Learning how to develop good strategy takes time. Most people get it wrong.
In 2011 I was consulting to a technology investment fund. The job was to help founders of the investee companies to refine their plans and get moving. Strategy and execution work.
From the fund’s perspective it was to derisk the investments and improve chances of success.
These founders had been given a big chunk of cash to develop their concepts. Most had made a few sales but were far from being break-even or sustainable. The investments were a bunch of small bets, hoping that one or two might survive long enough to be flipped for a higher valuation.
My first task was strategy. The leaders weren’t able to be changed – they came with the investment and were the founders. In fact, a lot of the investment case was the founder rather than the business concept itself. So the starting strategy for each of the investee businesses was wrong and had to be overhauled.
In those earlier days the strategy for tech start-ups was mostly organic. The investment thesis had to pass the most basic sniff test of believability, and the founders just had to have enough rapport with the investors plus some chutzpah to push their ideas until someone cut a cheque. The bets were small enough that the risk wasn’t too large, and the payoffs could be significant.
But the small bets also meant the runway was short. Bad strategy didn’t leave enough time to course-correct, pivot, or make other changes before the money ran out.
Bad strategy can be terminal.
Strategy matters
Some might say the investment side hasn’t changed much, but competition for funds has definitely increased. As has competition for whichever market you’re in.
The job of every dollar is to make more of itself.
(at least that’s the case if you’re an investor)
Investors have a plethora of options. Parking cash in the bank can give a 4-6% risk free rate of return today (28 August 2023), so why risk it in a start-up? Or, put it real estate for some lazy capital gains in a very tight market (for now).
And it’s the same for resources inside established organisations. Every project or investment needs to be work it and have a reasonable chance for success. There is opportunity cost for every dollar and every minute of activity or attention of the team, so where is the best place to invest time and money in order to progress?
Too often I’ve seen excel-driven strategy. This is strategy crafted in excel to paint an ideal picture, full of [untested] assumptions and positive predictions, but devoid of risk and sensitivity analysis. Super detailed but artificial and unreliable.
All models are wrong; some are useful.
George E.P. Box
And then there’s the opposite. No models, just a compelling sales story, full of detail about possibilities but nothing on realities. Hype-filled, these are about triggering FOMO – fear of missing out.
Strategy shortcomings
One big assumption in these business concepts and many new product ideas – the biggest in my opinion – is that there is actually a real customer problem worth solving. A “problem worth solving” is something that creates value for both the problem owner and the solution provider when it is solved.
Problem definition prevents strategic misadventure.
Say it again. The first and most important part of strategy is problem definition. And then continually validating what you think you know, assimilating new information as it becomes available. So many calamities, misadventures, poor investments and depletion of scarce time and energy can be avoided if only problem definition was done first.
And then, even if there is a real problem worth solving, the organisation often doesn’t have a realistic understanding of the problem from the customer perspective, and so cannot align resources to ensure success in a competitive environment.
Good strategy saves time, money and resources.
The tools and leaders use for strategy are part of the challenge.
If they use any tools at all.
Using the wrong tool will give the wrong result. Some are super complex and proprietary. They can only be used by the people who made them. I’ve found that many, like the excellent Business Model Canvas, are very useful at organising thoughts but start with the assumption that you already have a problem worth solving.
Some tools are from different domains. There is utility, but they’re not quite fit for purpose. Military strategy is an excellent example. Many people think military strategy can be applied directly into non-military organisations because defence is all about strategy, right? Not quite. Military strategy is usually predicated on imposing one’s will upon the environment and adversaries in a contest of resources.
The fundamental difference is that in the non-military world there are things called “customers” as well as competitors. And customers have options and make choices, sometimes ones that seem irrational. This is called “consumer sovereignty“, and the problem is that a) “markets can stay irrational longer than you can stay solvent“1, and b) you generally can’t force people to make the choices you want. Maybe counter-insurgent strategy has more relevance, but it’s still adversarial at the core.
Shaping the environment is much more important in a non-military context. So correctly understanding and aligning the organisation with the environment and your customers is key. It takes time and is iterative. You humbly learn as you go.
Or you move fast and fail and hopefully gain humility as a consequence.
The Strategy Canvas
I developed the Strategy Canvas back in 2017 when I was teaching disruptive innovation at the QUT Graduate School of Business.
The Strategy Canvas is a simple process for individuals or groups to explore and define key considerations and help to develop a valid and cohesive strategy. Unlike other approaches it blends key considerations from organisational and military strategy to help improve chances of success. And, like all good strategy, it includes analysis of the environment, defining how to orient to the environment, and an action plan to execute the strategy in the short, medium and longer timeframes.
Click here to get the free download: Strategy Canvas.
- John Maynard Keynes ↩︎