A VC: A Time For Assessing "Strategic Opportunities"
Megan Cunningham
· 10 months ago
I'm always amazed at the reaction when new startups/entrepreneurs ask me what I credit our success to and I always say the same 2 things --top-notch management team, and writing down our annual plan, year after year. They usu look at me like, "Is that it?"
But the value in writing down your strategy --complete with detailed financial projections-- is the same basic phenomena behind school uniforms: act bigger than you are. Psychologically, students who wear uniforms to school routinely have higher test scores, longer attention spans, and achieve more. Writing down your business plan and following through on it inspires everyone in your company to have discipline and professionalism. It is more than an excellent cultural practice, it forces FOCUS...which I would argue is the toughest aspect of a "vision" to maintain you are in a space that is facing disruption.
fredwilson
· 10 months ago
Great advice!
JLM
· 10 months ago
Megan ---
I could not agree with you more! You are absolutely correct. Ocam's Razor level of brilliance.
The other thing is to drag out the PLAN a couple of times per year and thoughtfully reflect on what has changed since the PLAN was written. It is particularly important for CEOs to get "buy in" or at least "brief back" from the top guys. There is a something to be learned when you ask folks --- what do you understand is the PLAN? Sound simple, but it is always illuminating. Make them commit or make them come up w/ a good alternative. Get everybody's fingerprints on the murder weapon.
I think that we all do very little real thinking that is truly STRATEGIC. Sure we make "plans" and my "to do" list would choke a giraffe (because it's..........long..........like a giraffe's neck) but most of the time we engage in very tactical thinking.
When you are standing at the pay window cashing in your chips you will realize that very, very few real singularly important decisions were truly "strategic" because an awful lot of success is just based upon getting to work early, staying late and checking stuff off the list.
I think that a great strategic plan has to be no more than 2 pages long to truly be strategic. Now the tactical or implementation plan can be much, much longer but the strategic concepts are very short.
The top dog, the CEO, has got to blend imagination with strategic planning and thinking. Don't ever make small plans because GREAT BIG plans cost the same amount of money. CEOs have to be ready to accept that they are different: If you are not comfortable feeling foolish when presenting the plan, then you are not being aggressive enough. The higher you get on the totem pole, the more of your ass the world can see.
"I can no longer obey; I have tasted command, and I cannot give it up." who said this?
Hint: it was a very short guy from France who almost conquered the whole damn world but for the savagery of Mother Russia's cruel winter.
I urge CEOs to join organizations like YPO and TAB and other organizations which provide a good peer to peer contact and to go in with no preconceived notions and to use it as a learning exercise. In these settings, CEOs can state the obvious --- I have some good instincts and I am in charge but I really don't know what to do. You will be amazed at what great advice you can get.
dl
· 10 months ago
Fred
I am so glad you touched on this. My associates had this very difficult conversation several times before we even formed. ...not because I wanted to. I was lucky have a partner who had a VC Background and another who had a business bkgrd. Even thought we had different goals to some extent it makes us try and prove my road through achievement. Just because you say at such and such years and such and such accomplishment we would be "willing" to sell off...does not mean that you MUST do anything besides reach the short term goal. The daily, monthly, and yearly.
what are your thoughts early or worry about squashing enthusiasm too soon.
GN
· 10 months ago
I have been an avid follower of this blog for about a year now and can say truthfully that it really is the first blog I have followed diligently. Furthermore, this is my first blog comment, a small step for me and a large leap for all AVC readers who choose to hang back in the shadows.
As a mid-market investment banker, I encounter the “strategic planning” issue on a regular basis and agree wholeheartedly that it should be a hot topic at the earliest stages of a company’s development. Naturally, entrepreneurs frequently are too distracted by the noise of their business’ daily operation and development to take a step back to breath and really put on a macro lens. This is a problem, but I would view it more as a casualty—an expense of operations. An entrepreneur with his nose to the grindstone and a booked appointment calendar sounds like he is doing something right to me. However, a detailed, organized strategic plan is the lifeline, the artery, of any successful venture. A plan drawn out with measurable short and long term milestones from day one will not only breed success, but will boost morale (both the entrepreneurs and that of his team) which ultimately drives motivation. A sound strategic plan, as you mentioned Fred, is not necessarily an exit plan, but rather an inverted trail of bread crumbs. Wouldn’t it be more convenient to lay out a path leading to where your business is going, rather than where you have been?
fredwilson
· 10 months ago
i love first time comments. hopefully it won't be the last. how regular do you think "regular basis" should be?
GN
· 10 months ago
Fred, I believe that a strategic roadmap is the keystone of a sound business plan and should be created at the enterprise's earliest stages of formation. Each measurable milestone within the strategic plan becomes a deliverable due on a given target date. Undoubtedly, the business will encounter systemic or company-specific issues that push plans off course or delay deliverables. For this reason, it is essential to track milestones on a monthly basis (at the very least) to ensure that the business does not veer too far from the initial course. However, with setback often comes opportunity. An apt entrepreneur should guage the business' tangential path to decide whether the new course merits a revision to its core founding vision and plan. A sound strategic plan can therefore not be static, but rather a versatile, thriving organism that adapts frequently to best profit from a dynamic landscape. Let's call it the Darwin Delta principle. Only the strong can survive and only the flexible will adapt to obtain that strength advantage. That sort of has a ring to it, doesn't it?
CoryS
· 10 months ago
"The worst place you can be in this market is out of money and without a plan. The likelihood is high that you'll be out of money at some point. Just don't be there without a plan." Absolutely!! Seeing this first hand, Fred. Very few handle crisis mode well, and this environment has turbo boosted folks into fire fighting mode with little time to window dress.
M. Adam Oliveri
· 10 months ago
Fred, very much agree with your comments here. Additionally, I believe that part of the strategic plan discussion should revolve around ensuring that your exit options down the road are as varied as possible. Companies need to as far down the road as possible and ask themselves - what happens if I can't IPO? what happens if I can't find a strategic buyer that fits? Can I continue to be financed by venture capital? Should I be tracking on an alternative liquidity path? Companies must have these discussions now, get organized, and set themselves up for as many options as possible
Joseph Lizio
· 10 months ago
I think that in the future - at least the near future (next 5 to 7 years) companies will have to be profitable to IPO. Thus, at profitability they would not need to be financed by future equity capital. They might grow much slower but should grow none the less.
In stead of focusing on exit years down the road - who can look that far - they should focus on the steps to profibility now. Profitability will open many more doors for a company (IPO, M&A, VC) then working towards an exit.
Just my thoughts
fredwilson
· 10 months ago
i agree. product then revenue then profits. it's simple to say but hard to do
Joseph Lizio
· 10 months ago
Re-evaluating the sales process is a good thought. Most companies – even established one – have no idea what their sales process is. They think “if they build it – they will come” And, during good times – they do come. But, when time turn bad and companies have no idea what truly brings revenue into the company – not having a well thoughts and organized sales process really shows as holes in their viability. I have seen companies that were so use to just forcing their product down a customer’s throat – if the customer did not like it they did not care as there was a line of other customers waiting to get at the product. Now that times are bad, these companies still try to use this method as their sales process and wonder why they have no customers. It is really the only way they know how to sell – and it is a bad way. The problem is that once a new customer does show interest – they just jump right into the ‘cram down your neck’ process. When the customers bulks (stating I now have the power – the power of where to spend the little amount of dollars I have) the company’s only reaction is to attack. This is bad for everyone – the business looses a customer and the customer does not get a need met.
Further, some companies think that advertising is selling and that is all they have to do. Advertising is marketing – which creates interest and awareness (brings customers to your site or store) and selling is actually getting the customer to part with their money (providing needed products/services and value/experience).
As a side note: Fred – have you heard of eEgo? Just read an article about this company and since it is in your space was wondering if you have any thoughts about the usefulness of their product.
fredwilson
· 10 months ago
i've not heard of eEgo. i'll look them up.
Kenosha_Kid
· 10 months ago
On a different level, this is applicable to all industry these days, not only venture backed startups. For example, Detroit, and less immediately but almost as urgently, traditional media companies. Come to think of it, this probably also applies to very many individuals on a personal level... And while I'm at it, to the US Government itself, which keeps printing money but is still short on a plan. It's a little frightening to think about how long and how far we have gone - on so many levels - without a strategic plan, or even thinking about the concept.
Joseph Lizio
· 10 months ago
Our government does have a plan - it is to keep their party in power (get re-elected) and do away with the other parties. How are they doing this - by rewarding bad behavior. If you reward bad behavior - like giving money to financial institutions who show that they cannot manage it or by bailing out manufacturers who have never valued their customers or even by funding entitlement programs that reward people for not working or not putting in a effort to improve their own lives (but punishing those who have - spread the wealth), then you can get the vote. Wouldn't you vote for a politician who not only tells you but shows you by giving you other peoples money, that you don't have do what is right and that you can play all day long - every day and all you have to do is pull a lever in their favor.
They have a plan alright - the problem is that while it get them what they want in the short-term - it will financiall bankrupt our nation in the long-run.
So, in this case it is not that they don't have a plan - it is just that the plan is geared for their benefit at the expense of their customers (the American People).
Just my thoughts.
theschnaz
· 10 months ago
Fred,
I was surprised by how straightforward and sobering this post was. It's great advice and it's appreciated.
Greg
Reid Curley
· 10 months ago
Fred,
The panel discussion this morning was very helpful. Thanks for taking the time.
I think it is interesting how consistent the stories about the value of such a process were across VC portfolios, industries, stage of companies, etc. You can see more evidence of that in the comments here.
Kiril
· 10 months ago
Great post, and it was good to be lucky enough to hear it in person this morning. While we're still so early that we're almost 100% product focused, it's shaping my thinking for how we approach the next few months. Certainly, building an operating plan for our next phase that is lean and razor-sharp focused is going to be the key to building in this environment- and having the right kind of expectations around valuation and exit.
It's something of a different discussion, but the first startup I had the pleasure of working in (HigherOne) was taking shape in late 2000 / early 2001, and we had to build with this mindset from the beginning. Always lean, always on-the-cheap, always incredibly focused. I got to see that company weather that storm, taking the money when it came, and grow into an incredibly successful, profitable, growth-beast.
That first impression left me feeling that's the only way to do it. Here's to starting up in "nuclear winter." :)
fredwilson
· 10 months ago
That's a great experience to start with. The best you could hope for.
Martin Edic
· 10 months ago
I recently reread The E-Myth Revisited by Michael Gerber and I highly recommend the second half as a guide to developing a strategic approach to your business. The start-up I recently left has an incredible product and a basic strategy but I question their ability to grow because there is a little focus on the big picture. Gerber shows exactly how to take a small team and make them the core of a large one.
John Mecke
· 10 months ago
Fred,
One strategy every company should execute is developing deep, effective partners with potential strategic acquirers. As you know good partners often make the best M&A partners. Effective partnerships with potential strategic acquirers can not only drive revenues in the near term, but build a foundation for a valuable exit down the road. If your firm can't develop any partnerships like this it should be a clue that there might be a flaw in their exit strategy
Mapo
· 10 months ago
Every year we write our plan for the upcoming year. Naturally it's evolved from the plan used to raise most of the funding early on. While I worry that each new plan will drive our investors away, the discussion we have at the Board Meeting brings us closer together and they continue to fund.
I've actually found it much more difficult to get buy-in from employees who view plans as "what managers do". So we've asked them to write their portion of the plan and it's helped. It takes a lot of time but instills a discipline you just can't get from just talking.
Camilo
· 10 months ago
There are three hings you need to create a good plan or road map: -Know what you want, -Know what you have -Know what you need
Now that the market is slow it allows time to do a company self assessment of: 1- What are the core competencies. Identify the activities, systems or procedures that the company does best and can give an edge over the competition. 2- Know the industry's key success factors. Clearly know what the company has and more importantly what it needs to be successful in this tough market. 3- know your company's competitive advantage and use it to achieve your objectives (Market share, profitability, equity value etc)
Companies without a vision and plan to reach that vision will perish!
-Fred, Thanks for creating a great community. Every morning I look forward to reading you blog.
markslater
· 10 months ago
in practical terms, there will be an obvious abundance of financial intellect (see wall street layoffs) looking to play in this area in the form of boutique banks. This happened in the first shakeout. there will be literally hundred of 3-6 person shops offering your chinese menu of banking and 'strategic' services. Revolution (by my memory) did this very well last time - several guys from Robbie - they blew the thing up and had a tremendous outcome last year. (sold).
whats left of the bulge brackets are going to come down market as well - Goldman will literally start competing for deals above $30m.
Just don't let any of them try and impose the 'old world' approach to your process! choose a group if you are looking - that thinks outside the box. Alternatively - if your VC is capable (which they should be FFS) and not conflicted - let them run the process.
if you are in Boston and are looking for that type of advice or service (or the valley for that matteras they have offices there too) - go talk to Giles at Macnamee Lawrence - great chap. (www.mlcllc.com)
Vaibhav Domkundwar
· 10 months ago
Fred, this is a great topic. One question I have however is what can bootstrapped companies do in this regard when they don't have any investors. How do they go about the sales process or exploring the opportunity for a sale. It seems like funded companies with connected investors are able to make strategic connections more easily than a bootstrapped company which may have a better product/traction etc. What is your advice to such companies and are there any boutique firms out there who are focused on helping bootstrapped companies explore exit opportunities? I am pretty sure there is a big need for this.
fredwilson
· 10 months ago
We need a few more good boutiques and I think we'll get them with the collapse of the big banks
johndodds
· 10 months ago
I'm a little surprised (actually more than a little) to infer that you don't insist on your companies having at least an outline strategic vision from day one. As the first two commenters rightly assert it instils a direction/purpose and, I would add, it makes it more likely that the product and engineering focus is a focus on end users rather than technical possibilities. It doesn't have to be set in stone and I don't believe its existence need limit innovation and flights of fancy, but the fact that it's there does at least have a subconscious impact.
Shane
· 10 months ago
I agree. I think that sometimes there are companies in the technology space that may have such a great tool, widget, what-have-you, that they forget they have to make money with it. It is certainly understandable that there are some companies who cannot see the forest from the trees, especially in this economic climate. I mean, it is a lot easier to gravitate to what you are comfortable with (coding, in this case), than grind out what you are uncomfortable with (sales). In my opinion, the sales process and strategic plan is the most critical aspect of any business because it guides all other decisions within the company.
fredwilson
· 10 months ago
We often back small teams of developers who have built something that is gaining significant traction. That is often the best raw material for a new business. Then we have to work with them to develop the opportunity. And getting a plan in place is one of things we have to help them do. We don’t invest millions without a plan, but we'll gladly invest hundreds of thousands if we like the raw material.
scottfromshanghai
· 10 months ago
Here in China we always have a 5 year plan! You don't have to stick to it religously, obviously things change but its a great annual exercise to step back and renew it.
IMO in trying to understand and plan for the current crisis it may be worthwhile to look for historical precedents. IMO argentina in 01/02 and iceland in 08 are the closest examples to historical precedents to this current crisis. the link below offers a comparison to argentina (contains some small inaccuracies IMO but by and large correct):
in both argentina and iceland once currency started collapsing the govt put in capital controls making it hard to get your money out of banks and into other currencies. basically they tried to stop a run on the currency. this means you cant get your money out of the bank while prices are soaring and imports are declining (thus creating shortages which further fuels higher prices for consumer goods). naturally this is what pushes people to finally get politically active, i.e. protests in the streets and that kind of stuff.
a couple observations:
1. getting politically active BEFORE the crisis is the best way to stop it. realistically speaking this is not going to happen in america as most people dont know what is going on (we are just sort of hoping this is a temporary thing and we'll naturally bounce back) and dont care to learn, after all who has time, american idol is on
2. getting out of the dollar is worth considering, as foreigners running on the currency is what causes massive currency devaluation, so basically you can either start the run or be left holding the bag. typically when foreigners stop buying govt debt the govt begins to print money and the foreigners run. the saving grace of the US may be that the dollar is the world reserve currency so foreigners may be more reluctant to run. judging by gold prices and central banks increasing their gold holdings i think foreigners could run from the dollar to gold, or to a basket of currencies, so i think a run on the dollar, or a partial run on the dollar, is still quite possible, even more so if govt refuses to curtail spending (as was the case in argentina). and a global crisis makes it harder for foreigners to continue subsidizing americans (this is the decoupling theory)
while i am a full-blown kook this concern is not just for kooks, brighter and more experienced minds than mine are very concerned about it. itulip.com and shadowstats.com to mention two, and of course peter schiff (europac.net) who has become famous for giving kookonomics a charismatic and easy to understand voice
the conventional way to hedge is through accumulation of precious metals, as if capital controls are put in place than electronic commerce will come to a standstill (credit and debit cards wont work) and we'll have to return to barter until govt turns the banking system back on. alternatively i think there could be an oppty in creating virtual currencies as our own monetary system. this would require cooperation from people which of course is still extremely unlikely, remember not only is there american idol but after that we have to watch mtv and other quality programming (emphasis on the word programming). this would also essentially be a non-violent revolution, the thought of which scares most people, regardless of necessary and morally correct it may be. so i wouldnt count on it, least not until people are educated enough and psychologically willing to face the scenario.
in the final analysis govt spending is critical here, the more we enter a loop of diminishing tax base followed by "stimulus" packages (gotta love the orwellian newspeak....what destroys is called stimulus) the more currency risk we create. ending the american empire is no longer just a moral imperative, it is increasingly an economic one as well.
conventional logic is that it's bad for business to talk about politics. of course, everything that has a beginning has an end, and IMO now is the time to end this sort of logic. the safest route is for everyone to get politically active and start demanding a decrease in the size, scope, and spending power of govt. demilitarization is the most obvious area where govt spending should be cut drastically, doubly so when one remembers that 9/11 was an inside job. but at the very least the "stimulus" packages need to be stopped, if govt wants to stimulate the economy they should do so with the massive amount of money they already have, not by printing more. otherwise we are putting the dollar at risk while also distorting the free market and making it harder for trained investors to rationally analyze and cultivate opportunities.
but like i said dont take my word as brighter and more experienced minds than mine are concerned about insolvency of the US govt and the currency crisis that could emerge as a result. at the very least it is something that entrepreneurs and investors should be aware of and discussing when making plans, and evaluating for themselves whether or not it is a legitimate concern. i am simply mentioning it because i think it is the biggest concern that we should all be talking about. i hope i am wrong though i've yet to find a very convincing rebuttal for how we are not on an extremely dangerous path, which is why i mention it (not trying to fearmonger or say sensational things to get attention)
David B,
· 10 months ago
First, while I also think this is an incredibly important topic, maybe the topic of our lifetime, realistically, such a post probably goes to waste. If there's one thing we can learn from looking at the past it's that the car has to hit the deer before anything can happen. Jumping up and down about spending is just that, a lot of jumping. That said, the only time people are willing to make a huge change is during a huge crisis. This will be an incredible opportunity if we have the right ideas waiting in the wings. Should we make our rep count in Congress go from 435/100 to 43,500/10,000? They would work, not from DC, but from their district. It would end hard lobbying and give people more voice. Change the two-party system? Offer tax payers the ability to designate in which ways their tax money is spent? These are impossibilities now, but may not be at the depth of the crisis.
Second, I see the stimulus not as some more spending but as defibrillation. It's not a matter of putting the "dollar at risk" but about making sure there is a dollar at all. And the stimulus is nothing compared to the rate at which we're increasing the money supply. To me, this is no longer in the realm of conventional politics of spending or not spending, but a sort of life-and-death situation.
Again, I think it's an important topic, sure. But talking about the reasons the ship is going down doesn't help anyone in the end. We're not going to have much influence. But we can have a tremendous impact on what happens afterwards.
kidmercury
· 10 months ago
what you are saying is true, no doubt, though if i can help one person open their eyes and take precautions to protect themselves and their family it will all be worth it. if i can help two people i will be ecstatic.
also, in order to solve the problem, people will need to understand the causes. if hyperinflation comes, govt will just try to use it to justify more of a power grab, perhaps via the creation of a world central bank that will be even worse than the fed. if people do not understand the causes of the problem, they will continue to fall for all the fake solutions offered their way. many people in zimbabwe still dont understand their crisis, and argentina is still a mess with an unstable monetary policy. only the truth and proper education can unite the people to bring about real change that benefits everyone.
lastly the seeds of liberty must always be planted. for instance the currency act of 1764 outlawed the colonies from using their own currency and forced them to use the interest-bearing currency imposed by king george, but it wasnt until 1776 that the revolution really got underway. it is not going to take nearly that long this time, but it still illustrates that reclaiming liberty is a gradual process that requires much education. i'm happy to get the ball rolling ASAP, even if most calls for liberty fall on deaf ears -- for now.
peter_zaballos
· 10 months ago
There's a nuance here to the task of revising the business plan, that what you're really doing is revising the set of assumptions, and the accuracy of the information in the cells of the spreadsheets are still likely wrong. What you've done is given yourself a fresh view of how you expect the landscape to unfold, with a set of assumptions that reflect the economic conditions of today (that last business plan you had was written before October 2008, so all those assumptions are invalid now.
In six to nine months, you've got to go through this again. Hopefully the economic climate may have improved, and most importantly some of the broader indicators on demand and growth will have become clearer, and you can iterate once again.
It's the slavish obsession with the process, understanding your plan is a container holding assumptions, not predictions of what revenue will be in month 9, and being able to let go of this plan and create another, once the assumptions change or need to be validated. It doesn't mean in you ever ignore your plan, or don't maniacally measure your performance to it, you're just very mindful of the interplay between its assumptions and reality.
This provides the aperture in the conversation among the execs and their board to surface where the trajectory of the business is pointing, where the business could and should be within the cash horizon, and who is in the logical acquirer landscape.
That's so much harder to do for younger companies/execs than it is for folks who have been through a down cycle before. To your point Fred, the more experienced teams don't have to be asked to do this, they naturally know it's time to reset the plan around a new set of assumptions when they read the same headlines we all do .
Great post and even better are the comments that follow with some examples. If possible I would love to read your thoughts on what should be covered in a plan regardless of industry?
cheers aj
Alexander Osterwalder
· 10 months ago
In these turbulent economic times I would even go a step further: take a step back, organize at least a half day off-site and "re-assess your business model". The following questions should be answered:
1. is my initial target market still lucrative enough (and not too strongly impacted by the crisis)? 2. what customer problem am I really solving? 3. is my target market really willing to pay for that? how does he want to pay? 4. am I really using the most effective channels to reach my customers? 5. what relationships do I have to build with customers in such a severe economic environment? 6. which resources are too costly to maintain? 7. which activities are too costly to maintain? 8. which strategic partners can leverage my business model? 9. how can I lower my cost base (an obvious one...)
The best way to do this is by brainstorming with a diverse team equipped with post-its and a huge wall... The discussion, the understanding and the alignment will be even more valuable than the outcome. That is exactly what you need to come out of a crisis more strongly...
Warm regards from Switzerland! Alex
fredwilson
· 10 months ago
Agreed. That's generally the best way to start this kind of process
D.K. Kidd
· 10 months ago
Fred,
I made my first business budget today. It's written down (in excel), and while it isn't 18 months, it does cover through the end of 2009.
Do your companies use a spreadsheet for the financial plan? A napkin? Any special budgeting sotware?
fredwilson
· 10 months ago
Excel is the standard and it works well
Google apps is starting to emerge as the most popular alternative
Khan Smith
· 10 months ago
Fred, this post is spot on. I would add that it is important for a company to pick it's head up, assess the ecosystem against their business and product strategies even in environments that are more stable. It is very easy to "believe your own press" and push on blindly without assessing the marketplace.
fredwilson
· 10 months ago
We've all seen that movie and it ends badly
Ken Ripley
· 10 months ago
"The worst place to be is out of money and without a plan" . I find a primary reason for companies not changing their plan sooner is tied to their original assumptions. If there is a flaw in their original business plan as it relates to product development, consumer acceptance, or most importantly, ad marketplace realities, even the new plan is doomed. Founders are loathe to admit the plan's original assumptions/estimates were flawed so that early round investore don't raise questions about their abilty to forecast or even their acumen. And when it comes to credibilty, human nature dictates that staying the course avoids admitting your concept was off target in the first place.
The abitity to question that which has been treated as fundamental is core to finding the proper direction to come.
fredwilson
· 10 months ago
You are right, but it is the board's job to make management face those harsh realities
Donald Johnson
· 10 months ago
As we've seen in the stock market over the last 24 months and in the economy for years, people live in denial. I meet monthly with 25 very successful and seasoned executives and entrepreneurs, and the denial is beyond belief. There's a difference between being a doom and gloomer and a realist, and I'm talking about the critical importance of facing the reality of changes in technology, markets and the overall environment.
The idea that boards hold management's feet to the fire is difficult to accept, because so many board members leave their brains at the door and go along to get along. But when VC types are on a board, they have skin in the game are are more likely to be realists than some friend of the CEO.
My point is that as investors and executives, it's important to leave "hope" to the politicians and stock groupies and focus on what's going on in the world and target markets. That's why so much time must be spent on market, technology and environmental assumptions before planners start putting their dreams in their spreadsheets.
I owned and edited a newsletter on strategic planning for almost 20 years. Two things struck me over that time. First, the herd mentality rules most industries and executives. And, second, few people really think strategically.
Steve Jobs is a strategic thinker as well as an innovator. Bill Gates is not.
fredwilson
· 10 months ago
We can debtate Jobs vs Gates at another time. I think both are quite strategic.
But your point about skin in the game is a big time winner. That's what its all about.
Joe Galarneau
· 10 months ago
Fred had mentioned a few weeks ago that the commenting section of AVC is a very dynamic community on its own right. With his permission, I'd like to see if any bright lights from this community would like to speak at an upcoming panel discussion to be held in NYC (date TBD, but sometime in mid- to late April). Our organization, the Internet Strategy Forum, is looking for thought-leaders from the VC/start-up community or digital business units. The event will be a public forum with a low admission fee, so we're expecting about 100-200 people from the local digital community. Below is a description. If you're interested, want more information, or just want to chat about this, please contact me at joe@galarneau.com. Thanks!
Don't be stupid: Making the right moves to beat the recession and drive growth on the web
As decreased consumer and business spending has placed pressure on all business models, corporate America has retrenched by trimming investment, reducing its burn rate, and shuttering non-core operations. These tactics extend across the enterprise, often affecting still-burgeoning digital units at the same time as their lagging brick-and-mortar counterparts. However, when the economy rebounds -- and it will -- will these actions be viewed as the right moves to position Internet groups for the next wave of growth or will recession-inspired shortsightedness hobble them for years to come? Representing corporate Internet units, pure-plays and start-ups, our panel will explore how to balance prudence and preparation while still moving forward in tough times. These executives from across the functional spectrum will discuss their current online investing patterns, what metrics are important for opportunity identification and monitoring success, and how they’re building solid digital business cases and closing the sale to key stakeholders.
Takeaways will include actionable tactics on how to attract audiences and customers in times of austerity, build new products without breaking the bank, and craft a steady strategic plan to get through to the other side. By hearing firsthand about the details underlying successful digital initiatives, attendees will be able to transform the economic fear and uncertainty in their own organizations into a catalyst for growth and opportunity online.
Andrew Warner
· 10 months ago
Here's the ad I see for this post (in my rss reader)
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But the value in writing down your strategy --complete with detailed financial projections-- is the same basic phenomena behind school uniforms: act bigger than you are. Psychologically, students who wear uniforms to school routinely have higher test scores, longer attention spans, and achieve more. Writing down your business plan and following through on it inspires everyone in your company to have discipline and professionalism. It is more than an excellent cultural practice, it forces FOCUS...which I would argue is the toughest aspect of a "vision" to maintain you are in a space that is facing disruption.
I could not agree with you more! You are absolutely correct. Ocam's Razor level of brilliance.
The other thing is to drag out the PLAN a couple of times per year and thoughtfully reflect on what has changed since the PLAN was written. It is particularly important for CEOs to get "buy in" or at least "brief back" from the top guys. There is a something to be learned when you ask folks --- what do you understand is the PLAN? Sound simple, but it is always illuminating. Make them commit or make them come up w/ a good alternative. Get everybody's fingerprints on the murder weapon.
I think that we all do very little real thinking that is truly STRATEGIC. Sure we make "plans" and my "to do" list would choke a giraffe (because it's..........long..........like a giraffe's neck) but most of the time we engage in very tactical thinking.
When you are standing at the pay window cashing in your chips you will realize that very, very few real singularly important decisions were truly "strategic" because an awful lot of success is just based upon getting to work early, staying late and checking stuff off the list.
I think that a great strategic plan has to be no more than 2 pages long to truly be strategic. Now the tactical or implementation plan can be much, much longer but the strategic concepts are very short.
The top dog, the CEO, has got to blend imagination with strategic planning and thinking. Don't ever make small plans because GREAT BIG plans cost the same amount of money. CEOs have to be ready to accept that they are different: If you are not comfortable feeling foolish when presenting the plan, then you are not being aggressive enough. The higher you get on the totem pole, the more of your ass the world can see.
"I can no longer obey; I have tasted command, and I cannot give it up." who said this?
Hint: it was a very short guy from France who almost conquered the whole damn world but for the savagery of Mother Russia's cruel winter.
I urge CEOs to join organizations like YPO and TAB and other organizations which provide a good peer to peer contact and to go in with no preconceived notions and to use it as a learning exercise. In these settings, CEOs can state the obvious --- I have some good instincts and I am in charge but I really don't know what to do. You will be amazed at what great advice you can get.
I am so glad you touched on this. My associates had this very difficult conversation several times before we even formed. ...not because I wanted to. I was lucky have a partner who had a VC Background and another who had a business bkgrd. Even thought we had different goals to some extent it makes us try and prove my road through achievement. Just because you say at such and such years and such and such accomplishment we would be "willing" to sell off...does not mean that you MUST do anything besides reach the short term goal. The daily, monthly, and yearly.
what are your thoughts early or worry about squashing enthusiasm too soon.
As a mid-market investment banker, I encounter the “strategic planning” issue on a regular basis and agree wholeheartedly that it should be a hot topic at the earliest stages of a company’s development. Naturally, entrepreneurs frequently are too distracted by the noise of their business’ daily operation and development to take a step back to breath and really put on a macro lens. This is a problem, but I would view it more as a casualty—an expense of operations. An entrepreneur with his nose to the grindstone and a booked appointment calendar sounds like he is doing something right to me. However, a detailed, organized strategic plan is the lifeline, the artery, of any successful venture. A plan drawn out with measurable short and long term milestones from day one will not only breed success, but will boost morale (both the entrepreneurs and that of his team) which ultimately drives motivation. A sound strategic plan, as you mentioned Fred, is not necessarily an exit plan, but rather an inverted trail of bread crumbs. Wouldn’t it be more convenient to lay out a path leading to where your business is going, rather than where you have been?
I believe that a strategic roadmap is the keystone of a sound business plan and should be created at the enterprise's earliest stages of formation. Each measurable milestone within the strategic plan becomes a deliverable due on a given target date. Undoubtedly, the business will encounter systemic or company-specific issues that push plans off course or delay deliverables. For this reason, it is essential to track milestones on a monthly basis (at the very least) to ensure that the business does not veer too far from the initial course. However, with setback often comes opportunity. An apt entrepreneur should guage the business' tangential path to decide whether the new course merits a revision to its core founding vision and plan. A sound strategic plan can therefore not be static, but rather a versatile, thriving organism that adapts frequently to best profit from a dynamic landscape. Let's call it the Darwin Delta principle. Only the strong can survive and only the flexible will adapt to obtain that strength advantage. That sort of has a ring to it, doesn't it?
In stead of focusing on exit years down the road - who can look that far - they should focus on the steps to profibility now. Profitability will open many more doors for a company (IPO, M&A, VC) then working towards an exit.
Just my thoughts
Further, some companies think that advertising is selling and that is all they have to do. Advertising is marketing – which creates interest and awareness (brings customers to your site or store) and selling is actually getting the customer to part with their money (providing needed products/services and value/experience).
As a side note: Fred – have you heard of eEgo? Just read an article about this company and since it is in your space was wondering if you have any thoughts about the usefulness of their product.
They have a plan alright - the problem is that while it get them what they want in the short-term - it will financiall bankrupt our nation in the long-run.
So, in this case it is not that they don't have a plan - it is just that the plan is geared for their benefit at the expense of their customers (the American People).
Just my thoughts.
I was surprised by how straightforward and sobering this post was. It's great advice and it's appreciated.
Greg
The panel discussion this morning was very helpful. Thanks for taking the time.
I think it is interesting how consistent the stories about the value of such a process were across VC portfolios, industries, stage of companies, etc. You can see more evidence of that in the comments here.
It's something of a different discussion, but the first startup I had the pleasure of working in (HigherOne) was taking shape in late 2000 / early 2001, and we had to build with this mindset from the beginning. Always lean, always on-the-cheap, always incredibly focused. I got to see that company weather that storm, taking the money when it came, and grow into an incredibly successful, profitable, growth-beast.
That first impression left me feeling that's the only way to do it. Here's to starting up in "nuclear winter." :)
One strategy every company should execute is developing deep, effective partners with potential strategic acquirers. As you know good partners often make the best M&A partners. Effective partnerships with potential strategic acquirers can not only drive revenues in the near term, but build a foundation for a valuable exit down the road. If your firm can't develop any partnerships like this it should be a clue that there might be a flaw in their exit strategy
I've actually found it much more difficult to get buy-in from employees who view plans as "what managers do". So we've asked them to write their portion of the plan and it's helped. It takes a lot of time but instills a discipline you just can't get from just talking.
-Know what you want,
-Know what you have
-Know what you need
Now that the market is slow it allows time to do a company self assessment of: 1- What are the core competencies. Identify the activities, systems or procedures that the company does best and can give an edge over the competition. 2- Know the industry's key success factors. Clearly know what the company has and more importantly what it needs to be successful in this tough market. 3- know your company's competitive advantage and use it to achieve your objectives (Market share, profitability, equity value etc)
Companies without a vision and plan to reach that vision will perish!
-Fred, Thanks for creating a great community. Every morning I look forward to reading you blog.
whats left of the bulge brackets are going to come down market as well - Goldman will literally start competing for deals above $30m.
Just don't let any of them try and impose the 'old world' approach to your process! choose a group if you are looking - that thinks outside the box. Alternatively - if your VC is capable (which they should be FFS) and not conflicted - let them run the process.
if you are in Boston and are looking for that type of advice or service (or the valley for that matteras they have offices there too) - go talk to Giles at Macnamee Lawrence - great chap. (www.mlcllc.com)
Slightly off-topic but did you see the rather public way Pillsbury mishandled their layoffs?
http://abovethelaw.com/2009/02/pillsbury_winthr...
http://www.nowandfutures.com/us_argentina.html
in both argentina and iceland once currency started collapsing the govt put in capital controls making it hard to get your money out of banks and into other currencies. basically they tried to stop a run on the currency. this means you cant get your money out of the bank while prices are soaring and imports are declining (thus creating shortages which further fuels higher prices for consumer goods). naturally this is what pushes people to finally get politically active, i.e. protests in the streets and that kind of stuff.
a couple observations:
1. getting politically active BEFORE the crisis is the best way to stop it. realistically speaking this is not going to happen in america as most people dont know what is going on (we are just sort of hoping this is a temporary thing and we'll naturally bounce back) and dont care to learn, after all who has time, american idol is on
2. getting out of the dollar is worth considering, as foreigners running on the currency is what causes massive currency devaluation, so basically you can either start the run or be left holding the bag. typically when foreigners stop buying govt debt the govt begins to print money and the foreigners run. the saving grace of the US may be that the dollar is the world reserve currency so foreigners may be more reluctant to run. judging by gold prices and central banks increasing their gold holdings i think foreigners could run from the dollar to gold, or to a basket of currencies, so i think a run on the dollar, or a partial run on the dollar, is still quite possible, even more so if govt refuses to curtail spending (as was the case in argentina). and a global crisis makes it harder for foreigners to continue subsidizing americans (this is the decoupling theory)
while i am a full-blown kook this concern is not just for kooks, brighter and more experienced minds than mine are very concerned about it. itulip.com and shadowstats.com to mention two, and of course peter schiff (europac.net) who has become famous for giving kookonomics a charismatic and easy to understand voice
the conventional way to hedge is through accumulation of precious metals, as if capital controls are put in place than electronic commerce will come to a standstill (credit and debit cards wont work) and we'll have to return to barter until govt turns the banking system back on. alternatively i think there could be an oppty in creating virtual currencies as our own monetary system. this would require cooperation from people which of course is still extremely unlikely, remember not only is there american idol but after that we have to watch mtv and other quality programming (emphasis on the word programming). this would also essentially be a non-violent revolution, the thought of which scares most people, regardless of necessary and morally correct it may be. so i wouldnt count on it, least not until people are educated enough and psychologically willing to face the scenario.
in the final analysis govt spending is critical here, the more we enter a loop of diminishing tax base followed by "stimulus" packages (gotta love the orwellian newspeak....what destroys is called stimulus) the more currency risk we create. ending the american empire is no longer just a moral imperative, it is increasingly an economic one as well.
conventional logic is that it's bad for business to talk about politics. of course, everything that has a beginning has an end, and IMO now is the time to end this sort of logic. the safest route is for everyone to get politically active and start demanding a decrease in the size, scope, and spending power of govt. demilitarization is the most obvious area where govt spending should be cut drastically, doubly so when one remembers that 9/11 was an inside job. but at the very least the "stimulus" packages need to be stopped, if govt wants to stimulate the economy they should do so with the massive amount of money they already have, not by printing more. otherwise we are putting the dollar at risk while also distorting the free market and making it harder for trained investors to rationally analyze and cultivate opportunities.
but like i said dont take my word as brighter and more experienced minds than mine are concerned about insolvency of the US govt and the currency crisis that could emerge as a result. at the very least it is something that entrepreneurs and investors should be aware of and discussing when making plans, and evaluating for themselves whether or not it is a legitimate concern. i am simply mentioning it because i think it is the biggest concern that we should all be talking about. i hope i am wrong though i've yet to find a very convincing rebuttal for how we are not on an extremely dangerous path, which is why i mention it (not trying to fearmonger or say sensational things to get attention)
Second, I see the stimulus not as some more spending but as defibrillation. It's not a matter of putting the "dollar at risk" but about making sure there is a dollar at all. And the stimulus is nothing compared to the rate at which we're increasing the money supply. To me, this is no longer in the realm of conventional politics of spending or not spending, but a sort of life-and-death situation.
Again, I think it's an important topic, sure. But talking about the reasons the ship is going down doesn't help anyone in the end. We're not going to have much influence. But we can have a tremendous impact on what happens afterwards.
also, in order to solve the problem, people will need to understand the causes. if hyperinflation comes, govt will just try to use it to justify more of a power grab, perhaps via the creation of a world central bank that will be even worse than the fed. if people do not understand the causes of the problem, they will continue to fall for all the fake solutions offered their way. many people in zimbabwe still dont understand their crisis, and argentina is still a mess with an unstable monetary policy. only the truth and proper education can unite the people to bring about real change that benefits everyone.
lastly the seeds of liberty must always be planted. for instance the currency act of 1764 outlawed the colonies from using their own currency and forced them to use the interest-bearing currency imposed by king george, but it wasnt until 1776 that the revolution really got underway. it is not going to take nearly that long this time, but it still illustrates that reclaiming liberty is a gradual process that requires much education. i'm happy to get the ball rolling ASAP, even if most calls for liberty fall on deaf ears -- for now.
In six to nine months, you've got to go through this again. Hopefully the economic climate may have improved, and most importantly some of the broader indicators on demand and growth will have become clearer, and you can iterate once again.
It's the slavish obsession with the process, understanding your plan is a container holding assumptions, not predictions of what revenue will be in month 9, and being able to let go of this plan and create another, once the assumptions change or need to be validated. It doesn't mean in you ever ignore your plan, or don't maniacally measure your performance to it, you're just very mindful of the interplay between its assumptions and reality.
This provides the aperture in the conversation among the execs and their board to surface where the trajectory of the business is pointing, where the business could and should be within the cash horizon, and who is in the logical acquirer landscape.
That's so much harder to do for younger companies/execs than it is for folks who have been through a down cycle before. To your point Fred, the more experienced teams don't have to be asked to do this, they naturally know it's time to reset the plan around a new set of assumptions when they read the same headlines we all do .
I took a run at explaining this process for the companies my partners and I invest in with this post: http://openambition.com/2008/12/09/why-the-numb...
I'll read your post and let you know what I think
Great post and even better are the comments that follow with some examples. If possible I would love to read your thoughts on what should be covered in a plan regardless of industry?
cheers
aj
1. is my initial target market still lucrative enough (and not too strongly impacted by the crisis)?
2. what customer problem am I really solving?
3. is my target market really willing to pay for that? how does he want to pay?
4. am I really using the most effective channels to reach my customers?
5. what relationships do I have to build with customers in such a severe economic environment?
6. which resources are too costly to maintain?
7. which activities are too costly to maintain?
8. which strategic partners can leverage my business model?
9. how can I lower my cost base (an obvious one...)
The best way to do this is by brainstorming with a diverse team equipped with post-its and a huge wall... The discussion, the understanding and the alignment will be even more valuable than the outcome. That is exactly what you need to come out of a crisis more strongly...
Warm regards from Switzerland! Alex
I made my first business budget today. It's written down (in excel), and while it isn't 18 months, it does cover through the end of 2009.
Do your companies use a spreadsheet for the financial plan? A napkin? Any special budgeting sotware?
Google apps is starting to emerge as the most popular alternative
The abitity to question that which has been treated as fundamental is core to finding the proper direction to come.
The idea that boards hold management's feet to the fire is difficult to accept, because so many board members leave their brains at the door and go along to get along. But when VC types are on a board, they have skin in the game are are more likely to be realists than some friend of the CEO.
My point is that as investors and executives, it's important to leave "hope" to the politicians and stock groupies and focus on what's going on in the world and target markets. That's why so much time must be spent on market, technology and environmental assumptions before planners start putting their dreams in their spreadsheets.
I owned and edited a newsletter on strategic planning for almost 20 years. Two things struck me over that time. First, the herd mentality rules most industries and executives. And, second, few people really think strategically.
Steve Jobs is a strategic thinker as well as an innovator. Bill Gates is not.
But your point about skin in the game is a big time winner. That's what its all about.
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