Entrepreneurial Strategy
Traditional MBA and business programs teach students all about strategy – for big companies that is! They go on about how creating a sustainable competitive advantage is the essence of good strategy. How the value-cost continuum is so important. They cite case after case regarding McDonald’s or Apple or Walmart. What they fail to do is actually help entrepreneurs with their strategy.
Simply put. Big company strategic theories do not work for entrepreneurs. Period.
Entrepreneurial companies lack two things that large companies possess, typically in abundance: time and money. Big companies are typically resource rich in terms of both people and cashflow. They are able to attack multiple items at once from multiple angles. Entrepreneurial firms do not share that luxury. The strategy you craft and the direction you take your ship must be focused to avoid wasting precious resources. Therefore, strategy in the entrepreneurial context is all about harnessing resources (time and money) and allocating them to key activities and goals that lead to a future desired state.
For entrepreneurs…. Strategy is the allocation of resources toward activities that lead to a desired outcome.
Allocation of Resources
We know that entrepreneurial companies are resource constrained for time and money (and, hence, people). Therefore, you must be very good on how to allocate those precious resources. A great strategy is all about effectively allocating those precious resources. It is important to note that your resources are first allocated to what we call BAU activities (business as usual activities). These are day-to-day “do your job” type of activities that consume most of the time of leaders and managers of entrepreneurial organizations. This is working in the business and ensuring the organization stays afloat.
There is only so much time and money leftover for strategic activities (what we call objectives, rocks & metrics). Only so much time to work on the business versus in the business. That is why it is so important to nail down what these activities should be each week, month, quarter, year and beyond.
One way to look at this is to think you only have a limited amount of time and money to spend each month, quarter or year to build the business. We like the analogy of 100 hours and $100. When crafting your strategy, how will you allocate that 100 hours and $100?
A very important concept trying to determine the appropriate amount of time to spend between BAU activities and Strategy activities. Typically, at the Board level, they are engaged 100% in strategic thinking, planning and activities. Clearly, the expectation is that as you rise up in an organization more and more time is spent working on the business. For leadership team members, we recommended somewhere around the 40-70% range on strategy activities. This varies widely by quarter for some leadership team members as the cyclical nature of the business might demand certain months or quarters are spend working in the business. This is fine and very common. What we find is that over the course of the year the balance should tip slightly toward more strategic activities ideally. Of course, front-line workers are not expected to participate in strategic activities, or at least very, very little. They are focused on day-to-day running the business.
Desired Outcome
Since resources are scarce and we know that Business as Usual will occupy a good junk of time for most entrepreneurial teams how do you decide on what sort of activities or initiatives your team should be pursuing each quarter, each year, and beyond?
It all begins with determining some future state, some long-term goal, some place you want to be in, say, five years. This is where strategy all begins. It begins with determining your desired outcome: where do you want to be five years from now with the company? We call this the 5-Year Mission and it is the very first step toward building a powerful strategy. Remember that strategy is all about pursuing a desired outcome and our 5-Year Mission is our desired outcome.
Toward Activities
Remember, “strategy is the allocation of resources toward activities that lead to a desired outcome. We now know the desired outcome: the 5-Year Mission you are striving toward. We also know what resources you need to allocate: time, money and your people. But what are the “activities”?
Activities at Ventrek come in three different varieties: 3-year objectives, 1-year objectives and quarterly priorities which we call “rocks”. Note that 3-Year objectives are our big goals for, well, the next 3 years. They are reviewed 2x per year and updated annually. The 1-Year Objectives are our goals for the next 12 months and flow into the 3-year Objectives – everything is tied together. We review our 1-Year Objectives each quarter and update them annually. Finally, we build priorities each quarter for the company which we call “rocks”. These are reviewed each week and updated every three months.
So, our “activities” are objectives and rocks that sort out who does what (allocation of resources) that lead to our 5-Year Mission. Perfect!
