After many years as a software engineer, I went back to school for a couple of years to get an MBA, and then joined the consulting firm McKinsey & Company. It was there that I got my real education in business building, problem-solving, executive communications, and, perhaps most of all, strategy.
McKinsey for me was a masters’ class in corporate strategy from some of the world’s most experienced and thoughtful practitioners of it. In my later years at the firm, I helped form an analytics-based startup there and then left to pursue a series of my own startups.
What I learned from my experience in an international strategic consulting role helped me tremendously in all of these later ventures, but I also recognized that the fundamentals of strategy had to be reinterpreted a bit to apply to a high-tech/analytics-based SaaS B2B startup. The core elements of a good strategy as it applies to a Fortune 500 executive team are fundamentally the same as those for a startup, but for a smaller company, strategy needs to provide a path from a blank sheet of paper to a profit-generating product—as opposed to getting the most out of existing products.
In other words, what I’ve come to realize is that there are two types of strategy.
There are two types of strategy
“Product strategy” is the process of creating and sustaining a new value-creating product
A “product strategy” captures how and where the product will grow, whether for a startup or a hundred-year old brand.
Product strategy is a simple coherent answer to the classic questions: Who is the buyer? What is their need? What is stopping the buyer from solving that need? What unique assets and skills will we bring to solve it? And how will we delight the end user?
In a startup, this is done by the founding team, the company’s strategy lead, and/or the lead engineers/product designers.
“Portfolio strategy” is the high-level process of managing multiple products
For an established company with one or more existing products, “corporate portfolio strategy” builds on top of product strategy.
Innovation and product strategy form one lever you can pull to grow and cultivate new seedlings.
The five other levers within portfolio strategy include the constant re-allocation of resources to growth areas, active M&A/divestitures, doubling down on capital investment, continuous productivity improvements, and brand differentiation.
Active acquisitions can be a great mechanism for an established company to stay innovative. It’s a way to keep the CEO in front of new ideas and to avoid a corporate mentality that all the answers they need exist within their own four walls.
In established companies, this type of strategy is typically done by a Chief Strategy Officer or leader of business development; these are roles which, in my experience, are often more focused on M&A than on product strategy and innovation.
Portfolio strategy can be considered a “strategy of strategies”. It should answer: What do we create uniquely well? What are we known for by our customers? What are the different ways we deliver what we do uniquely well (e.g. what are our products)? Which ones are the most promising and thus deserve the most resources? How do our products interoperate, cross-sell, and contribute new value to each other?
For example, Disney’s unique skill is creating animated characters (e.g. Cinderella, the Little Mermaid, or Buzz Lightyear) and stories that can be easily ported over to other products such as theme parks, books, comics, and cruise ships. Apple’s unique skill is creating well-designed, mutually-integrated, and easy-to-use products with a similar consistent interface across computers, music devices, and phones. My prior company’s unique skill was creating tests and e-learning content for clinicians, which we ported into pre-hire assessments, onboarding programs, and personalized professional education.
There are two level that strategy can operate in, but, in either case, the goal of strategy is to define how you are going to create unique value for customers.
Product strategy, in particular, declares how we will solve a specific need in a unique way
A strategy identifies a buyer, their need/value pool, our chosen mechanism for addressing that need and why it will be effective, the unique skills/assets/capabilities we have, and how all those things will come together to uniquely serve the buyers’ needs while delighting our users.
Good strategies also …
- Focus us on the few big decisions (many made before serving a first customer) where our collective effort will be multiplied to create the most unique customer value.
- Force us to zero-in on a particular buyer, their needs, and the tradeoffs inherent in building a specific solution to them, and therefore makes it clear that there are many customers and initiatives we will not pursue.
- Highlight the challenges we face and demands real problem-solving power to help overcome them.
- Show how we will build fast-product-feedback-loops (“learning loops”) into the product to continually learn and increase the tempo of value creation for our customers.
- Are simple to understand. There are cohesive, coherent, focused, attainable, and clear. They have the outline of real steps we need to take. Anyone in the company can understand them, remember them, explain them in their own words, and apply them to their decisions on a day-to-day basis.
By choosing how to uniquely serve your chosen customers, you are forcing tradeoffs. Aldi (related to Trader Joe’s) chooses low prices as its primary mechanism for creating value for its customers. To do that, it has a much lower selection of products (2,000 items compared to 15,000 that many grocery stores have), among other no-frills decisions. What if customers want more choices? That’s fine—Aldi is happy to have them go somewhere else. It is instead focused on serving the customers whose needs match their value proposition.
Some decisions and tradeoffs have to be committed to and locked in early on. But ideas that can be tested without irreversible investments should be. Your strategy should still declare the good faith intent to those areas but only with a small investment. Keep your options open for a commitment once you’ve learned more and reduced the risk.
Strategy is also the path by which a company survives evolution
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[The aim of strategy is] to improve our ability to shape and adapt to unfolding circumstances, so that we … can survive on our own terms.
— Col. John Boyd, the pre-eminent military strategist of the 20th century |
The nice addition that Boyd makes with the line “survive on our own terms” is connecting strategy to evolution. Boyd was a student of the sciences and believed that organizations, like organisms, move through cycles, interacting with their environments by learning, adapting, and aiming to survive.
In short, if you win, it is in part because of your speed, focus, flexibility, and agility. Arguably these are more about culture and tactics than strategy—but your strategy should enable and set the groundwork for your ability to shape, adapt, and evolve.