Strategy

Strategy and Strategic Planning for Startups - Part 1

How to start building your startup’s strategy
Francesco | 23.03.18

When I first started working in a startup, I was afraid of the word strategy. The word evoked endless meetings, unintelligible spreadsheets and interminable documents that no one would ever read. I was instead obsessed with action - build something fast and enjoy success. You know, if you build it, they will come, as in that old Kevin Costner movie.

I very soon discovered that I was wrong. All businesses, startups included, must have a strategy and act on it.

Strategy for startups

Strategy has become one of those buzzwords you hear almost everywhere in business. Although there are many misconceptions about strategy in business, the core idea of strategy is simple: deciding how we want our business to evolve. Of course, there is more to it and a great source of definitions and examples is Richard Rumelt’s book Good Strategy/Bad Strategy. Good strategy, for example, “does more than urge us forward toward a goal or vision. A good strategy honestly acknowledges the challenges being faced and provides an approach to overcoming them.”

In a way, it doesn’t matter how you define strategy. What really matters is choosing the right objective and focusing all energy and resources towards this common goal.

Ok, I get the importance of having a good objective, defining the obstacles, strength points etc. I just don’t know where should I start. Any clues?

There is good news and there is bad news. The good one is that you don't need an MBA to work on your startup strategy. Strategy is mostly about making choices. We know that making choices about the future of your business could be hard, that's why some great frameworks have been developed to guide you in finding and analysing the right kind of information.

The bad news is that these frameworks are really helpful, but don’t expect miracles. They’re as good as the information you use in them. Insert wrong or partial information (such as completely wrong forecasts), and you could be misled - garbage in, garbage out.

Develop your strategy with the Lean Startup Framework

There are many useful frameworks you can follow to start reasoning on your strategy. Some very popular ones are the SWOT analysis, the ICE framework, and the Bullseye framework for traction channels.

There are many more out there, but if you're a startup founder, I strongly advise you to follow the Lean Startup framework. This framework will teach you how to drive a startup - how to steer, when to turn, and when to persevere-and grow a business with maximum acceleration.

The intention of this framework is to reduce uncertainty as fast and as economically as possible. It tackles head-on the biggest risk every new business faces: jumping to market with something nobody will ever care about.

This approach is based on two core ideas:

  1. Each startup should pass through some well-defined stages during its growth;
  2. Validated learning: You should gather information and test your assumptions continuously (Are we solving the right problem? Are people interested in our solution? Etc.).

The three stages of a startup

According to Ash Maurya, author of Running Lean, each startup goes through three distinct stages:

  1. Searching Problem/Solution Fit
  2. Searching Product/Market Fit
  3. Scaling

The three stages of a startup

Problem/Solution Fit Stage

The first stage, Problem/Solution Fit, is about finding whether you have a problem worth solving. Indeed, almost all new entrepreneurs start their journey with a big idea in their head. Before investing time and money into developing it, however, you should test whether:

  • The problem you are trying to solve, is a real problem customers have?
  • Will they pay for a solution to this problem?

During this stage you have to go out and gather information: observe your customers and talk with them, ask them their pain points and how do they currently deal with the problem you are interested in. It is very likely that you’ll have to iterate on your original idea to make it fit, but this is not a problem: better to know right now that it wouldn’t have worked, than after six months of developing.

Product/Market Fit Stage

After some (sometimes many!) iterations, you have found a problem worth solving and now it’s time to build your solution. There is no point in striving for perfection and developing an ambitious product right now, better to start with an MVP (Minimum Viable Product), a product with the minimal set of features for solving customers' problem and start experimenting with it.

The core of this stage is to test whether your solution is a good solution for the problem you are tackling, and people actually want to use it. Again, don’t expect to get it right the first time. It is an iterative process: you build your MVP, test it with users and gain feedback, change your MVP, collect more feedback, and so on, until you are reasonably sure that there will be market for it. Moreover, in this stage you have to test your traction channels too: since customers don't magically appear out of nowhere, you have to experiment with different channels for acquiring new customers.

Scale Stage

You have found the right problem, your solution seems to be the right one, you have some enthusiastic users and they are paying for your product, great! The time is right for thinking big and scaling up your business model. You have to experiment with different traction channels, in order to increase the stream of new customers, and work hard on your product for retaining the existing ones. Once you have tested and validated your business model, you could pitch your product to investors for the funding needed to make your business grow.

Validated Learning

We have just seen that during each stage you have to collect feedback from customers and use it to tune up your idea, product, and business model. Indeed, the core principle of the Lean Startup approach is the learning loop build-measure-learn.

Learning loop

All business ideas, be they products or services, can be seen as hypotheses that must be validated by rapid experimentation. Change (or pivoting) is part of the game: developing a successful business is an iterative process based on adapting it to the feedback you receive from your customers. It’s a kind of natural selection process: Gain customer feedback fast, then keep what works and adjust the rest until you find market support. This learning process is not based upon your hunch or gut feelings, but you need both qualitative (such as interview answers, observations) and quantitative data (sign up rate, number of returning users, etc.).

Feeling excited to start developing your startup’s strategy? In the second part of this article you'll find how to create a strategic plan that actually helps you and your team in focusing on what really matters for moving forward your business.

Do you know other strategy development frameworks which could be used for s startup developing its strategy? Let us know at hello@midiply.com or via our social media channels!

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