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The Value of Strategic Planning in Startup Businesses

The Value of Strategic Planning in Startup Businesses

I was browsing through a local bookstore the other day and picked up a book on business and success written by a young internet millionaire. The author was a programmer in his mid-twenties that, to his credit, had found a niche algorithm that, in rather short order, caught the eye and interest of Google. With this success under his belt and plenty of money in the bank, the author felt compelled to share his method of success with the rest of us. I’m sure his intentions were good, but his lack of any broad experience in multiple environments quickly jumped off the pages.

As I thumbed through the book I came across his thoughts on strategic planning. Much to my chagrin, his advice on this mission critical topic was startlingly simple; don’t bother to plan, just do it. The author felt things move to fast to take the trouble and time of planning. Just look at me, he said, I didn’t plan and I’m worth millions!

Now, to me, that’s the equivalent of comparing Jed Clampett’s oil exploration methodologies to that of Exxon/Mobile and stating, unequivocally, that Jed’s approach is the superior way to discover oil. This author isn’t alone in his perspective. I’ve come across dozens of hucksters on the internet that promise to teach you how to “crush it” and make tens of thousands of dollars a day simply by following their “so simple, anyone can do it” process of internet marketing. What they fail to tell you is they’re basically selling you on the process that they’re selling you, and nothing more. Their product is the sales process they’re employing to get your money. Many brag about how unsuccessful they were until they discovered this amazing approach to “content marketing”, “affiliate marketing”, “product launches” and the like. In many ways, what they are hawking is the technological equivalent of network pyramid marketing without tangible products. The first ones in make a killing and most everybody else is out several hundred dollars and left scratching their heads.

The fact of the matter is, strategic planning is the single most important step an aspiring entrepreneur should take before they do anything else. Granted, lightning does strike occasionally, and some people are lucky enough to stumble upon the right idea at the right time. That is, however, one hell of a crap shoot when you’re betting your livelihood and future on the success or failure of your venture.

You see, your strategy is your roadmap to success. It is a living, management document that elevates your awareness. Awareness of yourself, key market drivers, possible barriers to entry, potential risks, various opportunities, and the competitive landscape you’re about to enter. Diving into a business without a well thought out strategic plan is about as prudent as invading a foreign country without maps, no local language skills, no understanding of the local culture, and without any objectives other than wanting to win.

I read a blog not too long ago that emphasizes my point, albeit indirectly. The blog was written by a serial entrepreneur turned venture capitalist that has enjoyed remarkable success over the past three decades. He wrote about the five major reasons why startup businesses fail. Having spent the past decade working with startups myself, I thought he made some interesting points.

The top five reasons businesses fail are (in no particular order):

1.) Market Problems

2.) Business Model Failure

3.) Poor Management Team

4.) Running Out of Cash

5.) Product Problems

Each one of these factors can, and should be, addressed through a comprehensive strategic planning process. Here’s why:

Market problems can be anticipated and, for the most part, avoided by conducting a thorough market assessment. Market problems include poor timing, a poorly expressed value proposition, and/or the market simply being too small or expensive to access. Wouldn’t you want to know these things prior to going to market?

Business model failure has to do with not understanding how one will attract, secure, and service customers. One’s business model should be examined and “stress-tested” from a variety of perspectives prior to launch. Worst case scenarios should be explored to assess the potential impact these situations could have on one’s burn rate of cash. So you see here, how this factor can drive another, running out of cash. One thing I’ve learned over the years is things are going to take longer than you initially think. Delays to market cost money. You need to plan for this possibility.

In my experience, poor management is, in fact, the single most significant reason why startups fail. In all my years of working with entrepreneurs and investor-driven startups I’ve never seen a company fail because the product or technology failed. Disaster usually lies at the feet of management. One recent research study I read indicated that more than two thirds of startups fail due to weak management. Weak management tends to replicate itself…weak managers build weak organizations. Weak organizations create weak strategic plans and fail to execute.

Running out of cash is typically a result of poor planning as well. This is especially true in investor-driven startups where missteps regarding product development, poor customer targeting, poor assumptions on product adoption rates, and the like can burn through one’s reserves. Scaling up too quickly, adding unnecessary overhead, and poor management hires can also contribute to this risk.

Product problems occur when the development process is too far removed from the target customer. Granted, some adjustments almost always need to be made once a product is launched, but a keen understanding of the customer’s needs, desires, and environment will help mitigate your risk of dropping a dud into the marketplace.

All of these factors are addressed through the strategic planning process. Your plan should be a living document and not set in stone as well. As you engage the market you’re going to learn things that will enable you to fine-tune your strategy and accelerate your success. Your plan will also enable you to set success gates (or milestones) and identify early indicators of issues that require your attention. Catching issues early on, before they burn through your cash, erode your name in the marketplace, or help you identify a personnel issue can be the difference between success and failure.

In their 2008 report, “The Small Business Economy, A Report To The President”, the Small Business Administration identified the fact that the average, aspiring entrepreneur will invest 1,471 hours (the equivalent of nine months of 40 hour work weeks) and $10,734 of their own money during their pre-launch period. Embracing a well defined strategic planning process would shave seventy to eighty percent off of both of these investments, greatly accelerate market entry, and mitigate an enormous amount of risk to the endeavor.

My advice is to just be careful. Look to the seasoned experts, the ones that have a couple of decades of startup battle scars from learning things through experience. Leverage their expertise to accelerate your own learning curve. Listening too closely to the guy claiming he can teach you how to “crush it” without the need for strategic planning may just crush you and your dreams for success.

© 2011, Terry Murray. All Rights Reserved.

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