Lean Strategy for Startups: it's not sexy but it is important

by Richard Hughes-Jones

I raised the question recently, in previous post, about whether strategy needed innovating, in particular to raise its profile in the startup world.

You see, unlike many other aspects of this world, strategy is not sexy (probably because of its corporate connotations). But that doesn’t mean that we should dismiss it. From talking to founders and leadership teams, it’s the ability to think (and plan) strategically that they readily admit they need help with.

In The Lean Startup, Eric Ries accurately describes a startup as “a portfolio of activities”. He explains that “a lot is happening simultaneously: the engine is running, acquiring new customers and serving existing ones: we are tuning, trying to improve our product marketing and operations; and we are steering, deciding if and when to pivot. The challenge of entrepreneurship is to balance all these activities”.

The responsibility for managing this challenge lies with the leadership team. But many businesses, not just startups, fail to do balance all activities effectively. Taking a myopic view, they deal with issues on a daily basis as they arise and have no forward strategy to guide them. Whether at the pre or revenue generating stage, an ability to take a helicopter view of a business and lead it accordingly, rather than to fire fight on a daily basis, is what makes a true CEO or C team member. I know that successful businesses exist that have not followed this approach but it bloody well helps!

Traditional approaches to strategy

Richard Rumelt is the author of Good Strategy / Bad Strategy. It is one of the best the best books written on the subject, for the simplicity with which he explains the subject, and I often use his thinking to frame my own. For Rumelt a strategy is “a coherent set of analyses, concepts, policies, arguments and actions that respond to a high stakes challenge… Strategy is about how an organisation will move forward”.

Rumelt views strategy as having an essential logical structure called the kernel. The kernel of good strategy contains three elements: a diagnosis, followed by a guiding policy, supported by identified coherent actions. In a traditional business sense, “the guiding policy specifies the approach to dealing with the obstacles called out in the diagnosis” and coherent actions are “feasible coordinated policies, resource commitments and actions designed to carry out the guiding policy”.

In a corporate setting, in accordance with a typical strategic and business planning process, the diagnosis sets the scene for the development and implementation of a strategy typically over a 3-4 year period. Corporates have in house teams to undertake required analysis, formulate it for leadership sign off, then disseminate it for business units to execute. Consultancies exist to assist corporates across the strategy lifecycle. Some (like McKinsey) focus on analysis and formulation, and others (Accenture for example) execute it, though the lines are again becoming increasingly blurred.

A Lean Strategy approach

Unsurprisingly, startups operate in a very different way. They operate to considerably shorter timescales and in an uncertain environment, without the benefit of knowing what has worked and not worked in previous years. We all know this, it is why the lean startup movement exists.

From a strategy perspective, The Lean Startup approach flips Rumelt’s kernel around by placing the formulation of a guiding policy before the diagnosis. With a (typically product focused) guiding policy in place, a startup sets out to validate it via the Build-Measure-Learn process. If the guiding policy is disproven then the startup pivots to a new guiding policy that it then retests via the same process.

So rather than ignore strategy altogether, I believe that what we need to do is re-frame how we think about it. To do that we should start by doing 3 things:

1. Be clear what strategy is (and just as importantly, what it isn’t)

The Lean Startup is variously described as an approach, framework and/or methodology for navigating the early days of a startup journey. The Build-Measure-Learn feedback loop, like Customer Development, is a process. The Business Model Canvas is, I would suggest, a tool. These are all excellent resources (arguably the best out there) to guide the development of a startup, but taken individually or together, they DO NOT constitute a business strategy. With a liberal amount of flippancy I can say that here in London, I have witnessed people quite literally running around Silicon Roundabout waving copies of The Lean Startup and proclaiming that they have ‘a strategy’ for business success. They are unfortunately mistaken. It’s going to take a bit more than that I’m afraid.

2. Focus on an overarching business strategy

For reasons totally understandable, The Lean Startup places sole strategic emphasis on the product: “the product is the end result of [the] strategy” says Eric Ries. Product is of course central to the success of any lean startup but other factors must also be managed if the engine is to be kept running to continue with Eric’s own analogy.

I like to see an overarching business strategy: a strategic top-layer that the leadership team can use to manage strands of activity on a weekly to monthly cycle. The strategy must be directly aligned with the startup’s Vision, its guiding policy and the lean methodologies and tools that the business is utilising. Product (and customers) will be a key strand but resources, finance, marketing and operations, amongst others, also require focus. The beauty of an overarching strategy is that it enables the management team to coordinate the strands of business activity in a coherent way, pivots and all. As the VC Fred Wilson says, at the highest level “strategy takes what you want to achieve and develops a plan to get there. From strategy you can develop tactics and implement them”.

3. Understand what is meant by lean strategy

The key factor that distinguishes lean and traditional strategy is time. The 3 to 4 year cycles of the corporate world are anathema to startups and new ventures. As a startup moves from its pre-revenue stage, through to early revenue and then to scale, a much shorter cycle is required. Strategic timescales will of course vary from business to business but they can be determined through a strategic planning process (implementation of the identified overarching strategy) that realistically identifies the time and resource requirements to execute lean startup processes. Think of it as bringing a little order to the chaos!

The challenge then is to shrink-wrap the strategic cycle. A good way to think about this is in terms of what Rumelt calls proximate objectives: “one that is close enough at hand to be feasible”. Your next potential pivot becomes your proximate objective. The detail of your strategy then defines how you are going to get there and this can be articulated within a strategic plan. Rumelt reinforces that coherence is key, that is “the resource deployments, policies and manoeuvres that are undertaken should be consistent and coordinated”. A solid overarching strategy and associated strategic plan will enable you to do this.

And finally

Lean strategy is applicable not just to businesses that are following a lean startup approach. I meet many startups and small businesses that are forging ahead with growing their business, operating to tight timescales and in situations of uncertainty. Not all are lean disciples. Adopting a lean strategic approach is possible in any business of this nature. It requires fast thinking but it is fun, and that’s what entrepreneurship is all about right?

image credit: aamu.edu

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What Does Innovation Mean for Smaller Business? Richard Hughes-Jones is an experienced management consultant, having spent most of his career with Deloitte UK and working in a senior management role for Her Majesty’s Treasury. He now works with high growth businesses, bringing strategic business thinking to support sustainable growth. Richard blogs about a range of business issues at FireLDN and is on @rhughesjones