-3 “extreme users” and then Document your Plan A and Identify the riskiest parts of your plan and then Systematically test your plan and Get to release 1.0. And most recently Reach product/market fit. I have copied the intro to the series directly below and you will then find part 8: “Define your strategy (Goals, Scope, Competitive Advantage, Logic)” – the subject of this post
Original intro to the series:
The goal of a founder who wants to create a big company is to find product/market fit in a large market – one that is at least £0.5B/$0.75B in size. Much smaller than that and a venture investors won’t be confident that he or she will get 10x on their investment (and note that it doesn’t matter at which stage you’re working, as if an early stage investor like us, we need to believe that we will be able to sell you onto a Series A/B investor who also has to believe he or she can get 10x and so on). It’s not right all the time, but it’s a rule of thumb.
The Lean methodology, thought up by Eric Ries and then evolved by many others, is the best way to work through the early stages to product/market fit.
We like Running Lean by Ash Maurya for a clear outline of what this entails.
What Ash excludes from his thinking is in-depth customer observations, as developed by IDEO, the design firm founded by David Kelley in Palo Alto, right next door to Stanford University, my alma mater, and a clear definition of “strategy” for the start-up.
(Overly) Simply put, we think a founder needs to take the following steps:
- Generate an idea (but remember that it’s worthless)
- In-depth observe (not interview) 5-10 potential customers, including 2-3 “extreme users”
- Document your Plan A
- Identify the riskiest parts of your plan
- Systematically test your plan
- Get to Release 1.0
- Reach product/market fit
- Define your strategy (Goals, Scope, Competitive Advantage, Logic) – the subject of this post
I will write a bare-bones explanation for each of these 9 steps with as many links and references as I can so you can read better writers’ thoughts on the subject.
And please note that at some point on this journey you need to find a co-founder. It’s pretty rare for a solo founder to manage it all on his or her own. It happens, but it’s rare. I’ll write about that as an additional point 10:
10. How to do the co-founder thing
And the last thing that you absolutely need is a great culture.
11. What is a great culture?
Here we go:
Define your strategy (Goals, Scope, Competitive Advantage, Logic)
What is strategy?
Strategy takes your mission/vision and develops a clear plan to get there, including what you aren’t going to do. From strategy you can develop tactics and implement them.
Benefits of Explicit Strategy Statement
- Clarity: avoid unnecessary confusion and conflict (otherwise the ambiguity can lead to a lack of focus)
- Coordination: easier to coordinate efforts within the organization (avoid pulling against each other)
- Incentives: easier to provide incentives to employees
- Efficiency: daily decisions can be evaluated in terms of whether they “fit” the existing strategy
- Evaluation/Adaptation: easy to track performance and easier to make adjustments when necessary
What do strategy statements include
1. Mission/Vision – this is what gets you and your team up early and to bed late and keeps people with you despite others offering more money for their time & skills. The Vision part is your big hairy audacious goal, how you’re going to make a dent in the Universe – the world changing goal. And make sure you stick to it so there’s consistency between what you say your mission is and how you act. Cognitive dissonance when the two don’t match is lethal to a customer relationship (think about that message you get on the phone too often: “your business is very important to us, please hold [for 20 minutes]” – yeah, I feel REALLY important….)
E.g. “Unlocking unique spaces worldwide” – AirBnB
E.g. “Give people the power to share and make the world more open and connected” – Facebook
E.g. “Promote and enhance collaboration between a team” – Basecamp
E.g. “Experience new car buying without any of the hassle or uncertainty” – Carwow
2. Scope – What exactly are you going to do for which market?
What markets will you serve (including geographic)?
Who will the customers be?
What problem are you tackling?
What products the company will serve its customers with?
What activities will it engage in?
Should also give some sense of what the firm will NOT undertake
3. Goals – A strategy must have clear long-term goals. For example “to get 10,000 nights booked in spare bedrooms by the end of the year 3” is better than “to be the leading collaborative consumption site for spare bedrooms” which is better than “to build a great collaborative consumption site for spare bedrooms”
The goals are the WHERE of strategy. i.e where is the company going?
They are also motivational to managers and employees
Within goals you must think about where you think the market will evolve to and set goal accordingly. You’ll be wrong, but you can change the goals as you realize that
4. Competitive Advantage – How are you going to beat the competition within your scope?
Can be thought of as the HOW of strategy
Being better at an activity is only a competitive advantage if it contributes to the firm’s ability to meet it’s goals
In general, competitive advantage either means that you produce something that customers value more than the competitors OR you produce something at a lower cost
Often simpler products at a lower cost (vs equally/more complex products at a lower cost) unlock a customer base that weren’t in the market before you turned up – Mark Suster writes about “deflationary economics”
It’s important to know what your competitors are doing, and especially important to be able to very clearly articulate why your service/product is differentiated from theirs. But don’t obsess about your competitors, obsess about your customers and what they need.
5. Logic – Finally, there must be an inherent logic which ties together the scope, with the company goals and the competitive advantage that will get the company to realize its strategy – it’s the glue that holds these together. It contains the core argument for why the company will succeed.
Can be thought of as the WHY of strategy
Makes explicit some of the assumptions about the firm and its environment that must be true for the strategy to succeed
Unlike the other parts of strategy, is usually not mentioned by companies, but it needs to exist and make sense
Relationship of Strategy to Mission/Purpose, Vision & Values
- These are all just complements to strategy (should not be confused with strategy)
- “Mission/Purpose” is the motivating, world-changing statement you tell your team all the time and your investors once in a while
- “Vision” describes the strategist’s plan for closing the gap between current reality and a potential future
- Must be able to communicate the vision
- Great vision without a supporting strategy is not going to succeed unless the product is so good it sells itself (Twitter in its early days?)
One final comment on strategy
- Customer learnings trumps everything. If you are consistently observing your strategy not working with your customers, you are wrong. Change your strategy or change your customers.
- If you don’t really know what your customers feel about your service or product, pick up the phone. And here’s how to use the phone!
Next up in this series is “Scale”