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A major facet of starting a company is coming up with a business strategy—something that clearly expresses the direction a business will go and the steps it will take to achieve its goals. But if you’re new to the entrepreneurial scene, how do you know if you’re headed in the right direction?
Experiment, Learn, Pivot
Jay Barney, presidential professor of strategic management and Pierre Lassonde chair of social entrepreneurship at the University of Utah, says when it comes to choosing the right business strategy for a company, it’s hard to give a generic answer because every company is different.
“It all depends on what company you’re starting—you don’t know what’s going to work,” he says. “This is going to sound ironic coming from a strategy professor, but having a well-developed strategic plan very early is actually not that important. The critical thing in the early days is to experiment, learn, pivot, and then experiment, learn and pivot. Just keep doing that until you actually learn something and then you can figure out a strategy.”
Barney says the average firm will make fundamental shifts to its business strategy 12 times before it implements a strategy.
“The strategy model is ready, aim, fire,” he says. “But in the early days when you’re first starting out, it’s fire, ready, aim. Just do stuff, watch what happens, learn, and then figure out how to change what you’re doing quickly if it doesn’t work. After that early stage of experimentation, strategy becomes very important.”
Len Erickson, director of the Small Business Development Center at Dixie State University, says up until the mid-‘90s, entrepreneurs would build a business plan first, followed by raising money, hiring people and developing a product prototype.
“By that time, you’d spent $10 million and found out customers didn’t want the product,” he says. “You’d find out you either missed the window, didn’t have the features customers wanted or you didn’t solve a problem. Today you’ve got to solve a shark bite, not a mosquito bite.”
So how do you solve a shark bite as a budding entrepreneur? Erickson says it’s important to start out with a hypothesis—an idea you believe will turn into a home run product.
“You’re not going to spend a lot of money,” he says. “Instead, you’ll go out and test that hypothesis. Find 30 people you don’t know, lay out a simple hypothesis to them, and find out what they think about your idea.
“At that point in time, look at the people you’ve talked to and get your management group together. Then decide if your product is a shark bite or a mosquito bite. Is this a good product? Did we have the correct or incorrect group of customers? And then you pivot, go back around and test again.”
Erickson says the best thing about this approach is that you’ve been able to determine if the product—and your strategy—is a winner, all without spending money.
“You haven’t built the product, so you can keep pivoting on that and going back and changing it,” he says. “You might change the product, the customer base, the approach—or cancel that idea and build your next-best idea with all the money you saved.”
Ask and Listen
Asking questions during the business strategy planning process is key, Erickson says.
“You have to get out of the office and talk to people and listen to what they tell you,” he says. “Find mentors and someone who doesn’t agree with you—someone who will tell you the truth on what you’re doing. Don’t be a lonely midnight genius, where you have a great idea and you’re not going to move away from it and only stay with that idea. Pretty soon people see you have a great passion and they won’t tell you what you need to hear. The worst people to listen to are family and friends.”
Ultimately, Erickson says there’s no need to write the “old stodgy business plan” anymore.
“Bankers are still in the ‘70s or ‘80s and want to see the business plan and strategy because they want to see the collateral and cash flow,” he says. “Sure, you still have to build a basic business [strategy], but only after you’ve nailed it. Then you’re going to scale it and build your business up. And you’re going to do it before you go out and spend a bunch of money.”