All too often, I see founders trying to trial and error their way to growth. Instead of documenting and commiting to a long-term strategy, they make decisions day-to-day, responding to the latest fire, or (short-lived) success, they come across.
This causes problems.
In the early days when teams are small and close-knit, strategy will naturally emerge and diffuse amongst team members. But as success comes and teams grow, natural diffusion only goes so far. No matter how good your hires are, a lack of direction can force even the strongest yarn to pull apart.
No strategy means no direction.
If you want your team to be autonomous and make quick decisions with the businesses best interests in mind, they need to know what those best interests are.
No strategy means no learning.
Day-to-day decision making forces you either to be putting out fires, or traipsing the path of least resistance. You will find your team is either responding to remove stress or whatever gives them an indication they’re doing good - even if it’s not good for the business overall.
Take for example two segments, A and B.
Segment A is easy to acquire, needing you to spend only £1,000 for each customer. Your marketing team, enthused by these results and having no direction other than to ‘acquire customers’, pools all of their resources into capturing this market.
But they don’t stick around long because ultimately, your product doesn’t satisfy their needs. After 8 months, they churn, spending just £800.
Meanwhile, Segment B has found that your solution is perfect. They’re a little harder to find, so it costs £1,500 to acquire each one. Because of this - your marketing team ignores them. But if they took the time to deeply analyse the long-term outcome of having them, they’d realise that they stayed longer than segment A, upgraded at a faster rate and brought in £4,500 for every £1,500 spent to acquire them.
All of the short-term metrics sound good, but before you know it growth has plateaued and your team has only learnt two things: how to attract a market that isn’t a good fit, and how to make easy decisions.
Good investment terms become difficult.
Instead of being able to show healthy unit economics and a clear path to growth, you’re forced to sell your vision and a few vanity KPIs that don't impress any investor worth a term sheet.
If investment isn’t your goal, then don’t think profitability will be a simple endeavour without a plan of how to get there.
A good growth strategy will take into account your unit economics and funding horizon, will optimise for capital efficiency, will make sure that instead of lumpy, inconsistent growth (if any), you are growing at the consistent, double-digit, month-on-month growth-rate that tells an investor “this team knows what they’re doing”.
For most companies, those goals will come in the form of an annual goal - a nice, big audacious number that represents where we want to be at the end of the year. It's an exciting prospect. Visualizing what it would be like to have achieved that goal is relatively simple - but understanding how you'll get there isn't that easy.