Blog

apr 19
We are the champions

In our previous post (the bumpy road to love) we talked about our take on the startup lifecycle. In this article we will talk a bit more about strategy development. Strategy is not just about having a vision for your company, in the same way that it is not only about execution either.

Essentially strategy comes down to making choices about your winning aspiration. Ask yourself what winning looks like for you as an entrepreneur. Subsequently you need to decide on where you want to win given your winning aspiration. The next step would be to decide on how you want to win in these markets which again should be in line with your winning aspirations and where you want to win. The final step is thinking about the capabilities that are needed to win in the chosen fields. In this article we elaborate on each of these choices with a supporting practical anecdote for each choice. 


play to win.png

For these next five irreplaceable minutes of your life you will learn that strategy is an iterative process. This means that each consecutive choice (see picture above) in this process examines the viability of the preceding choices. Each following choice addresses whether the previous choice still holds.

The benefit of this method is that it helps you get clarity on your vision, how to realize it and what capabilities need. Another benefit is that each choice is connected with its preceding choice making the whole process integrated. 

Winningggg.png
2nd place is first loser! (What is your winning aspiration?)

Strategy starts with an aim, an aspiration, or a guiding principle: what does winning look like? Having an aspiration as a startup is important because it defines your purpose as a company. It becomes the principle you make your decisions on: what is the position I want to have in all the markets I enter?

"Being the largest player in each market we enter"

Or

"Be the profit leaders"

But you're not there just yet. Having an aspiration is just the first step. Having a winning aspiration is where you want to be with your startup. Allow me to break it down a bit. Each time Usain Bolt arranges his feet in the starting block his mindset is not just to participate but his mindset is to set a new world record or become the first to cross the finish line.

Having a winning mentality is not only good in sports but in most aspects of life especially in business. While growing up I remember my parents saying participating is more important than winning, apparently they are not always right. If you translate that to a business context this would mean you're playing to play and not playing to win. In that case you're simply offering the first place to the competitor that does have that winning mentality leaving you bruised and battered with only small gains to show for it. Do you know Yohan Blake or Justin Gatlin? No you don't! But you do know Usain Bolt. And that's exactly the point!

Winning aspiration: The ice-cream market is highly fragmented with large incumbents dominating the regular ice-cream market. As a small ice-cream startup with deep knowledge of flavors you aspire to deliver the best quality (artisanal) ice-cream in the markets you choose to enter


Where.pngChoices, choices, choices... (Where to win?)


Once you have decided what winning looks like you need to decide on where you want to win, because you can't be everywhere all the time. Making these choices also help you to have a clear focus and plan of attack. As a startup you have many choices in deciding where you want to win. It doesn't only concern the markets, it also includes the type of customer and the channels you use.

For the where to win you need to ask yourself: does my where to win decision support the winning aspiration? Ask yourself whether the customer, market, product or channel of choice will lead to the aspiration (of choice) given the how to win choice and capabilities. If the answer is yes than congratulations. If not, back to the drawing board!

Where to win: For the sake of simplicity we'll keep the choices of where to win around demographics, geographic and your (sales) channels.

Your first choice is the type of end-consumers you wish to serve. Since you're offering an artisanal product the end-user to focus on, are people who value high quality ice-cream and are willing to pay a premium price for it. Another choice to be made is on the geographical focus. Since your ice-cream products are home made the production capacity limits you to local markets around your production facilities.

As a third choice you need to address what (sales) channels to choose from. You can choose specialty shops, mass retail stores or restaurants amongst others. The specialty shops may be the channel of choice since these shops offer a full experience for ice-creams, which is in line with the product proposition and the customers you want to reach.

 

How.pngCompetitive advantage (How to win?)


This step is about understanding how to win, within the where to win context, to deliver on your winning aspirations. These are intertwined and that doesn't mean winning in general but winning given the choices you made regarding your aspirations, the type of consumers, the channels or locations.

The first step is: figuring out what your competitive advantage is that your consumers value and how that aligns with your earlier choices. This step forces you to look outside and really understand what your consumers value and how much they are willing to pay for that. If you don't win with your customers, you will not win in the market.

Another factor that comes into play here is the competitive playing field. Will you be able to get the market position that you aspire given the other players in the market? Are you really in the position to fight them head on, or should you use a different approach – which might alter your where to play choices.

How to win: As an artisanal ice-cream manufacturer you're able to offer a set of new distinct, high quality ice-cream flavors of ice-cream every month. Your competitive advantage is high quality products and super fast innovation, which will drive excitement in the market.

capabilities.pngEvery rock star needs his guitar

(What capabilities do we have/need?)

We now have a good overview of how we are going to reach our winning aspiration. Now we need to understand what the capabilities we need (and have) to support our strategy. There might be a gap between the available capabilities and the required capabilities to win. The capability gaps provide insights in the capabilities which should be build, acquired or outsourced in order for you to reach your goals.

It is important to make the distinction between normal capabilities and core capabilities and focus on the last one. Your core capabilities are all the capabilities that you need to support your competitive advantage. These are the capabilities you need to excel at and need to have in house.

The other capabilities you could outsource if that is cheaper, better quality, because you are lazy.

Required capabilities: Earlier we decided that part of the competitive advantage is being able to drive innovation and offer high quality products. Therefore, we need to have the capabilities to support fast innovation and offer high quality products. Distribution to the retailers is not a core capability and can therefore be outsourced.


Want to get in touch or scream at someone? Feel free to contact us at +31 6 2010 6915 or kees@taedoki.com 





feb 26
The bumpy road to love

Many startups fail on the bumpy road to becoming a successful company, we want to help you to become one of the ones that makes it. This article is the first of a series of articles that will come out every six weeks. The purpose of these articles is to explain to you how we see the life of a startup and how we think you can be more successful.

This first article will talk about our view on the startup lifecycle and introduce the topics we will cover in the next articles in more detail.

Most startups find their inception in a bar late at night. If, after brushing off the hangover, the idea still sounds like it will change the world for the better, you might decide to defy logic and become an entrepreneur. Your first step is making a first product or prototype and validate the product (can we make it, does it do what we want it to do, etc.). Maybe your rich uncle finally starts believing in your idea and is willing to put up some money.

Now the real fun can start: finding and optimizing your product-market fit. This is one of the most critical stages in your lifecycle where based on what your customers want, how you are able to add value for your customers and how to win in selected markets, you will optimize your product. You will think you finally got it many times, only to realize you were wrong. That's part of the fun in the end, but buckle up, this part is definitely bumpy!

Once you have found your product market-fit and gained rapid traction in your target market, it is time to start flying (or just scaling-up). To do that you probably need money from a venture capital fund… Since you have started growing quite rapidly in your target market, you might already be on their radar. But how do you make sure you get from that radar to a signed term sheet?

We believe the answer is preparation (my mom was right after all). Before you walk into the VCs office you need to know: where do I want to be in 1 year? 2 years? 3 years? How are we going to get there? Do we have the capacities to get there? What capabilities do we need to bridge and how? Who do we need to hire? Etc. We call this building the foundation for scaling-up.


 Startup lifecycle.png

 

So here is our vision: raising money is not the goal. It is a consequence of a well thought out process. First we need to know where we are today (what's our revenue, # of clients, etc.) and where we want to be in a 1, 2, 3 years. To road to get there starts with your strategy which is translated in an operational model, which is the detailed roadmap to reach your goals. With the operational model we can make a financial model that tells us how much money we need, what our valuation ranges are, etc. Based on the operational roadmap, the funding needs, and the markets we want to play in etc. we will decide on the funding strategy and lead you through the process of getting funded.

Below an overview of what this could look like. Each topic is briefly described below and will be explained in more detail in the next articles.


Our vision.png(Long term) strategy development

    • What is your winning aspiration? In other words, what does winning look like for you? For example, do you want to be the market leader in terms of volume, profitability or do you want to be the cost leader?
    • The next thing we work on with our clients is answering the question: where do you want to win? What geography and what market do you want to win in?
    • Once we know what winning looks like and where we want to win, we need to understand how we are going to win in these markets. This is your product/market fit. Only a thorough understanding of the industry and more important: what your customers want, can tell you how you will be able to add value for your customers and win in your selected markets.
    • What capabilities do we need to win? This will tell us what capabilities we already have and what gaps there are in our capabilities that we need to bridge to win.


Build operational model​

The operational model translates your strategy into a detailed plan. It tells you how to implement the strategy and reach your goals (milestones). When composing the operational model we try to understand the capability gaps which have surfaced from the strategy development and look how these gaps can be bridged. For example the strategy sets the sales target and in the operational model we look at how many sales employees are required to achieve these targets. We also examine the production capacity of the factory and how this aligns with the targeted revenue. Furthermore in building the operational model we also take the conversion rate of advertising into account and calculate what marketing budget is required to reach the objectives (milestones).

Build financial model

Once the team is aligned, the goals are clear and the KPI's have been set the financial model will indicate how much financing is necessary to reach your next goal (milestone) and how this required financing changes if the growth trajectory changes. It's very important that the financial model is flexible in nature as the projected revenue will most likely be off target. Contrary to the projected revenue the projected cost should be 100% on point. This allows you to use the financial model as both a budget forecasting tool and a cash flow balance.

The financial model also helps in determining the valuation of your startups which most likely has, contrary to an established company, very volatile flows of revenue if it makes any at all. Valuation is both an art and a science. In our experience with traditional methods of valuation (Discounted Cash flow method) the principles of forecasting cash flows require a different approach as startups have little or no historical revenues. A more appropriate alternative which seems to work more effectively is the bottom-up approach. Here the value of a company is estimated by looking at the value drivers and estimating how much these will change if the underlying parameters reach a new milestone. This will be covered extensively in the third sequel of these papers.

Create funding strategy

Once the financial needs of the startup are estimated the question arises how and where to (go) attract financing. This is a cumbersome process because it can take anywhere between 3 months and a year before funds are collected. Therefore an early start is important in order to prevent a dry run.

When composing the funding strategy, the financial model, strategy and operational model are equally important. The financial model serves as a guideline for the required amount (how much?) but also the type of funding round (angel, seed or series A) and the preferred source of financing (notes, equity etc.). Furthermore the strategy and operational model provide insights on what type of investor is preferred as these can also bring experience and connections to the table.

In conclusion, if a British fintech startup aims to raise EUR 2m for its US expansion it is important not to target an angel investor as these often provide smaller amounts of financing (Sidenote: 20 smaller angel investments of EUR 100k amount to EUR 2m but the chances of that happening are rather slim but more importantly would you want 20 angels looking over your shoulders?). Furthermore as a startup you would want to have a partner on board with knowledge of the US market and experience with fintech.

​Getting funded

The funding process is about discussing the terms which include economic terms (Price, Employee Stock options etc.), Control terms (Board of directors and protections) and other terms (Dividends and right of refusal).


Want to get in touch, share your opinion on the startup cycle or just want to trash our article. Feel free to contact us at +31 6 2010 6915 or kees@taedoki.com