StratChat 13 August 2020: "Business Strategy in a time of Crisis"
StratChat is a weekly virtual networking event for business strategists and anyone with an interest in developing and executing better business strategies. It is an informal community-led conversation hosted by StratNavApp.com. To sign up for future events click here.
StratChat is conducted under Chatham House Rules. Consequently, the summary below is presented without any attribution of who said what. As such, they are an agglomerate of views - not necessarily just those of the writer or indeed of any one individual.
Our first meeting focused on "Business Strategy in a time of Crisis".
Should we have foreseen COVID-19?
Should we have been able to foresee the COVID-19 pandemic? The answer must certainly be "yes". Bill Gates warned in a TED Talk in 2015 that such an event was nearly inevitable. He described in great detail what the consequences might be. And his warnings were based on a substantial body of research. Even without the benefit of this, the very recent SARS, Swine Flu and MERS pandemics should have provided an adequate warning.
But what, if anything, did we do about it?
McKinsey Consulting has highlighted that COVID-19 did less to change the world than it did to accelerate already existing trends. Trends that might have taken a decade to unfold suddenly unfolded over a period of 4 months. These trends include, for example:
- pressure for more flexible working arrangements,
- movements against globalisation, and
- an increasing awareness of our impact on the natural environment.
So, an organisation with a strategy which was already alive to these trends ought to have been better positioned when COVID-19 struck.
Black Swan events
The pandemic itself was a black swan event. That is, possible to anticipate in very general terms, but probably not in specific terms.
Other black swan events might have been equally plausible. COVID-19 pushed the world further towards digitisation. However, an alternative black swan event could have been that increased sunspot activity disrupted global electronic networks. That would have pushed the world in the opposite direction.
Building a strategy around the anticipation of a single scenario is a bit like putting everything on red in a game of roulette. Business strategy is about being smarter than that.
Scenarios are one technique that enables us to anticipate and plan around widely divergent and contrary futures.
Instead of causing us to throw our hands in the air, declare the future is unknowable and focus all of our attention on being agile and reactive, scenarios allow us to test our decisions against a range of possible futures. Decisions which produce positive outcomes against a wider range of scenarios are said to be more 'robust' than decisions which produce positive outcomes in some scenarios and neutral or negative outcomes in others. All other things being equal, decisions which are 'robust' are better than those that are not. Scenarios also allow for greater preparation. Organisations which were alive to the risk of pandemic could have detected the signals early. They might have started to prepare for the possibility of lockdown in December 2019. This would have given them some months of headstart over those who waited until March 2020.
It's important that our scenarios lead us to useful insights. That is, insights that we can usefully respond to. There is little point in thinking deep thoughts about the possibilities of a pandemic if you're a small startup with little capacity to do anything about it. That probably means that the scope of analysis for small startups are quite different to those for large established businesses. There are some scenarios ("global thermonuclear warfare") that are probably beyond the scope of almost any business - they will be wiped out no matter what they do.
Recession-proofing your business
The world seems to move in cycles. In the 1990s we thought we'd discovered perpetual growth. That decade ended with the Dot Com crash. Then in the 2000's everything felt good again. That decade closed in the ashes of the financial crisis. Then again, in 2019 we ended the decade with COVID-19. Will we be better prepared for whatever awaits us around 2030? Long term market cycles predict something will happen, even if we can't be sure what it will be. At the very least, we should be trying to build recession-proof businesses.
Some businesses pursue a go-for-broke strategy. They invest a lot up front, in the hopes of achieving enough scale to win; or they fail. Startups are able to be more disruptive with such strategies, as they have less to lose than established scale businesses.
Talking about failure in startups (USA versus UK perspectives)
Our conversation about failure in startups was perhaps slightly off-topic. But that's the beauty of networking with your peers!
There is a lot of confusion in how we talk about failure in startups. There is outright failure of a business, and then there is an idea that doesn't work so you move on to try a different approach. What's important is not the failure itself, but what you've learned from it. However, it's possible to learn without failing. And it's also possible to fail without learning. The challenge is to build agility into the process so that you can afford to make small mistakes and still recover from them. In many organisations, the commitment to something is so great that by the time they work out it has failed, they cannot recover.
There is a cultural difference between the UK and USA approaches to failure. The USA is more accepting of trying things and of failure than the UK is. One reason is that the US economy is so much bigger. So there is always a fallback position if you fail. The UK is more focused on corporate employment with a much smaller startup scene. So if you fail, you have fewer fallback options. People leave steady jobs to and commit to their startup without being sure there is even a market for it. Then, if it fails, they have few alternatives to turn to. The success rate to get into incubators and accelerators is also much lower (maybe 4%?)
People are more willing to try new things in the US. If you pitch them something new, they're much more likely to be willing to give it a go. The downside of course, is that if someone else pitches them something a year later, you can just as quickly get replaced. In the UK its harder to sell something new. But once you do, it's more likely to stick for a longer period of time. The sales cultures are also very different.
There are three questions you need to answer before you just try something: (1) what's the hypothesis, (2) what data will you collect to test it (3) how can you 'undo' it if it doesn't work. Without planning for that third question, you are committed to your failures.
People read the Lean Startup without understanding the underlying theory. For example, one of the ideas was to build an MVP and then get the early adopters to pay for the development of the product. Instead, too many people spend too much of their own money, or funds they've raised, before they've established if the product is viable.
Topics for future StratChats
Themes for future StratChats could include:
- The importance of strategic KPIs (which was highlighted in the current state of business strategy development and execution).
- Focus on specific strategy models and frameworks (for example, the Business Model Canvas).
- Strategy development and execution best practice.