At the heart of every good early stage startup’s strategy is to not have a strategy
In the most simplest of terms, strategies are by nature long term, startups in the early days are not (yet), therefore they don’t fit together. But let me explain.
If your startup is essentially copying a business model that already exists eg. A plumbing service, then what you need to do to launch your new business is more straight forward. In this case you need to consider what makes you interesting and different, and therefore how are you going to find customers beyond your friends and family.
Where a startup is genuinely innovating, that is solving a recognised problem in a fundamentally different way to anyone else, there is no reasonable basis to create a reliable prediction of how the market will respond or what that will mean financially. So planning for what will happen in 3-5 years is at best wishful thinking.
Every component of an innovative startup’s business model needs to be worked out, starting with who your ideal customers are. That is, of all the people who experience the problem you are solving and therefore you could potentially sell the solution to, who feels the problem the most and therefore will get the most value out of your solution? This might sound like a simple thing to answer, but in my experience it can take up to 18 months in market to work this out, as it is often not who you thought it was initially.
Every other component of a business model is based on this understanding of who your customer is. It determines your value proposition, what product or features you build, your go-to-market strategy, your pricing, what skills & capabilities you need. Everything. So as your understanding of who is your ideal customer changes, any strategy you might have developed on the basis of your target market is not going to be worth the paper it’s written on.
So if a well thought out, highly researched strategy, in beautifully presented document doesn’t work, what does?
Any startup starts out as a hypothesis, whether the founder recognises it or not. You believe you have identified a problem that a very specific audience not only experiences but also recognises (there’s a difference), and the problem is so critical to them that it is one of their top three priorities to fix it - otherwise they will never get around to finding the time or money to do something about it. Great, there is your hypothesis. You should then seek to find proof, ideally in the form of revenue from multiple customers, to confirm your hypothesis, or if not, adjust it based on what you have learnt.
Until you have a proven hypothesis, you will need to tweak your understanding of the problem, which part of this problem is most important to your audience, and which of the 1000’s of ways this problem could be solved they would value the most. If your audience is a business customer, you will also need to contend with how your potential customer can get their colleagues to recognise this problem and value it enough to allocate budget, get the approvals to make a purchasing decision and allocate resources to implement it.
These are all things you learn and adapt to along the way. They can not easily be predicted through a long term strategy. It is very possible that your initial hypothesis ends up being entirely different to the one that resonates most with your audience - or your audience is completely different – to get you to the point where you start seeing organic growth, as your audience is actively looking for your solution and are readily willing to give you money.
The faster you can move through this test and learn process, the more successful your startup will be. This is best done through an experimentation process.
At Vonto, we use the following framework to setup new experiments:
- Hypothesis statement: should be directional, show what we expect to happen
- Business objective: How does this support Vonto’s strategy?
- Customer value: How will this improve the customer experience?
- KPI: What does success look like?
- Measure: Which data sources will we use to measure this?
- Intended Audience: Which audience are we targeting with this experiment?
- Timeframe: How long will we run this experiment?
- If successful, we will… What are the planned next steps if this works.
You can run experiments to test all customer-facing parts of your business model. Tools like Facebook Dynamic Creative, fake door tests and A/B tests using tools like Optimzely, Google Optimise or Hubspot, provide relatively quick and easy ways to setup and run multiple experiments in a short amount of time which you can then validate through your other sales or marketing activities, or customer/ user research.
While working through this experimentation phase, Strategzer’s business model canvas or the lean model canvas are great, easy and free tools that you can use to reference these changes as you learn more and your business model evolves. Keep in mind that a business model is inter-related, so as one component of it changes you need to also revisit the other components.
Once you’ve worked out your business model, based on proof points from your experiments and learnings, then you are free to right a killer strategy and use it to raise capital, recruit an all-star team and align them around what you are going to double down on, because it is proven to work. Be prepared for it to change again though, as everything does in a startup.