Tuesday, May 29, 2012

Strategies for Startups?

In seeking out specific topics regarding planning, budgeting, and forecasting particularly as it pertains to strategy development, and because budgeting, and forecasting lay the foundation for any effective business planning, I picked an article titled "What Comes Before The Business Plan? Everything" that is largely targeted at entrepreneurs, but that nonetheless goes to the core of the difficulty in generalizing a definition for strategy that will be broadly applicable to the diverse business entities in the economy. What is more salient about the article is that it clearly expresses the understanding that strategic planning requires perspective. Perspective that is usually a result of history.

In this article, they argue "that one reason startups fail is due to the allure of a good plan, a solid strategy, and thorough market research." It "hints that corporate strategic planning led us to the conundrum that if planning works for the greatest corporations in the world, then it must be good for startups too, [but it also notes that] planning and forecasting are only accurate when based on a long, stable operating history and a relatively static environment. Startups have neither.” Further, it argues that for a nascent entrepreneur, the development of a business plan and a corresponding strategy is discouraging largely due to the absence of the information needed to competently develop and write one.

However, the lack of information does not bar startups from adopting brilliant ideas that  demonstrates preparedness and can portend success in the marketplace. Take for example the   article written by Mark W. Johnson, Clayton M. Christensen, and Henning Kagermann, titled "Reinventing Your Business Model" where the authors proffer ideas that a startup could adopt to illustrate its plan for success. The "Reinventing Your Business Model" article described business model as consisting "of four interlocking elements that, taken together, create and deliver value." They describe first element as the Customer value proposition (CVP), which a startup has to have in order to be able to create value for customers. Absent, a CVP, a startup need not start.

Second, the article describes profit formula where the startup will have create value for itself while providing value to the customer. The third elements termed as the 'key resources' required to be able to deliver the value proposition, and fourth, key processes, that the article describes as the "operational and managerial processes that allow the [startup] to deliver value in a way they can successfully repeat and increase in scale."

It is the fourth element that most startups will find difficult to credibly articulate in a plan since there is a requirement for some substantive history of applicable operational and managerial processes. Nonetheless, the assertion that startups should forgo business plan writing and the development of strategy all together is a false choice. In the short and long run, developing a business model that explicates the four elements previously discussed is a vehicle to introducing new product to market and has reshaped entire industries and redistributed billions of dollars of value. Startups usually fall in tot he category of businesses that seek to reshaped aspects industries with novel products or services, so it would be prudent for startups to adopt such business models.

[1] Heidi Neck, Contributor. What Comes Before The Business Plan? Everything.

[2] Reinvesting Your Business Model (assigned case)
Mark W. Johnson, Clayton M. Christensen, and Henning Kagermann, Harvard Business Review.

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