Venture Capitalist at Theory

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2 minute read / Sep 30, 2012 /

A six-step framework to make strategic decisions

Any number of challenges can arise during a startup’s initial years. Some of these changes could be major and may require rethinking strategy. Competitors enter your target market. New products are released into your market which undercut yours. Customer acquisition costs rise dramatically.

If faced with these questions, it’s hard to know where to begin or how to structure an analysis to reach an answer.

McKinsey uses a 6 step process to frame the process of answering these strategic questions which is profiled in this month’s Harvard Business Review. This framework has helped me many times simplify strategic questions and shift from questioning to analysis to action.

Case: A new competitor emerges to compete with a startup

  1. Frame the strategic choices as mutually exclusive options. Start with the most apparent options. Either compete directly with a new competitor or change your target market.
  2. Generate alternatives. Brainstorm other possibilities that broaden the option set. Partner with the new entrant. Acquire the new entrant.
  3. Specify the conditions under which each option is attractive. Competing directly with a competitor makes sense only if our margins are better than our competitors and our cash balance is larger, meaning we can spend more on marketing and customer acquisition.
  4. Identify barriers to each option. Our startup may lack the marketing competency to compete.
  5. Design and run tests to prove/disprove each of the conditions. Our goal is to quickly determine which options are feasible and realistic. Let’s run some initial marketing tests to gauge our return on investment. Let’s determine how long it would take to find the right marketing person and how much it might cost.
  6. Using the data, make a decision. Enumerating the possibilities, identifying key challenges, developing the triggers for pursuing an option and then deriving key data to compare to these triggers builds clarity into the decision making process.

By definition strategy is critical to companies. By using an analysis framework like the one above, you can bring clarity and a common language with your board for evaluating and making the right strategic choices.

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