Category: Startups Page 1 of 2

Building a great startup strategy that provides genuine focus

On August 7, 2023

Iconically, one of the reasons I left Google was that it made too much money. Prioritisation seems pointless when the business is printing cash. I wanted to feel the weight of prioritisation, of profit and loss, and test whether I actually knew how to do strategy when it actually can change the outcome.

So I went to a startup and, despite not even being breakeven, everything was a strategic priority. More specifically, there was a rotating list of priorities depending on the week, weather and if it was school holidays or not. Unsurprisingly, there were 100 great ideas sitting on the shelf. More concerningly, there were 20 almost finished projects sitting on the shelf. As an example, the data team had built a rigously back tested recommendation engine, but there was no product requirements or strategy for actually solving a customer problem with it.

Where do you even start to build a great startup strategy?

Step 1: It’s ok to start broad

The goal is to explain why (not how) only a few key actions are critical to delivering a single goal. A north star metric or outcome is the definition of that single goal. Usually for a Saas business that’s some type of ongoing user engagement, assuming you have tied engagement to revenue.

For example on YouTube that north star metric was video watch time, given watch time has a proven causative relationship with both happier customers and more exposure to advertising revenue. At Mable that was hours of delivered care, again with an assumption that longer and more relationships was a better customer outcome, and revenue was a % of timesheets delivered. Find that north star for your company, and ideally make it as tied to the purpose and vision as possible.

If it could represent any company, it’s not strategic.

Next you need some strategic pillars to support this north star. Usually you will start with meaningless and broad pillars like “Our Customers” or “Our team”. These are generally too broad to be useful, every company has these same assets so they are not strategic advantages.

So now they need to be made more specific. We’re a growth startup, so “Our Customers” then becomes “Streamline customer onboarding” because we need growth above all else. This is the right decision if onboarding is both a key strategy for the current market, AND also a key competitive difference you have.

Step 2: Tie it to the business model

One way of narrowing down the strategic pillar is to put a specific metric on it. For example, maybe instead of just broadly talking customer onboarding, we could specifically look for monthly user signups.

By building a rough business model in Excel, you can then ladder targets up to a desired north star goal. For example if your north star is video watch time, then you can model how many new customer signups you need to hit that target and cascade these targets down to your strategic pillars. This is a good process in itself, because you soon understand what are the 5 or so key drivers of your business model – what’s actually correlated with hitting your goal.

The danger at this step is that you get so focused on your target that you forget why you were even chasing it. A classic example is The Verge:

As you start questioning your goal metric, it’s worth doing some slicing and dicing. Is every customer signup worth the same? Are some stickier than others? Where are the best referrals coming from?

Step 3: The why

Gievn what you now know about the broad strategic areas, and the inner workings of your business model, what is the strategic lever you hold in your hands?

For example you might realise that some key customer signups are churning 50% less than others. Perhaps they are more empowered, have more time to invest or something else – discover that “why” behind their objective success. Another way of asking this is to send out a Product Market Fit (PMF) survey and to see who would actually be devastated if your product disappeared?

The goal should be an Egyptian style pyramid that captures the “why” behind each of the strategic levers that are unique for you:

The struggle at this point is getting the pillars down to 3-5. If you’re a startup then growth is the goal (otherwise you’d just be a small business), so capture the growth levers on the top row of the pyramid.

There will no doubt be a ton of other fundamental problems that need to be solved as you scale. These might be HR systems, culture, risk management etc. that are critical to scale but not strategic growth levers. Capture these in the baseline of the pyramid.

Step 4: Deploy resources

The nice thing about this visualisation is you can communicate a really critical nuance – which strategic areas need all the resource they can get, versus which areas just need to be solved. For example risk might be something you absolutely need to manage at scale, but your customer value proposition vs the market isn’t safety. Therefore it’s a baseline problem that needs to be solved with a small team on a schedule.

Strategic growth pillars with a metric, accountability and resourcing attached

As your team grows, you can illustrate just how much resource has gone into each strategic pillar. The executive level conversation then uplevels to a triangular discussion that tests the three sides of this strategy:

Why – Do we have the right why? Is our strategy working?
Metric – Are we moving in line with the business model?
Investment – Are we investing the right amount to move the dial?

Conclusion: Layer up your strategy pyramid

Congratulations, now you have an overall strategy pyramid. Each pillar of that pyramid has three dimensions that can be tested on a regular basis to ensure you’re delivering on your strategy. Good luck!

Communicating context to drive specific behaviours

By Scott Savage

On June 23, 2020

In Business, Startups

Words like “consultant”, “workdriver” and “special projects” still create a PTSD style effect in my head. These words drip with corporate context, very clearly and precisely signalling whether you were succeeding or failing. The email announcing a VP moving to “special projects” triggered a global cascade of watercooler conversations where we each dissected and calibrated their missteps and realigned our own. It feels like a high performing culture because you’re communicating in flow – there are barely any words exchanged but you can replay together how a pattern of behaviour over years became fatal for said VP. It’s almost a cult like sensation. People worry about leaving because they fear never experiencing this level of flow (read: intelligence) ever again?

Tim Fung from Airtasker reminded me of that on his webinar this morning. Why do leaders communicate? His example was a mistake he made, sending an email whilst under stress that the expected working hours were 8:30am – 6pm. On reflection, he wasn’t trying to communicate an expected outcome – people in seats. Instead his company was under serious financial pressure and the next few weeks required a mammoth effort to keep the dream alive, but he failed to communicate that context and lost good people because of it.

So what was Tim trying to communicate? Well the zeitgeist answer would be that he was trying to communicate a cultural expectation. But if your company goals are service quality and people focus, perhaps that internal culture would be counterproductive? No, this wasn’t an attempt at ongoing cultural change.

Tim specifically reflected that the goal of this communication was to set context. He wants to know that when a specific context is shared, a certain set of behaviours are triggered at scale. For example if an “investor presentation” is announced for a few weeks time, an increasingly large ship needs to transform immediately. The operations team cut costs, HR cancels all off-sites, engineering ships the shiny MVP that wasn’t quite ready. This is not a cultural theme that persists during the year, but instead a carefully communicated and indoctrinated context that dictates specific behaviour.

I suppose most of the time this context, just like culture, is set through repetition. But what if you could construct context more deliberately? If there are 3 regular events that are critical to your business every year, how could you communicate the context of those events in a crystal clear way? For example if you are Apple and your company’s innovation appetite pivots on the annual WWDC event, how do you describe that context to a new hire or even a customer?

Pivot points get a lot of discussion in the startup world, but I think these context events are the pivot points every company needs to know, and communicate heavily and precisely.

The 3 stages of a services marketplace

By Scott Savage

On June 16, 2020

In Business, Internet, marketing, Startups

The Silicon Valley alter that is the whiteboard

1. The Hands On phase

Like every great episode of Silicon Valley, it all starts with a whiteboard. Customer (demand) and worker (supply) names are written on the board, with relevant skills and availability scribbled down. Everyone gets on the phones and calls each side, trying to make connections. Every connection is a new possibility, a new thread in the web you’re trying to spin. You’re losing money on every one, but if you’re doing it right they start to become sticky.

This means customers are not just delighted that you introduced them to someone that can solve a problem for them, but that it has the seeds of an ongoing relationship. They enjoy working with the person, they need that problem solved ongoing and (for your benefit at least) they see the value you add as the third wheel.

At worst they appreciate the comfort of having you on the phone to handhold them through the process, at best you are a critical part of the value chain that is hard to replicate without scale. Except you don’t yet have scale so this might cost you big time upfront – software, insurance, data, templates, logistics, call centre etc. Don’t resent the cost, because it’s also your barrier to competition. Watch that burn while you find market fit.

2. The Acquisition Marketing phase

Once the relationships are sticky and your churn is under control, you need to scale quickly to bring your unit cost down and start to pay off that upfront investment (or raise on a growth pitch to kick this can down the road). It’s time to look at the chicken and egg problem of liquidity. What services are not getting traction, and how might each translate into an efficient performance marketing campaign?

You probably have no brand equity, so your performance marketing needs to be very targeted and ideally not competing with established sector players. It’s also tricky to scale, because your segments could be very small and fast moving. 95% of marketplaces are demand constrained, so start by focusing on 1 side only.

Start testing campaign segmentation by customer type first until you get your CPA down to at least breakeven, before trying to solve for secondary variables like geography or availability. You’ll also need to start building a view on Lifetime Value (LTV) by each segment, so eventually you can think about bidding based on Return On Ad Spend (ROAS) or similar metrics. But every customer is different, and so this quickly also becomes a scale challenge that will require marketing data investments.

Don’t purely optimise on cost however, as the goal of this phase is to build number of connections not the number of users. Don’t underestimate power users who create a lot of connections even if they don’t spend a lot, you need to talk to and learn to love these people without becoming too dependant.

This phase is why 50% of startup investor’s money goes to Facebook and Google, you need to learn to love their tools and optimise (aka the sexier “growth hacking”) like crazy. But this needs to be just a phase – if you never graduate then you are at the mercy of the next algorithm change and/or well funded competitor. Don’t become the next GroupOn who spent like crazy here but never graduated.

3. The Product Growth Phase

Also called the Network Effect phase. This is the holy grail, where your product flywheel starts to spin and growth happens organically. There are 3 major things required here.

Finally and foremost – you need to understand what part of those calls in phase 1 relied on the human touch, and what was to overcome objective friction. Pour the gold of your customer service team over the trust issues, and scale the rest in-product with great UX that makes your funnel so intuitive as to be invisible.

Focus relentlessly on removing any friction in making a new connection; this could be through removing double commits, applying data and recommendation engines, teaching your users how their behaviour affects their success, systemically weeding out quality and fraud issues and many more concepts.

Finally you should clearly commit only to verticals where you can be number one. Your next key competitor will play in a narrower not a wider vertical than you, so you need to lead market share not just overall but more importantly in the key customer segments you care about. The network effect is a big moat, but it isn’t the winner takes all endgame it was first thought to be.