MBA Hack: “Strategy” is Just a Fancy Way of Saying “This is How I Will I Stick to My Financial Model”

It took me a year and a half to figure this out, so I thought I would pass on the knowledge. But yes.  Don’t waste your time on HBR books on Strategy initially (granted I’m still only 10% of the way through so take that with a mound of salt).  I tried, and it just made no sense to me, or how it related to my daily operations as a small startup.  I mean, I think it some point when I’m CEO of a Fortune 500 company (i.e after NextDrop IPOs) I think it will make more sense.  But when you’re starting out, it doesn’t exactly feel like anything that relates to making sure you don’t die.

Key Disconnect: “Strategy” is a fancy way of saying “This is How I Will Stick to My Financial Model” (That will, admittedly, keep changing).

Stage of the Company You Should Be at To Use This: I think this is after you’ve raised some money, and are now trying to implement that thing you said you were going to do.  This is probably when you’ve raised maybe $5-$250K to prove out your concept (depending on how difficult it is to execute) If you’re still trying to raise money, you should probably still do this, but a much simpler version.  You just need to convince people that a) You found a good way to make money b) You’ll make lots of it c) You’re not a complete idiot and you won’t do stupid things that will kill the company.  That’s for a separate post though.  After I successfully raise money, when I can actually say what works.  In the process right now, so it’s speculation.

Anyway.

These are my crude notes so far for a roadmap to following/implementing startup “strategy” initially:

1.  Make some simple financial projections (and by financial projections, I mean something super simple like this) that shows hockey stick like growth and projects you to be a $100M company in 3-5 years.  Actually, first of all, you need to be convinced this can happen.  Like in any sort of plausible reality, this can happen.Not all companies can do this.  Make sure yours can, and you want it to happen.    Everyone can do this in Excel (i.e.  just keep pushing zeroes until you’ve hit the mark) but the key is to believe it yourself.  Key questions you have to answer after (at least broadly):

• Start at the bottom with the Revenues part: Which revenue stream do I think I going to be making the most money from? (I.e. what thing that I decide that I want to do will get me the most cash in the quickest amount of time?) Read: This line item is where you tack on the most number of zeroes in Excel.  But this is where research comes in.  If you’re saying that you’re going to make $1M/year off of selling parkas to Leopard Spotted Igunas, and I know there are only 500 Leopard Spotted Iguanas in the world, you are either selling each one for $2000 or this doesn’t make sense. (Also, it won’t make sense because I HIGHLY doubt you can reach all of them).  So basically, you need to make sure the market is big enough, you have enough customers, and the price point per unit sold sounds reasonable.  Otherwise people won’t take you seriously.  Do your research.  
• What other potential revenue streams do I anticipate (I.e. how else can I make money, especially if option 1 fails?) This is where you will add less amounts of zeroes, in decreasing liklihood of actually happening.  Same as above- you have to convince me that there is a big enough market, and the share you are taking to make your results happen makes sense.
• Go back up to the top part with Costs: How much will it cost me to execute on these revenue streams (I.e. how much will it cost me to make this money?) Don’t skimp here- unless you’ve actually done this before, it will probably take twice as much as you think.  Run it by someone who’s done it before to see if it makes sense.
• Revenues-costs=profit.  Simple.  Don’t make it more complicated.
• I prefer to do this month by month (instead of quarter by quarter) because even though it’s more painful, it gives you more granularity on what will actually happen

2.  Now comes the tough part: Try and anticipate why it will go wrong, and come up with some ways to prevent it.  Try and execute on your plan.

3.  Now comes the painful part: After it fails (Because guess what, it totally will), figure out WHY IT FAILED.  What will you do next month to make sure you will stay on track?

4.  Now comes the boring part: Make a new model based on these new learnings (while still trying to make sure in 3-5 years you are making $100M).  Make more predictions on why it won’t happen, and try and prevent it again.  See if it works.

And now, we are back to step 1/2/3.  Basically, just rinse and repeat.

Startup success= making this process go as fast as possible (having the discipline to repeat steps 1-4 once a month).

It will never work out like you think, but hopefully if you are diligent and disciplined about it,  you’ll still end up making the $100M revenue.

I’ve thought about how you can become better at “strategy”.  Here’s what I’ve come up with so far:

• Tier 0: You don’t know what risks to expect/what would make it so that you will not achieve financial predictions.
• Tier 1: You know what the risks are (and you’re right), but don’t have good ways to tackle them
• Tier II: You know risks, and have game plans to tackle them (along with a few options, and are generally on the right track)
• Tier III: You’ve tested these theories out and you are correct- basically, you are awesome.

Anyway, those are my crude off the top of my head notes.

Comments/feedback/thoughts are always most welcome