Strategic Planning for New Ventures. Part I: What the heck is strategy?
When working for a large company, I remember the arduous, but necessary process of yearly strategic planning, albeit I wasn’t personally invited to the swanky off-site or wherever “the generals gathered in their masses”.
Now that I’m part of the management team of an early-stage biotech startup, I get invited to the party – yeah! Then it dawned on me that as the ‘business guy’ in the team, I was the one supposed to know what strategic planning really is and how to conduct a productive conversation on strategy (or if this even applies to startups!). We decided it wouldn’t hurt to take stock of our advantages, progress and lessons learned to date and using some sort of policy framework, figure out if the current plan was still the plan ahead of the next round of funding.
Before drafting a detailed framework that would facilitate our strategic planning discussion (which I’ll share a generic version in the next blog), I thought it was useful to revisit the definition of strategy in the first place, so as to know what was even in scope to debate and decide upon. I was mainly trying to answer the question: How much of strategy is about adhering to a tried-and-true theory of competition and how much is about helping to deal with one’s own reality? Turns out there are elements of both theory and practice in most definitions of strategy, the balance depending on the school of thought you follow. Below are my brief notes from reviewing the strategy literature.
The Definition of Strategy
Strategy, a term borrowed from the military, meaning the art of the general or ‘generalship’ has many adapted definitions in the business world. Most management gurus have a broad definition of business strategy that includes strategy as a combination of positioning, leveraging advantages, purpose, direction, scope of activities and deployment of resources. However, there are those that emphasize strategy as the application of theory and others that emphasize strategy as dealing with reality. I’ve attempted to summarize both camps below with some known examples, hopefully doing them justice:
The Theorists: “Strategy is about deliberate positioning”
Win the fight before it starts – by being different from the outset
- Michael Porter (The Porter Trifecta): Pick your industry, generic approach to competing (low cost, differentiator, niche) and place in the value chain
- Clayton Christensen (Disruptive Innovation): Don’t attack incumbents from the top (don’t steal their best customers); Attack from the bottom, first serving the over-served and/or fighting non-consumption
- W. Chan Kim and Renee Mauborgne (Blue Ocean Strategy): The best way to beat competition is to avoid it (pick a blue vs. red ocean)
- Michael Treacy & Fred Wiersema (Value Discipline): Focus on delivering customer value on one of three disciplines: Operational Excellence, Customer Intimacy, or Product Leadership
- C.K. Prahalad & Gary Hamel (Core Competence): Determine your core competence and make that the basis of competition
- Everyone & their mom (Sustainable Competitive advantage): A source of power that allows a company to outlast its competitors; This has been the most common view of strategy. How many times have you heard investors ask you “what is your competitive advantage”? Too many, I’m sure!
The Realists: “Strategy is about organic re-positioning”
Win the fight after it starts – by managing uncertainty through agility
- Henry Mintzberg (Emergent Strategy): Mold your best intentions to accommodate reality, accept strategy as ‘emergent’ vs. simply deliberate
- Rita McGrath (Discovery Driven Planning & Transient Advantage): Assume plans need to be tested; Accept that competitive advantages are fleeting – be prepared to renew advantages (consider them transient, not sustainable)
- John Mullins and Randy Komisar (Getting to Plan B): Don’t get too attached to your plan A which probably contains a mix of tested vs. untested assumptions – borrow what’s worked for others and focus on testing your leaps of faith, i.e. getting to plan B
- Steve Blank (Customer Development): Search for a scalable business model by testing hypothesis through customer feedback (Validate the problem and the solution before scaling the business)
- Peter Drucker: Probably the greatest ‘realist’ of them all. Drucker possessed an uncanny ability to read the present, not predict the future. Although he is mostly known for his views on management, his foundation in innovation (and how uncertain that can be) clearly plants him in the realist camp when it comes to strategy, as exemplified by his many views on strategic planning:
“Strategic planning is the continuous process of making present entrepreneurial (risk-taking) decisions systematically and with the greatest knowledge of their futurity; organizing systematically the efforts needed to carry out these decisions; and measuring the results of these decisions against the expectations through organized, systematic feedback.” – Peter Drucker
Whom should you follow?
I personally don’t think one has to take a purist view to following a certain school of thought on strategy. Both philosophies are meant to help us save time and both incorporate elements of each other. Criticism of either approach is often exaggerated. For example, realists are often labeled as people that act before they think – That’s not what is being implied at all by being a realist – It’s “think, act, measure, think again and repeat” – with the required frequency of your particular market conditions.
Theorists are knocked for thinking too much inside their known box, obsessing about reductionism and less about the emergent process of figuring out what the customers really want. But it is fairer to say that theorists aren’t asserting that the battle is ONLY fought before the battle and that execution is mindless. (Interesting to note that Clayton Christensen added Tony Ulwick’s “Jobs-to-be-Done” (Outcome Driven Innovation) to his arsenal, recognizing the need to go beyond positioning theory). Theorists like Christensen are suggesting avoiding unnecessary trial and error and learning from the experience of others. The debate is mostly around when a theoretical model applies vs. having to see for oneself – Most agree there is a balance of learning from empirical evidence before having to expend the greater energy required to learn from one’s own experiments.
Whatever the specifics, strategy gurus seem to converge on the notion that strategy is a framework that guides choices to determine the nature and direction of an organization, rather than determining the goal itself. In other words, strategy is not what motivates someone to go change the world (or start a war for that matter), it offers a tool or ways to mobilize a given set of means to help achieve the end in mind.
What strategy gurus also have in common is what they DON’T say: No one claims that strategy eliminates risk – strategy only helps to choose the proper risks.
In the next blog, I’ll provide an example of a strategic planning framework tailored to early stage ventures that takes into account the theorist and realist view of strategy reviewed above.
Very interesting thoughts! Thanks for sharing that. I am certainly not one of the big guys you refer in your post, but throughout my 25 years of experience in entrepreneurship (actually in startups only), I have personally come to this definition of the Business Strategy:
For me, the Business Strategy is actually three fold:
– Market Positioning: roughly, the problem we solve, the target segments we address, and the position in the corresponding market value chains ;
– Product Positioning: roughly, the (range of) offering we provide in response to each targeted segment, the offering’s features (expressed as key customer attributes), and the revenue model (the pricing).
– Goto Market: roughly, the way we get the offering in contact with users & customers, the marketing, sales & communication channels and actions.
This is far from being complete but this is a scheme that helps taking problem and decisions in the right order. Of course, this is an iterative framework: when you execute, you correct the market and product positioning, etc. And sometimes a lot! (you may have to pivot).
From my experience, what is _really_ tricky is what I call “in-depth progressiveness”: i.e. the ability to get into enough details from the first round for not missing key points, while executing quickly enough to learn and progress rapidly.
Interesting to share, indeed… Looking forward to your next post!
In my view strategy is a plan of approach, an action plan to reach predefined goals. Strategy can be on any of the three levels an organisation takes decisions. These are Strategic level (3 years and more), Tactical level (between 1 and 3 years) and Operational level (shorter than 1 year). The article talks about strategic PLANNING. Before you can do this on either level you must have some information to evaluate the risk involved and the possible outcome. That’s the way entrepreneurs take decisions and based on these decisions they develop their strategy to reach the goals they have set one forehand. Decision making by entrepreneurs is based on bias, heuristics, type of person and experience. Another word for this is “gut-feeling”. I find the difference between LSE’s and SME’s to be the way they act. LSE’s will conduct extensive analysis and based on that they implement what they think is right. SME’s more decide on the way described above and then pivot their solution with customers before they fully implement it. For more reading please have a look at my website http://www.tolobranca.nl where you can find different papers concerning decision making en business models on the right hand upper corner.
Well said and very useful. I look forward to your next blog!
Good guidance for the new breed of entrepreneurs, to ride the trouble waters on the market.
I would like very much to receive a copy of your next blog. firstname.lastname@example.org
Strategy to me is very simple, know what your end goal and create a path ( roadmap) that will get you there. The challenge many face is knowing the end goal. Thanks for sharing.