How much strategic planning should start-ups do?

This is a deceptively tricky question. We have to consult Goldilocks for the answer. While she was busy ransacking the three bears’ home, she quickly determined whether things were too hard, too soft or just right. She would be a natural strategist and asset to any start-up (providing you gave her porridge and her choice of seating). Because getting the balance of too much versus too little planning is not easy.

There are several parallels between strategy and storytelling. Stories are about a hero’s struggle to achieve an object of desire. Strategy is about deciding what a firm’s object of desire is going to be at any given moment in time, and how best to achieve it. There are also two kinds of writers: pantsers or plotters. Plotters map out everything in advance, so they know exactly what happens when before they begin. Pantsers prefer to make it up as they go along. They write by the seat of their pants because they don’t know how the story will end and will only discover this through the process of exploration. Both approaches can work. William Boyd is a plotter. George RR Martin is a pantser, arguing if he knew how his stories were going to end, he would have no interest in writing them. Maybe that’s why he is struggling to complete his epic Song of Ice and Fire saga?

Founders may instinctively feel the same about strategic planning, seeing plans as either a useful roadmap or a restrictive straightjacket. It is tempting to think that a start-up requires little formal planning compared to an established international conglomerate. Certainly the latter will have more dedicated strategists on the payroll. But it doesn’t work like this in practice, because the international conglomerate knows its business, whereas start-ups are by definition still exploring theirs. The truth is that the amount of planning you need to do is determined by the number of strategic questions, options and challenges you face. And for a start-up, that can be a long list indeed.

Start-up ‘best practice’ encourages founders to be pantsers. Their chief weapon is OKRs. The focus is on operational performance: set goals, identify metrics and optimise activity to ensure they are achieved. They can be a great tool, but only if they are set within a strategic context. Here is a tale of four fictional businesses to illustrate the point. After 12 months, all four businesses are determined to continue growing aggressively;

They set similar OKRs. Twelve months later the outcomes are quite different:

What happened? Black had internal problems (culture or organisation) that it delayed addressing in the push for business in year 1, and imploded. Blue was busy reacting to market dynamics rather than trying to be proactive. When those changed for the worst, the performance plateaued. Green was able to be proactive and continue its consistent growth curve. Red spotted that faster growth was possible and so in year 1 it reconfigured its business and invested in the capabilities needed to capitalise on them. This is the essence of strategic planning. Looking ahead and seeing not just what you need to achieve this year, but also what you need to do to be in a position to achieve your medium and longer-term goals.

OKRs tend to draw attention to short-term growth or change. So use them, but only once you have assessed the immediate market opportunity, decided what is realistic for you to target, and considered how your business needs to evolve over and above immediate growth targets.

So how should a start-up approach strategic planning? There are no hard and fast rules. But there are some truths you can use to guide you.

Plans are valuable, but not sacrosanct. You should have one but not rely on it. Every bank manager and investor wants to see a robust strategy codified in a business plan. But they also know the plan is likely to include a large dose of fiction. They expect businesses to pivot during the course of their customer discovery and search for product market fit. They know that everything will take at least twice as long as you plan for. That is the planning fallacy, brilliantly proven by the neuroscientist, Daniel Kahneman, whose book explaining this took twice as long as he expected.

The value of a plan is not in the final outcome, but the process of getting there. D-Day was one of the most brilliantly planned events in human history. But not even Eisenhower, the operation’s chief architect, expected everything to go to plan. He was famous for his aphorism: ‘plans are worthless, but planning is everything’. Founders and their teams need to spend time planning together. It will not only help formulate a strategy and roadmap, but also improve your situational awareness, challenge your own assumptions, and anticipate the challenges you are likely to face over the next few months.

You should invest one week into strategic planning. Two days in January to plan for the year, followed by half a day on Q1. Half a day on Q2, 1 day on Q3 and 1 day on Q4. At each juncture, critically assess how the opportunity and business dynamics are evolving.

Since we tend to underestimate how much change happens over a longer period of time, have a clear vision for how your business will eventually evolve. What is it becoming? Then consider the next three year cycle. What changes do you need to have in place within 36 months to achieve your longer-term vision? Which of those changes need to start within 24 months? What are the implications for your decisions over the next 12 months? If you can think backwards, you will find there are lots of different decisions you will make about investment, people, data, technology and organisation. You don’t win at chess by mastering the opening. You also need knowledge of middle- and endgames, and to be able to link them together.

Involve your leadership team and anyone else who has a strategic contribution to make. Some people are better at openings, others endgames. Only by bringing these skills together will you maximise the value from the process.

And don’t forget Goldilocks. If it feels like you are spending too much or too little time on planning, you probably are. You can adapt to find your business’s sweet spot. Just don’t get caught napping by three angry bears…

UP AND TO THE RIGHT.