Startups and Strategic Planning

“We know our strategy; we don’t need formal planning.” “Strategic plans are for larger corporations. We’re too small at this point.” “We’re so busy we don’t have the time to spend on feel-good stuff like strategy sessions.” Company founders usually have a strong vision for their companies, and while such vision is essential for any successful startup, one if its side-effects is tunnel vision, which leads to statements such as the ones above. A closer inspection of the facts reveals that strategic planning is vital for startups.

What are the underlying assumptions?

Initially, strategic planning forces the founders and managers to ask the tough questions about the assumptions they’re making. Why will customers buy our product or service over the competitors’? What kind of customers do we want? Does the customer even care about the things that differentiate us from the competition? What internal processes and what skills do we need in order to carry out our vision? In the daily grind, managers tend to ignore these questions or deal with some of them in such a superficial, hit-and-miss manner, only to be surprised later that they are not growing, that their customers are not necessarily the customers they want, or that they don’t have the skills and processes to give the customers what they want.

Where are you investing your limited resources?

Another benefit of strategic planning comes to light during the implementation phase of the strategic plan. Once the tough questions are answered and a strategic plan is formed, companies have to decide how to prioritize their work and where to invest their limited resources, and no company has limited resources like a startup.  Looking at the strategic plan, not only can the founders of a startup decide where to apply their limited financial and human resources first, they can also estimate how much resources they need to accomplish their objectives which comes in handy when pitching to VCs.

How well is your company really doing?

Finally, formal strategic planning allows the startup companies to review their assumptions and performance and make the necessary changes. Strategic plans typically have quantifiable performance metrics that aren’t subject to interpretation: Goals are either met or missed. Strategy review sessions force the founders and management to dissect the reasons for missing goals and make the changes required to improve performance before it’s too late. Do the marketing channels need to be changed? Does the product need modification based on customer feedback? Is what we are doing enough to generate customer loyalty? Unless such questions are answered early in the process, a startup company can find itself surpassed by imitators who learn from the company’s mistakes.

While some entrepreneurs believe that formal strategic planning is unnecessary or even wasteful in the early days of a company, it is obvious that startups cannot afford to forgo formal strategic planning, especially in these unforgiving economic times.

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