Strategy framework for early-stage startups

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A strategy framework specifically for early-stage startups based on the best advice on business strategy.

The strategy framework for early-stage startups

There is very little advice out there about how to build a strategy for an early-stage startup.

Maybe that’s because most early-stage startups don’t have one, or perhaps most don’t because there is little advice.

What’s certain is that the prevalent “go out there and learn” mentality makes many people believe that a strategy at an early stage is unnecessary. But consider this: how can you effectively learn and iterate when you lack a clear understanding of why you’re doing what you’re doing?

What’s certain is that the prevalent “go out there and learn” mentality makes many people believe that a strategy at an early stage is unnecessary.

But consider this: how can you effectively learn and iterate when you lack a clear understanding of why you’re doing what you’re doing?

Roger Martin, today’s most prominent strategy thinker, hits the nail on the head when he wrote that:  

 “You can’t not do strategy. The only relevant question is how you make the decisions that define what you do and therefore represent your strategy. Every startup has a strategy. Some just can’t spell it out. But those that do will probably learn and adapt faster and have therefore a higher chance of finding things that work.”

But even if you know the importance of strategy, formulating one as an early-stage startup is hard. You face endless choices, and no previous data can help you decide what to focus on.

That’s where this framework can help you build and test your early-stage startup strategy. It builds on Roger Martin’s 5-question framework and adds the questions you need to ask yourself at an early stage. You can find all primary sources at the end of the page.  

What is our goal?

Already here, it gets tricky. How do you know what to focus on when you’re just getting started?

Luckily, most early-stage companies go through the same phases, each with its own goal. For more on these phases, take a look at the startup focus framework. If you only have your idea, your goal is to validate it with the market. If you have validated your assumptions, your next goal is to get to product-market fit (framework linked).

Luckily, most early-stage companies go through the same phases, each with its own goal. For more on these phases, take a look at the startup focus framework.

If you only have your idea, your goal is to validate it with the market. If you have validated your assumptions, your next goal is to get to product-market fit (framework linked).

If you are in a different phase, you should set whatever goal you think is most important for your startup at the moment.

Deciding what not to do is as important as deciding what to do.

– Steve Jobs

Do not try to focus on multiple goals at once. Strategy is also about what you choose not to do. If Apple accepts that it can’t do everything at once, you should too.  

Where will we play?

In the next step, you consider where you want to reach your previously defined goal. In the general context of Martin’s framework, this can include various questions, such as your industry, market, verticals, or the channels you will use.

But as an early-stage startup, you should start by focusing on three things:

  • The initial market you want to target
  • Your ideal customer profile (ICP) within that market
  • Where you can reach your ICP

Your initial market should be as narrow as possible. As Paul Graham said, starting with a few people who love your product is better than with many who just like it. You can always expand to larger markets later.

Inside that market, you need to know your ideal customer profile (ICP). That’s the person who will jump up and throw money at you as soon as they hear about your idea.

Defining (and testing) your ICP is crucial for finding your first users and customers. You will have to sell your product before you actually have it, and that is a tough sell unless you talk to the people who will truly love it. Last, think about where you can contact your ICP to find your first users. Depending on who you target, this could be a specific social media platform, a physical location, or a method like emailing.

How will we win?

In your chosen market, how will you win against the competitors there?

All startups have competitors. Even if you create an entirely new market, you will compete against an old way of doing things.

According to Martin, there are two general ways to win over your competition. You can either become the lowest-cost provider (think about EasyJet or Southeast Airlines) or create new and unique value.

Most software startups are created to provide new value (your cost structure will be roughly the same as everybody else). So, focus on these two questions:

  • What is our value proposition?
  • How do we differ from the competition?

Your value proposition defines the value you create by solving a problem. A clearly formulated value proposition will help you talk about your product in the right way and get the message through to your ICP.  

Social media post about the importance of standing out amongst your competition.

Unless it is already part of your value proposition, also define how your product and value differ from the competition. As a newcomer, you must stand out for people to notice you.

If customers find distinguishing between you and your competitors difficult, they will go with what they already know (your established competitors).

What capabilities do we need?

For all the things you previously defined, think about what needs to be in place to get there.

Do you need to raise money? Do you need to learn new skills? Are there any marketing channels that must be in place? If you feel that the list of needed capabilities becomes too long or hard to achieve, consider changing some of your previous choices.

How will we review and iterate?

This is where I slightly changed Martin’s framework. In the original framework, the last question is “What management systems are required?” to support your decisions.  

Understandably a critical point for larger companies, but not for an early-stage startup.

However, the question’s purpose stays the same with a slightly different angle. How will you make sure that you follow the strategy, review it, and iterate if necessary?

As we discovered in the beginning, having a strategy will help you learn what works for your startup faster. However, that’s only the case if you actively review your strategy and adjust it if needed.

Give yourself and your team enough time to test the strategy before you review it. Regular reviews are good. But if you change your strategy too fast, you risk prematurely assessing that things don’t work, even if they only need a bit more time.  

Sources