Startup Journey

Tom Koor

What is a startup? V2

What is a startup? V2

 What is the purpose of this article?

This article enables a discussion about how to define and identify whether or not your company is a startup.

The audience for this article includes: investors, founders, board of directors, C-suite, and investment analysts.

This article applies to all companies, ranging from pre-revenue through to long established global companies.

This article does not provide tax, legal or financial advice.

You must do your own research and fact-based analysis using current and relevant information.

AI did not write this article.  100% human written.

You can download a PDF of this article from: What is a startup V2

What are the critical learnings in this article?

  • A startup is a temporary organization designed to search out a repeatable, scalable, and profitable business model with lots of potential customers who are willing and able to pay to solve their problems and needs.1 Startups are not building a solution. They are building a tool to learn what solution to build.2
  • Your company may slip back into the startup stage at any point. Changes may mean that you no longer have a profitable business model with lots of potential customers who are willing and able to pay to solve their problems and needs.
  • Never ending customer, competitor, external environment, talent, operational, and financial monitoring is key to ensuring your company does not slip back to being a startup.

 What is the definition of startup?

  • A startup is a temporary organization designed to search out a repeatable, scalable, and profitable business model with lots of potential customers who are willing and able to pay to solve their problems and needs.
  • Startups are not building a solution. They are building a tool to learn what solution to build.

What does repeatable, scalable, and profitable mean?

Repeatable:

  • You use the same processes, technology, and types of talent as your company grows. You don’t have to constantly reinvent processes, technology, and talent.

Scalable:

  • Costs do not increase as quickly as revenue.
  • You don’t have to make major changes as you grow.
  • Your talent, processes and technology have the flexibility and capability to support large increases in volume arising from new markets and new customers.

Profitable:

Profitability is determined on a cash flow and net present value basis. This is different from financial statements based on IFRS or GAAP. The appendix contains detailed descriptions of the terms used.

There are 5 steps to calculating overall company profitability:

Step 1 Profit = (lifetime customer revenue) – (Cost Of Goods Sold)

The lifetime calculation must also include the impact of Churn.

Step 2 Profit = (Step 1 profit) – (Customer Acquisition Costs)

Step 3 Profit = (Step 2 profit) – ((General & Admin costs) + (New Development Costs))

Step 4 Profit = (Step 3 profit) – ((debt interest) + (taxes on financial statement profit))

Step 5 Profit = (Step 4 profit) – (debt repayment + other cash disbursements + other cash income)

There are multiple future profit scenarios e.g. debt can be rolled over and does not need to be repaid vs unable to roll over debt.

What are the three overlapping phases and steps of a successful startup?

Phase 1 Understanding customers and competitors

Step1 Understand potential customers.

  • What are their problems and needs?
  • What do the customers believe is the value of addressing those problems and needs?
  • What do customer perceive as their value proposition?
  • What might the customers pay to achieve their value proposition?

Step 2 What might a solution look like to customers?

  • What are the characteristics of a solution which might meet the customers value proposition? i.e. What are the benefits? There is a major difference between benefits and features.

Step 3 What are the components of the solution?

What is your business model canvas?

Step 4 What are the cash flow scenarios and related assumptions?

Build a set of cash flow scenarios using the five profit calculation steps above and the definitions in the appendix.

Phase 2 Validating the customers perception of the value

  • Implement temporary processes and technology to validate the customers value perception.
  • These processes may be manual. The technology may not be scalable.
  • Customers are not profitable at this point.
  • You will be learning by doing many experiments.
  • Revise your business model and cash flow scenarios

Phase 3 Transition to a repeatable, scalable, and profitable business model

  • Replace manual processes with lower cost technology.
  • Replace temporary technology with lower cost technology.
  • Implement standardized (flexible) processes which are both scalable and lower cost.
  • Change the organization structure. The talent you hire may also be different.
  • Continue to revise your business model canvas and cash flow forecasts

 How can you tell your company is no longer a startup.

  • You have 6 months of company financial and operational metrics which validate your assumptions.
  • You interviewed customers to confirm that they are achieving their value proposition.
  • NPS (and other surveys) do not reveal major issues.

You will always continue to do the above 4 actions.  Why? The world changes and your company may suddenly slip back to being a startup.

What are the critical factors to keep in mind?

  • The number and size of fund-raising rounds has nothing to do with whether or not a company is a startup. I know of one company that raised $1.75 billion U.S. that shutdown 6 months after launching services.  This company never left the startup stage.
  • Your company may slip back into the startup stage at any point. Changes may mean that you no longer have a profitable business model with lots of potential customers who are willing and able to pay to solve their problems and needs.
  • Never ending customer, competitor, external environment, talent, operational, and financial monitoring is key to ensuring your company does not slip back to being a startup.

What are your next steps?

  • Define the words/concepts you’re using, in a glossary. I’ve seen major confusion when the same words mean different things to different people.
  • Collect the facts: is your company repeatable, scalable, and profitable?

Footnotes

1 adapted from: Steve Blank, “What’s a startup – first principles”. https://steveblank.com/2010/01/25/whats-a-startup-first-principles/

2 Alistair Croll, Benjamin Yoskovitz , Lean Analytics – Use data to build a better startup faster, Sebastopol, California, O’Reilly Media, 2013, Page 41

What further reading should you do?

What is learning? Koor and Associates

https://koorandassociates.org/creating-business-value/why-have-your-minimized-your-talent/

Is your company planning to fail? Koor and Associates

https://koorandassociates.org/avoiding-business-failure/is-your-company-planning-to-fail/

What are the core components of talent? Koor and Associates

https://koorandassociates.org/creating-business-value/core-components-of-talent/

Appendix – Definition of operational and financial terminology

LTP (Life Time customer Profit)

What is the lifetime customer profit, after customer acquisition costs?  This will take into account retention.

CAC (Customer Acquisition Cost) includes all the costs to acquire a new customer:

  • Sales
  • Marketing
  • Onboarding
  • Related compensation of the people.
  • Overhead associated with the people.
  • Technology to support CAC.
  • Legal expenses associated with sales and marketing.

COGS (Cost of Goods Sold) What comprises cost of COGS? Everything required to meet the direct needs of current customers.  E.g.

  • Customer support people, and software.
  • Technology e.g. software, cloud services, communications costs.
  • Bug fix and minor enhancement to the software – after all you do need to retain current existing customers.

CAC is not part of COGS.

G&A (General and Administration) What comprises G&A?

  • Payroll administration.
  • Recruiting administration.
  • Finance
  • IT security.
  • Corporate development e.g. M&A.
  • CEO salary/benefits.
  • Legal expenses (both in house and external), other than those associated with sales contracts.

R&D/Engineering/new Development?

All of the costs associated with discovering major changes to the business model and enhancing the solution.

Tom Koor

What is a business model canvas? V4

What is a Business Model Canvas? V4

 What is the purpose of this article?

This article enables a discussion about what should be in your BMC (Business Model Canvas). The BMC is the story of who your customers are, why they buy from you, and how you make a profit.

The audience for this article includes:

  • Early-stage company founder, leaders, and investors.
  • Established company and business unit leaders.
  • Boards of directors, C-Suite, and investors.

This article does not provide tax, legal or financial advice.

You must do your own research and fact-based analysis using current and relevant information.

You can download a PDF of this article from: What is a business model canvas V4

What are the critical learnings in this article?

  • The purpose of your BMC is to provide and easy to understand one page framework which communicates who your customers are, why they buy from you, and how you make a profit. The one-page framework is supported by additional detailed information.
  • If your company has a single BMC, then everything to create and run your company is within the scope of your BMC. The bulk of the information will be within your supporting documentation.

A-What is the purpose of your BMC?

  • The purpose of your BMC is to provide and easy to understand one-page framework which communicates who your customers are, why they buy from you, and how you make a profit. The one-page framework is supported by additional detailed information.

B-What is the value of your BMC?

  • It focuses on who your target customers are and their perception of your value proposition.
  • It directly ties your internal value creation to your customers perception of their value creation.
  • It enables competitive advantage by identifying your unique value proposition.
  • It provides a common language for leaders, employees, and others.
  • It should be easy to create, update, and enable scenario planning.
  • It enables fast and easy brainstorming.
  • The initial version may be based on assumptions, which can then be validated or rejected.

It is a tool which helps leaders learn

C-What does your BMC look like?

  • Your BMC is a one-page slide, with bullets, outlining the 9 components: customer segments, customer value proposition, customer relationships, channels, key partners, key resources, key activities, cost structure, revenue streams.
  • Your BMC has a multi-page supporting document with further facts, analysis, and assumptions regarding each of the 9 components. This supporting document will have links to other documents in your company.
  • Your company may have multiple BMCs. E.g. if you have different types of customers with different problems and needs which require different solutions.

D-What does the one page slide look like?

I’ve attached a link to one example of a Business Model Canvas from Steve Blank’s Stanford University 5-day program for startups The startup was called “Cratiso This BMC was created in 5 days, sometimes changing in the course of a single day. It illustrates the value of quickly talking to lots of potential customers.

https://koorandassociates.org/wp-content/uploads/2025/02/business-model-canvas-cratiso.pdf

E What are the 9 components of your BMC?

How do you read this section?

  • There is a definition of each of the nine components.
  • Then there are a series of questions you need to answer for each component.

#1 Customer Segments

Definition

These are the target customers and users.  Each customer and user segment will have its own value proposition.

Questions to answer include:

  • Who exactly will you be creating value for?
  • Who are the cash paying customers? Who are the users? g. Google has users who pay no cash to do searches.  Google has advertisers who pay cash.  Without users, Google. would have no customers.
  • What are their problems and needs?
  • What are the geographic, social, and demographic characteristics of your customer segments?
  • How many customers are willing and able to pay to address their problems and needs?

#2 Customer Value Proposition

Definition

A value proposition is the customers perception of value.

This perception can be influenced by: facts, emotions, family & friends, social media, etc.

The value proposition = (All the customer achieved benefits) / (All the customer incurred costs)

All the customer achieved benefits can include both financial and non-financial (e.g. time savings, convenience, status, etc.)

All the customer incurred costs can include financial (purchase costs, costs to switch to your company, other adoption costs, and ongoing costs) and non-financial (time, inconvenience, loss of status, etc.)

The value proposition also needs to be competitively differentiated.

Questions to answer include:

  • What value does each customer segment expect to receive from your solution?
  • What’s the customer need or problem that they will open up their wallet for?
  • Do people agree that you are solving a high value problem or need?
  • What does the customer believe will be the impact of your solution? E.g. 10 times improvement in something?

#3 Customer Relationships

Definition

What type of customer relationship do your customers expect to have with you?

Questions to answer include:

  • How will you get, keep, and grow customers?
  • Why type of relationship does each customer segment expect you to establish and maintain?
  • What types of relationships have you already established?
  • What is the cost of each type of customer relationship?

#4 Channels

Definition

Channels are how to connect the value proposition to the target customer.  There are three different types of channels:

  • Communications – used to communicate with potential customers. There may be many communications channels.
  • Sales – where customers and sellers agree on the transaction. Usually there are fewer sales channels than communications channels.
  • Logistics – how to deliver the solution to the customers.

Questions to answer include:

  • How does the value proposition get to the customers and users?
  • How will you be selling and distributing?
  • Through what types of channels do the customers want to be reached? In other words, what channels are most effective? E.g. website, app, social media, face-to-face, marketplaces, etc.
  • What channels already exist?
  • Which channels are most cost efficient?
  • Which channels are integrated with customer processes?

#5 Key Partners

Definition

A partner may also be a channel, if the answer is “yes” to one of the following questions:

  • Who are the key partners and suppliers?
  • What exactly are you acquiring from them?
  • What are they going to do and when?
  • Is the partner a leading entity with a brand and market position that adds to your credibility?
  • Does the partner add expertise and resources to your product solution in a way that increases the value of the product for the end customer?
  • Is the partner (and their brand/expertise/resources) required to land contract with the key target customers?

Questions to answer include:

  • Who are the key partners?
  • Who are the key suppliers?
  • What key activities, supporting your value propositions, do your partners perform?
  • How effective are your current partners and suppliers?
  • What types of partners and suppliers do you need?

#6 Key Resources

Definition

Key resources mean any relevant intellectual property (IP), technical expertise, human resources, financial and physical assets, key contracts and relationships. In other words, resources refer to anything within your control that can be leveraged to create and market your value proposition (e.g., a patent pertaining to your value proposition, key contacts within the industry).

Questions to answer include:

  • What resources are necessary to:
    1. Enable the customer to achieve their value proposition?
    2. Maintain channels and partnerships?
    3. Build relationships with customers?
    4. Build revenue?
  • What resources exist today?
  • How effective are they?

#7 Key Activities

Definition

The key processes that are required to weave together your resources with those offered by your partners to deliver the value proposition, manage channels and relationships, and generate revenue. Examples of key activities include R&D, production, marketing, sales and customer service.

Questions to answer include:

  • What are the most important things you need to do to make the business model work? What key activities are necessary to:
    1. Enable the customer to achieve their value proposition?
    2. Maintain channels and partnerships?
    3. Build relationships with customers?
    4. Build revenue?
  • What activities exist today?
  • How effective are the current activities?

#8 Cost structure

Definition

The cost of delivering the value proposition, including the resources needed and key activities involved. We want to answer the following key question

Questions to answer include:

  • What are the most important costs in the business model?
  • What are the largest costs?
  • What are the fixed costs and variable costs?

The financial cost details will be in the monthly cash flow forecast, summarized into a one-page cash flow forecast.

#9 Revenue Streams

Definition

How will you charge your customers and what will you charge?

Questions to answer include:

  • What is the specific value the customers are willing to pay for?
  • What is the revenue strategy for each customer segment e.g. How will the customer be paying – usage, subscription, one-time, freemium, etc.
  • How much are they paying today?
  • What is the pricing model? How will you set the price for each customer segment and revenue strategy?
  • How are they paying today? i.e. the customers current revenue strategies and pricing.

The revenue cost details will be in the monthly cash flow forecast, summarized into a one-page cash flow forecast.

F- Are all the parts of your company in your BMC?

What if you are a company with a single BMC?

  • Every company component is in your BMC. E.g. Board of Directors mandate, company policies.

What if you have multiple BMCs? E.g. you are a multi-division established company.

  • Your BMC is no longer self contained e.g. There may an overall board of directors. Your BMC will reside within your company’s business framework. I will be publishing a revised version of that framework by the end of February, 2025.  At that time, I will include the link here.

G-What are your next steps?

  • Take the free video course “How to build a startup”

https://www.udacity.com/course/how-to-build-a-startup–ep245

Take detailed notes. There is little value in passively watching without taking notes.

  • Start to build your BMC and supporting document.

 What further reading should you do?

The following is just one of many PowerPoint and word BMC templates on the web.

https://neoschronos.com/download/business-model-canvas/ppt/

Appendix How do you communicate the evolution of the BMC?

  • All assumptions in italics. On day one of launching the startup, it’s likely that all of the entries will be assumptions.
  • When assumptions are invalidated, due to input from customers, users, and other fact-based analysis, the assumption is crossed out, with a footnote referencing the document which contains the rationale for invalidation.
  • When an assumption is validated, there is a footnote referencing the document which contains the rationale for validation.
  • You won’t be able to show all of the invalidated assumptions. New assumptions will be made.  Only the most important validations will remain on the BMC. Less important validations will be dropped from the one-page BMC and may be included in the supporting documentation. You may decide to keep an appendix which contains all the of the invalidations and validations.
Tom Koor

What is your business strategy? V2

What is your business strategy? V2

 What is the purpose of this article?

This article enables a discussion about what is your company’s business strategy. The audience for this article includes: the board of directors, C-Suite, and investors.

This article is intended for business who have to compete for customers, or investors.  Therefore, this article is not intended for: pension funds, sovereign wealth funds, etc.

This article does not provide tax, legal or financial advice.

You must do your own research and fact-based analysis using current and relevant information.

You can download a PDF of this article from: What is your business strategy V2

What are the critical learnings in this article?

  • Your business strategy is about making an integrated set of choices that compels desired customer and ecosystem member actions.
  • Your business strategy, company purpose, and North Star metric are all inter-related.

Are there different types of strategies?

There are many different types of strategies. E.g.

  • Business strategy;
  • Strategy for winning a war; or
  • Strategy to win at the Olympics.

The common factor is: What does success look like?

What is a business strategy? 1

A business strategy is about making an integrated set of choices that compels desired:

  • Customer actions; and
  • Ecosystem member actions

 

Your company’s strategy includes both the choices you’ve made today and the choices you’ve made in the past.

Doing nothing is always a choice you can make.  Many leaders don’t understand that they have made the do-nothing choice.

Steve Jobs supposedly said “Deciding what not to do is as important as deciding what to do””

What are the four components of a business strategy?

  • Desired actions: e.g. what are your desired actions for your customers? Switch from a competitor to your company? Stay with your company?  Buy more from your company? Recommend your company to others, resulting in viral grow? Etc.
  • Compels: the desired action is irresistible for the customer. Emotion is more powerful than logic in compelling actions. Thus, you must be focusing on the heart, with additional support via logic
  • Choices: You have at least two alternatives, and decide which alternative(s) to execute.
  • Integrated set: e.g. your customers may perceive that your value proposition 2 has multiple components. Each component has choices. The combined set of choices results in compelling action.

Does your business strategy reflect the purpose of your company?

Why does your company exist?

Larry Fink, in his 2018 letter to CEOs, said “To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society. Companies must benefit all of their stakeholders, including shareholders, employees, customers, and the communities in which they operate…..Without a sense of purpose, no company, either public or private, can achieve its full potential…..And ultimately, that company will provide subpar returns to the investors” 3

 Bain’s 2024 analysis showed that companies that delivered both stakeholder and financial value delivered better shareholder value. 4

Jeff Bezos quantified value creation for some members of Amazon’s ecosystem in financial terms, in his final letter to shareholders in 2020. This letter included his first shareholder letter from 1997.  Amazon’s current CEO continues to include in his shareholder letter, the original 1997 letter. 5

Is your North Star metric aligned with your company purpose and business strategy? 6

“…having an overarching metric that gives direction and aligns all the other metrics together can be infinitely useful.

The North Star metric gives you a direction that is in line with the value you offer to your customers. That direction is the single largest driver of sustainable long-term growth”

In order to determine the single most important metric for your growth model, you should look at how your product delivers value to your customers. You should be able to understand the value your customers get from your product looking at user engagement and activity level. For example, for Medium (the reader and writer network) the metric is “total time reading,” for Facebook it is “daily active users,” for Airbnb the metric is “nights booked,”

Why are choices about ecosystem members critical?

  • One example of an ecosystem member is your employees. Do current and future employees want to work for your company? Are they passionately committed to your company’s success? Is their purpose aligned with your company’s purpose and North Star? Do current and potential employees perceive a competitively differentiated value proposition for joining or staying with your company? What are the choices you’ve made to attract, retain, and develop the employees you need?
  • There are many more choices your company can make regarding ecosystem members.

What are the seven inter-related strategic choices you need to make?

  • What is the problem you are trying to solve?
  • Who has the problem?
    1. How do your potential customers describe and perceive their problem?
    2. Which customer segments will your target?
  • What is your competitively differentiated value proposition, in the hearts and mind of your target customers?
  • What is the competitively differentiated talent you need?
    1. What roles will have the greatest impact on planning and delivering the value proposition?
    2. What are the specific capabilities of this talent?
  • What are the competitively differentiated capabilities you need? E.g.
    1. Resources such as: intellectual property, technical expertise, technology, financial, partnerships, relationships, channels, talent
    2. There are two sets of processes: #1 processes to acquire and manage the resources #2 Marketing, sales, onboarding, off boarding, R&D, production.
    3. What are the specific points of competitive differentiation?
  • What will be the total cost of developing and delivering the value proposition? Thus includes the talent and capabilities.
  • What are the values you will use in making your choices?

You can document the key points of your strategic choices in a single slide.

 What are your greatest challenges to creating a strategy that enables value creating growth?

  • Listening to your customers as you talk with them to understand their perception of their problems. Steve Jobs supposedly said “If you define the problem correctly, you almost have the solution”. Albert Einstein supposedly said “ If I had only one hour to save the world, I would spend fifty-five minutes defining the problem, and only five minutes finding the solution”. Many leaders have strong opinions regarding what they think are customer problems.
  • Confusing a strategic plan with a tactical plan to achieve the strategy. A common definition of a strategic plan is  “A strategic plan describes the company’s current state, desired future state and how to go from one to the other…. business goals and projects to achieve them… 12-month action plan that lists specific initiatives”. 7 That definition reflects a tactical plan.  Including a tactical plan in your strategic plan produces a massive document which makes it very hard to focus on the actual strategy.
  • Not discussing and agreeing upon the values used to make your strategic choices. For example, will you include the impact on ecosystem members in your decision making – such as moving employment elsewhere if the result is devastation of local communities that depend on you. Is your “North Start” maximizing shareholder value?
  • McKinsey has said what strategy is not “it is not a wish list of possible outcomes”.

What are your next steps?

Define the words/concepts you’re using, in a glossary.  I’ve seen major confusion when the same words mean different things to different people.

Phase 1

  • Prepare a strategy assessment document by reviewing your existing strategic plan. Use the above definition of strategy.
  • Identify what’s missing.

Phase 2

  • Interview your board of directors and C-Suite to prepare a second strategy assessment document.
  • Ask what they personally think the strategy is and what they believed other director and C-Suite think the strategy is. Use the above definition of strategy.
  • Discuss the implications of the different points of view regarding strategy and the gaps in in your strategy.

Phase 3

  • Identify and assemble to right talent to make and revise the choices.
  • Define the process for making and revising the choices. Revisions may occur at any time.  Train the decision makers. The process will also identify the required capabilities of external advisors and support people. The process must document the alternatives considered and the rationale for the choice made.
  • The process must describe the links between strategy and tactics, the links between the strategic plan and the tactical plan.

Footnotes

1 Adapted from the strategy definition in the following article

“Strategy for startups-Redux” Roger Martin Medium Sep 16, 2024

https://rogermartin.medium.com/strategy-for-start-ups-redux-e8a04a1d8b72

2 “What is a value proposition? Koor and Associates website.

https://koorandassociates.org/understanding-customers/what-is-a-value-proposition/

3 Harvard Law School Forum on Corporate Governance, Larry Fink’s January 2018 letter to CEOs

https://corpgov.law.harvard.edu/2018/01/17/a-sense-of-purpose/

4  “Financial or Stakeholder Value? For Shareholders, Both Are Best” Bain, July 10, 2024

https://www.bain.com/insights/financial-or-stakeholder-value-for-shareholders-both-are-best-snap-chart/#:~:text=or%20Stakeholder%20Value%3F-,For%20Shareholders%2C%20Both%20Are%20Best,Leading%20companies%20deliver%20both.

5 Jeff Bezos final letter, as CEO, to shareholders in 2020

https://www.aboutamazon.com/news/company-news/2020-letter-to-shareholders

6 Forbes August 24, 2017 Andrew Miller

https://www.forbes.com/sites/forbesagencycouncil/2017/07/19/how-to-find-your-companys-north-star-metric/#:~:text=In%20order%20to%20determine%20the,user%20engagement%20and%20activity%20level

7  I copied this definition from the website of a major organization.

 

Tom Koor

What does the startup journey look like? V4

What is the purpose of this article?

  • To illustrate the growth stages of a company, from startup, to mature company, to crisis or decline.
  • This article is intended for the board of directors, company leaders, and investors – to enable their discussion and understanding.

You can download a PDF of this article from: What does the startup journey look like V4

 

What are the critical learnings in this article?

  • This article applies to any size company at any stage in their evolution. Why? Any company, division, or major market/product segment may be in a startup or may become a startup through crisis or decline.
  • The market place determines what stage the company is in, not the company/
  • A startup is a temporary organization designed to search out a repeatable, scalable, and profitable business model with lots of potential customers who are willing and able to pay to solve their problems and needs. Startups are not building a solution.  They are building a tool to learn what solution to build.

How to read this article

Section 1 outlines some general concepts.

Section 2 outlines the journey from the perspective of obtaining customers.  There are 5 stages:

Stage 1 Find a potentially repeatable, scalable, and profitable business model with lots of potential customers who might be willing and able to pay to solve their problems and needs.

Stage 2 Create a repeatable, scalable, and profitable business model.

Stage 3 Scale and rapidly grow the company. At this point, no longer a startup.

Stage 4 Continuously changing a mature company.

Stage 5 Crisis or decline

Section 3 outlines potential financing journeys.

Section 4 outlines potential leadership journeys.

What are your risks and challenges?

  • There is no guarantee that you will progress from Phase 1 to Phase 4.
  • At any point, your company may move backwards, even from Phase 4 to Phase 1
  • Many large and long-established companies in Phase 4 don’t realize that they have dropped to Phase 1.
  • Many large and long-established companies in Phase 4 don’t realize that they need to be constantly changing.
  • The talent you need in Phase 1 may be very different from the talent you need in Phase 4 when you are a large global company.

Section 1 Some general concepts

 What is a startup?

A startup is a temporary organization designed to search out a repeatable, scalable, and profitable business model with lots of potential customers who are willing and able to pay to solve their problems and needs.

Startups are not building a solution.  They are building a tool to learn what solution to build.

What is a business model?

A business model describes how a company creates value for itself while delivering products or services to customers.  Who are your target C&U (Customers and Users)? What C&U problems are your solving? What C&U needs are you addressing?  What benefits and value are you enabling customers to achieve? What are the human and technology resources needed?  What are the channels and partnership?

Incubators and accelerators

  • Many startups work with incubators and accelerators.
  • Some startups work with several incubators and accelerators.

Section 2 The journey from the perspective of obtaining customers.

Stage 1 Find a potentially repeatable, scalable, and profitable business model with lots of potential customers who might be willing and able to pay to solve their problems and needs. 

Your journey is driven by your understanding of your potential cash paying customers. E.g. before building a beef ranch, you must understand whether or not your potential customers are vegetarians.

Phase 1 has 8 steps. Steps may be parallel and iterative.  Some steps may be combined.  You may have to go back some steps – your journey is not always moving forward.

Step #1 The founders have an idea

  • The founders have an idea. They first agree upon: equity split, their expectations regarding startup, how decisions will be made, the purpose of the company, and who has the title of CEO.
  • The never-ending process of interviewing and surveying potential customers and users begins.
  • Before building anything, 100 potential customers and users will be interviewed and 100’s more surveyed. This begins the never-ending process of understanding the problems of potential cash paying customers

Step #2 Understand the potential customers and users before building a solution.

A business model canvas is a one-page document which easily defines and communicates the business model.  There are 9 components to the business model canvas: customer segments, customer value proposition, customer relationships, channels, key partners, key resources, key activities, cost structure, revenue streams.

On day one, this canvas will be only assumptions.  The interviewing and surveying process will validate or invalidate assumptions and identify new assumptions.

Value proposition

This is the customers and users perception of value.  What are all the financial and non-financial benefits achieved? e.g. time savings, convenience, status, reducing negative emotions or risks, benefits achieved (financial and non-financial) achieved by the customers?  What are all the costs incurred by the customer (purchase costs, costs to switch to your company, other adoption costs, ongoing costs)?

Customer journey map

The customer journey map is a visual representation of the customers’ experiences with your company across all touchpoints. Customers interact via social media, email, live chat, or other channels, mapping the customer journey out visually helps ensure no customer slips through cracks. The journey also illustrates the customer interaction with influencers and other who impact the customer. The following are some examples of customer journey maps.

https://blog.uxeria.com/en/10-most-interesting-examples-of-customer-journey-maps/

The business model canvas, value proposition, and customer journey map are continuously validated and revised throughout the life of the company.

Customer engagement

Customer engagement is the relationship and interactions between customers (existing and potential) and the company.  Engagement may include: useful content on the website, newsletters, interviews, surveys, etc.  Engagement continues and improves throughout the life of the company.

Step #3 Create a Wireframe

Provide a visualization of the potential user/customer interface of what will the customers/users will perceive in the MVP.  Note that customer/user interfaces are evolving to include voice interaction, hand gestures, augmented reality, neural monitoring, etc.

Step #4 Create Proof of Concept

The purpose of the proof of concept is to gain customer/user and domain expert feedback to validate specific critical assumptions of the future MVP.

Step #5 Create a Functional Prototype

The hardware or software prototype is only the hardware or software components of the MVP. The prototype’s purpose is to enable learning from customers/users and support demonstrations to customers/users.

Step #6 Pilot Solution

This is the MVP, including onboarding, customer support, and exiting.  The customer may not be paying for the pilot.  The two-fold purpose of the pilot is to identify any issues which prevent customer/user problems and needs being solved and to identify any issues which prevent the customer/user from being delighted. The pilot is providing specific feedback on the value the customers/users are achieving. The pilot helps determine what price should be charged.

Step #7 MVP (Minimum Viable Product)

This should really be called Minimum Viable Solution. A product or service with just enough features to have delighted early cash paying customers by enabling them to solve some urgent problems or needs, and to provide customer/user feedback for future development.  The MVP includes onboarding, customer support, and customer exiting. What the customer does not see or interact with (i.e. all the behind the curtain resources and activities) will likely be inefficient, have manual components, technology that is temporary, etc.

Customers/users determine whether or not there is an MVP, not the startup team.  If the MVP does not solve some core customer/user problems and needs that the customer is willing to pay for there isn’t an MVP.  The startup needs to learn from customers and users what needs to change to enable an MVP.  It may take several attempts before there is an MVP.

The initial MVP will have a small number of customers and users.

Step #8 Evolve the MVP until there is product market fit

The MVP will be iterated and enhanced until there is product market fit.

You know you have product/market fit if:

  • Your customers are so delighted that they are recommending it to others.
  • Your customers would be extremely disappointed if your solution disappeared.
  • Your customers can describe the big problem they had and the big benefit they achieved from your solution.
  • There is clear demand in the market place for your solution.
  • You are clearly and obviously differentiated from competitors in terms of the value customers achieve.
  • There are a large number of potential customers who believe their problems are urgent enough to buy your solution, and they can also afford your solution.

You do not have product/market fit if:

  • Your customers are not recommending you to others.
  • Your customers would not be extremely disappointed if your solution disappeared.
  • You customers cannot describe the big problem they had and the big benefit they achieved from your solution.
  • The marketplace is not demanding your solution. You have to persuade/educate your customers that they have a big problem with a big opportunity.
  • You are not clearly and obviously differentiated from competitors in terms of the value customers achieve. Your only differentiation is price.
  • There are not a large number of potential customers who believe their problems are urgent enough to buy your solution, and they can also afford your solution.

Your metrics, facts and analysis show that:

  • There are a large number of potential customers who believe their problems and needs are urgent enough to buy your solution, and they can also afford your solution.
  • The customers and users believe you have a better value proposition than the competitors.
  • The Net Promoter Score is excellent.
  • Churn is low and retention is high.
  • There is a metric for new customer value achievement (e.g. for Slack it was 2,000 team messages sent within 60 days).
  • Measuring and analyzing new customer value achievement metric (e.g. % of new customers achieving new customer value achievement indicator within 60-90 days).

Marc Andreessen’s definition of product/market fit:

“The customers are buying the product just as fast as you can make it — or usage is growing just as fast as you can add more servers. Money from customers is piling up in your company checking account. You’re hiring sales and customer support staff as fast as you can.” The following is a link to the article with quote:  On product/market fit for startups

Conclusion of Phase 1

  • You have found a potentially repeatable, scalable, and profitable business model with lots of potential customers who might be willing and able to pay to solve their problems and needs.
  • The leadership may not be able to create and lead a company that can scale. e.g. A Chief Technology Officer who was a great coder many not have the skills to manage a team of coders.
  • The existing processes and technology may be inefficient and unable to scale cost efficiently.
  • Many processes to enable rapid growth will be missing e.g. the capability to recruit, onboard, and develop large numbers of employees, profitability analysis by customer segment, cohort, channel, and partner.
  • Customer acquisition costs may exceed the lifetime value of the customer.
  • Your metrics may show an unprofitable business with customer acquisition costs exceeding life time customer profitability. Your analysis will show the potential for a profitable business with life time customer profitability exceeding customer acquisition costs.,

Section 2 The journey from the perspective of obtaining customers.

Stage 2 Create a repeatable, scalable, and profitable business model.

  • Ensure the leadership able to create a company is in place.
  • Changes may be required at the board of directors, advisory board, CEO, C-Suite, advisors, and consultants.
  • Develop a plan to create the company. New and changed talent, processes, technology, channels, and partners are required.

Customer understanding continues

  • Interviews and surveys continue.
  • The solution is enhanced to enable the company to understand whether or not customers and users achieve value, and how many achieve that value.

Section 2 The journey from the perspective of obtaining customers.

Stage 3 Scale and rapidly grow the company. At ths point, no longer a startup

  • Execute the plan from Phase 2
  • Add additional geographies, channel, partners, and customer segments. Drop unprofitable ones.
  • Add additional and different types of employees.
  • The customers and users are profitable (i.e. life time customer value is much larger than customer acquisition costs). The cash flow and accounting statements may show a loss because the customer acquisition costs are incurred upfront while the customer profits are achieved over the lifetime of the customer.
  • Continue to maintain or improve the value achieved by customers and users. Improvement actions are based on: Ongoing customer interviews surveys, and analysis of customers; Ongoing analysis of the competition, adjacent market, trends in the ecosystem including  technology and customer behaviour.

Section 2 The journey from the perspective of obtaining customers.

Stage 4 Continuously changing a mature company.

  • Market size is constant or growing. Market share is constant or growing.
  • The company still needs to be continuously improved due to ongoing competition, changes in customers problems and needs, and trends in the ecosystem.
  • The company must continuously monitor the external world to determine if major changes are required. Blackberry and Nokia used to be leaders in phones.  Their leadership crumbled due to changing customer problems and needs combined with competitors focused on meeting those changes.

Section 2 The journey from the perspective of obtaining customers.

Stage 5 Crisis or decline

Market size is shrinking and or market share is shrinking.

This could be for many reasons: e.g. the number of customers who perceive they have a problem they are both willing and able to pay for declines, customers perceive that they can achieve a better value proposition from competitors, changing regulations impact customer problem and needs, and/or your solution, etc.

Section 3 Potential Financing journeys

Financing stages

The startup may bootstrap (i.e. no equity or debt financing other than friends and family) or go through one of more stages of raising external financing.

#1 Friends and family

Most early startups depend upon founders, friends and family for funding.

#2 Angel investors, pre-seed investors.

These are the first investors outside of friends and family

  • Only 24% of angel deals in the US in 2019 were for pre-revenue companies.

https://www.angelcapitalassociation.org/angel-funders-report-2020/

  • in 2019, only 2.4% of the applications to Canadian angel groups received funding

https://investorreadiness.ca/cdn/bba/NACO-AngelActivityReport.pdf

#3 Seed investors

These are the second round of investors, after pre-seed investors

#4 Series A, B etc. investors

These investors are funding the rapid growth of the company

#5 Longer term

  • Company is bought and merged into an existing company;
  • Long-term private equity investors; or
  • Public markets

Types of financing

There are many types of financing:

  • Equity e.g. common stock, preferred stock.
  • Convertible debt.
  • SAFEs (Simple Agreement for Future Equity). The SAFE is a contract which gives the investor the right to purchase stock in a future equity round (should there be one) subject to the terms and conditions in the SAFE contract.
  • Government grants, loans, tax credits.
  • Funding for research.
  • Paid pilots.
  • Profits and revenue sharing.
  • etc.

Section 4 Potential leadership journeys

The skills, experience, and capabilities which leaders need to create value at each stage of the company are different.  Leaders need to learn and transform themselves, be replaced, or lead the company into failure.

  • The company starts out as a very small team, searching for a repeatable, scalable, and profitable business model. Efficiency, profitability, and scalability are not the day one objectives.
  • Then the company needs to create a business which has the potential to be repeatable, scalable and profitable..
  • The company then grows through rapid growth.
  • Finally, a mature company is reached – massive rapid growth has ended.

The types of board directors also change. The skills, experience, and capabilities needed to grow and preserve the value of the company change.

The role of the CEO changes. There are three things only the CEO can do, and no one else in the company:

  • Create and maintain alignment of people with the purpose of the company;
  • Nurture the company’s values, morals, and ethics (often referred to as culture);
  • Hire the leadership team and ensure they work well together. Up to 50% of the CEO’s time will go hiring and managing the leadership team. At least 1/3 of the leadership team hires will not work out and must be exited.

65% of the failures of high-potential start-ups are due to people problems: relationships, roles and decision-making, and splitting the income. More than 50% of founders are replaced as CEO by the C round of financing.  In 73% of these founder replacements, the CEO is fired rather than voluntarily stepping down.1

Footnotes

1 ,Alistair Croll, Benjamin Yoskovitz, Lean Analytics – Use data to build a better startup faster, Sebastopol California, O’Reilly Media 2013, Page 41

2“The Founder’s Dilemmas”, by Noah Wasserman. Pages 299, 301 Noah was the Professor of Clinical Entrepreneurship at the University of Southern California and the director of USC’s Founders Central Initiative.  The book is based on his study of 10,000 founders from 3,500 startups.

What are your next steps?

  • Determine what stage your company is in.
  • Determine your talent requirements for the stage you are in, and the stage you want to move to
  • Assess your talent, and talent process, relative to the stage you are in.

What further reading should you do?

“The Hard Thing About Hard Things: Building a Business When There Are No Easy Answers” by Ben Horowitz.

Ben describes the incredibly tough challenges and experiences he went through in the process of his ultimately successful startup.  He then became a successful venture capitalist.

Startup terminology and metrics, https://koorandassociates.org/selling-a-company-or-raising-capital/startup-terminology-and-metrics/

Tom Koor

What are the three types of talent successful companies require?

What is the purpose of this article?

To enable founders, investors, the board of directors, and the C-suite to discuss what type of talent is needed to create and maintain world-leading companies.  I recognize that many companies do not strive to be a world leader or leader in their own country.

You can download a PDF of this article from: What are the three types of talent successful companies require

How do you read this article?

This article uses the analogy of athletes that strive to win at the Olympics.  They seek to be the best in the world.

What are the three types of talent associated with global winners?

  • The team members. These are the people who actually have win the race. They must beat the competition in order to stand on the podium.
  • The trainers. They use a structured process to improve specific aspects of each team members skills e.g. using videos of the team members show what specific changes need to be made. The trainers are deep experts in specific skills.
  • The coaches. They focus on the members minds and mental state. For example, if an athlete cannot visualize in their mind what it looks like as they cross the finish line, they likely will never win. “People cannot do things they cannot imagine”1.  The athletes must also cope with frequent failure. Few win every single competition.

What are the characteristics of the journey to become a global champion?

  • There are fundamental differences between the team, the trainers, and the coaches. g. great coaches are rarely great athletes and great athletes are rarely great coaches.
  • It takes time to become a global champion.
  • People must have the ability to transform themselves, to learn, unlearn, and constantly improve.
  • No one stays a global champion forever.
  • The coaches and trainers change over time. Global champions are supported by trainers and coaches that are also the best in the world.
  • People need to have the potential to reach the next level. People don’t immediately jump to become global champions.
  • Not everyone will become a global champion. It is very competitive. Not everyone has the potential.
  • Very tiny changes in results differentiate global champions from 4th It could be a few hundredths of a second for an athlete.
  • Trying very hard, by itself, is not enough to become a global champion.
  • Luck also plays a role e.g. a leading coach becomes available; a competitor suffers an injury.

What are the three types of talent in your company?

  • The team is comprised of all of the company’s full and part-time employees. This includes everyone from the board of directors to front line staff.  The company is constantly developing the talent of its employees.
  • The trainers include external experts. (e.g. lawyers, accountants, consultants who are industry and functional experts), educational organizations, etc.
  • The coaches go by many names e.g. coach, strategic advisor, mentor.

What are the implications for you and your company?

  • In today’s virtual global economy, you may be competing against global champions, even if you’re in a local market. E.g. Nigeria’s largest ride sharing company is Bolt, based in Estonia, with a valuation of $4.3 billion.
  • It’s hard to become a global champion if your talent (team, trainers, and coaches) is not among the best in the world.
  • Talent around the world is constantly improving. The talent that was successful 20 years ago loses to today’s talent.
  • Growing the value of your company requires growing the value of your talent.

What are your next steps?

  • What is your company’s value creation plan: for the next 1-3 years; for the next 4-6 years?
  • What are the three types of talent you will need in the future?
  • What changes in talent are needed?
  • What is your ongoing process for acquiring, retaining, developing, and exiting your team talent?
  • What is your ongoing process for assessing and changing your training and coaching talent?

 Footnotes

1 Peter Jensen (Olympic coach), Igniting the third factor, Toronto, Performance Coaching Inc., 2008, page 105

Tom Koor

How can the shareholders agreement focus everyone on value? V2

What is the purpose of this article?

This article discusses how a shareholders agreement in a private company could help focus everyone on value creation and extraction.

I am not providing legal advice. Please consult a lawyer if you need legal advice on creating, reviewing, or updating a shareholders agreement or other legal governance documents.

You can download a PDF of this article from: How can the shareholders agreement focus everyone on value V2

What are two types of shareholders agreements

#1 USA (Unanimous Shareholder Agreement)

“The written agreement among all of the shareholders of the corporation can wholly or partly restrict the powers of the directors to manage, or supervise the management of the business and the affairs of the corporation”1

#2 Voting trust or pooling agreement

“Some shareholders of a corporation may choose to enter into voting arrangements such as voting trusts, pooling agreements or shareholder agreements under which they agree to vote their shares in a consistent manner.  Voting arrangement of this sort….do not have the effect of reducing the powers and liabilities of directors”1

What are some potential shareholder expectations regarding their investment?

  • limiting some decisions to only the shareholders e.g. hiring, termination, and compensation of the CEO; sale or wind down of the company; terms and conditions of future financing.
  • requiring shareholder approval of various documents: e.g. Board of directors mandate, board committee mandates, company policies, strategic plan, budget.
  • defining the process used by the shareholders to make the above decisions and approvals.
  • defining what information needs to be reported to shareholders at what time and in what format.
  • constraining the business e.g. limit geographical operations, which products and services may or may not be provided, pricing.
  • defining the process and constraints for shareholders to sell their equity.
  • defining the dispute resolution process. This process could result in a forced sale of shareholder equity.
  • describing the ways specific shareholders extract value from the company e.g. dividends; products and services; future sale of shareholder equity.
  • describing how shareholders will support the company e.g. introductions; financing guarantees.

The shareholders may have other expectations as well e.g. the purpose of the company

Some or all of the above expectations might be included in the USA.

How might the USA impact on value creation and value extraction?

I assume the company has a value creation plan and the shareholders have a value extraction plan.  The plans can be directed and constrained by shareholder expectations which are in the USA.

What are the risks of not documenting the shareholder expectations?

The short-term risk is a series of immediate disputes, which could harm both value creation and extraction.  For example, what if the shareholders don’t understand and agree that some shareholder will extract value through low-priced products and services while other shareholders extract value through dividends arising from high priced services to customers. How will management create and execute strategies when they are attempting to limit profits and grow profits at the exact same time?

The long-term risk is that shareholder expectations could change, especially when shareholders are companies.  The companies’ strategies for their investment could change and new executives representing the companies could have different expectations.

What are your next steps?

  • Shareholders should discuss and document their expectations regarding value creation and value extraction. Agreement and consensus are not always required.
  • The challenge is to figure out how to reconcile conflicting expectations. (e.g. one founding shareholder might want to stay with the company for the rest of her life.  Another founding shareholder might want to exit and sell her equity in 5 years for maximum value). This expectation setting process is carried out without lawyers and there is no legal document as an outcome.
  • Then lawyers review the shareholder expectations document. The lawyers point out potential issues and risks, which may result in further shareholder negotiations regarding expectations.  The shareholders decide among the legal options.
  • I assume that the USA will be one of the selected options. The lawyers must craft this.  The process of creating the legal USA may well results in more issues, requiring a negotiated update to the shareholder expectations document.
  • The lawyers will have to craft a dispute resolution process into the USA which is able to deal with future changes of shareholder expectations. Potential outcomes of dispute resolutions include: sale of the company, existing shareholders buying out some other shareholders.
  • The shareholder expectations document needs to reviewed on a regular basis and must be reviewed every time there is a potential new shareholder or change to an existing shareholder.

Footnotes

1 Barry Reiter, Bennett Jones LLP, Directors Duties in Canada, 5th edition, Page 95

Further reading

How can founders and investors create a shareholders agreement?

https://koorandassociates.org/corporate-governance/how-can-founders-and-investors-create-a-shareholders-agreement/

Tom Koor

What is strategy and strategic planning? V2

What is the purpose of this article?

Enable founders, board directors, the C-Suite, and advisory board have a discussion about their company’s process for strategy and strategic planning.

You can download a PDF of this article from:  What is strategy and strategic planning V2

How do you define: strategy, strategic planning, and the strategic plan?

  • What is strategy? The facts, assumptions, and analysis of what successful future scenarios for the company could look like. A successful future means growth in value.  Value of the company and value for key members of the ecosystem.
  • What is strategic planning? The process to engage key members of the company’s current and future ecosystem members in order to discover a potentially implementable strategy.
  • What is the strategic plan? The strategic plan should be called the value creation plan. The strategic plan communicates the actions necessary to grow value and reach the successful future.

What are the questions the strategy must answer?

The facts, assumptions, and analysis of  what successful future scenarios for the company could look like. There are 7 sets of questions to this:

  • Who are the current and future members of the company’s ecosystem that are critical to the company’s success?
  • What is the vision for the future company?  How will the ecosystem perceive the company? Why will those critical ecosystem members enable the company’s success?  What metrics will those members use to assess value and success?
  • Who will be your future cash-paying customers? Why will they buy from your rather than the competition?  How are their problems and needs being better addressed by your solution than the competition? How are you enabling your cash-paying customers to achieve more value?  Why are customers buying from the competition rather than you? How many cash-paying customers will there be? What will be the market size. You may be in different markets with different customers. Customer needs will change and there will be new unmet needs. What will be the customers’ ecosystem? (e.g. Technology trends, demographics, politics, regulation, etc.)
  • What will customers perceive as the competitively differentiated value proposition? What will be the customer experience? How will customers perceive that your company meets their needs better than the competition?
  • Who will be your future competitors? What improved products and services will they be offering? Old competitors will likely disappear and new competitors emerge. (e.g. New ventures, entrants from adjacent markets). What will be the competitors’ ecosystem?
  • What are the characteristics of the future talent requirement? Board of Directors? Advisory Board? C-Suite? Coaches? Employees? Advisors and Consultants? Often skills and capabilities that brought the company to its current situation are not the skills and capabilities that are required for future success.
  • Is it clear what the future value of the company will be to key members of the ecosystem (e.g. shareholders, employees, and society) and how that value compares to the current situation?

Good analysis done by good leaders with good judgement often produces poor strategic decisions.1

A strategic decision is on of those relative rate major decisions that has a major business impact. E.g. bet-the-business investment; major M&A; major new product/service launch; business transformation’ etc. A McKinsey survey of 2,207 executives regarding the quality of their 1,048 strategic decisions revealed that:

  • Only 28% thought good strategic decisions were frequent;
  • 12% thought good strategic decisions were infrequent; and
  • 60% thought bad strategic decisions were as frequent as good strategic decisions.

What has the greatest impact on company performance? McKinsey found that it was the quality of the decision-making process. The % of company performance improvement due to:

  • Quality of the decision-making process: 53%
  • Industry/company characteristics: (e.g. consumer tastes, implementation resource capability) 39%
  • Quality and detail of analysis: 8%

The strategic decision-making process is much different from the normal day-to-day decision making.

What does the strategic planning process need to consider?

Strategic Planning: The process to engage key members of the company’s current and future ecosystem members in order to discover a potentially implementable strategy. Too often I’ve met companies where the consultants have said “We developed a great strategy but the company could not implement.” A strategy that cannot be implemented is not a great strategy. Strategic planning is a learning, and unlearning, process.

There are 8 sets of questions around strategic planning:

  • What is the purpose of your company?
  • Do you have the right talent involved in strategic planning? The decision makers must have a value growth mindset and capabilities in value creation.
  • What the process for answering the 6 strategy questions outlined above?
  • How will you get input from key members of your company’s ecosystem?
  • How will you get support form key members of your company’s ecosystem? E.g employees
  • What will be the indicators you are constantly monitoring to identify if immediate changes in your strategy plan are required due to changes in: customers, competitors, and the ecosystem. In today’s world, there is unlimited capital available to a competitor whose solution customers want to open up their wallet to.  Those competitors can rapidly grow in a few years and destroy your company.
  • Who is accountable for achieving the measurable results? g external customer metrics (How many potential customers have a problem/need for which they are willing and able to pay for your solution? How do the customers perceive they are getting more value from you than from the competition?) internal customer metrics (customer acquisition costs? customer lifetime profitability? By channel, partner, customer segment, and cohort?).
  • Does the strategic planning process result in the company’s value creation plan?

What are your next steps?

  • Document your current process for creating and maintaining your strategy and strategic plan.
  • Does your current process address the above questions and challenges?
  • What changes do you need to make to your process and the talent involved in the process. If talent cannot change themselves or be coachable, then replace the talent.
  • We live in turbulent and rapidly changing times. The strategy and strategic plan may need to change at any instant because facts and assumptions have changed, making decisions and plans obsolete. Every board meeting must begin with a discussion regarding the facts, assumptions, and analysis underlying the strategy and the strategic plan.  The CEO must have a similar discussion at the start of every meeting with her executive committee.

Footnotes:

1 “The case for behavioural strategy”, McKinsey Quarterly 2010, Number 2

 Further reading

What is the purpose of your company?

https://koorandassociates.org/corporate-governance/what-is-the-purpose-of-your-company/

How do you grow your company’s value?

https://koorandassociates.org/creating-business-value/what-is-value-growth/

Traditional strategic planning dooms companies to failure

https://koorandassociates.org/strategy-and-strategic-planning/traditional-strategic-planning-dooms-companies-to-failure/

“Does your board really add value to strategy?”, Professor Dieder Cossin and Estrelle Metayer, IMD Global Board Center

https://www.imd.org/research-knowledge/articles/board-strategy/

What is the difference between strategy and tactics?

https://koorandassociates.org/strategy-and-strategic-planning/what-is-the-difference-between-strategy-and-tactics/

Tom Koor

Transformation success depends upon human behaviour change.

What is the purpose of this article?

Enable founders, the board of directors, CEOs, and other leaders to discuss the role of human behaviour change in achieving transformation success.

You may download  a PDF of this article from: Transformation success depends upon human behaviour change

Why do transformation efforts often fail?

Individuals do not change their behaviour, actions and decision making to support success.  Individuals may resist the transformation and even actively try to make it fail.  These individuals include customers, employees, and other individuals within the company’s ecosystem. The success of digital transformation, outsourcing, and cost reductions ultimately still depends on individuals changing their behaviour.

Most individuals prefer stability to the uncertainty and lack of control associated with change, and see more reasons for “don’t do” rather than “must do”. People look for reasons that activities cannot or should not be done.   People don’t carry out activities or the activities are late.  The quality and intent of the change is not carried out – people focus on being able to “check off” that they did something, while the underlying objective of the change is not achieved.

The failure may be evident only far after implementation is complete.  This is often seen when companies undertake major mergers or acquisitions and the expected revenue increases and cost reductions do not occur, at which point observations are then made that the “company cultures” were not considered, which is fundamentally that the resistance and support of the internal individuals was not assessed and planned for during decision making, planning and implementation.

There are 5 ways individuals will respond to transformation.

  • Active resistance e.g. taking deliberate action to resist the transformation and to cause failure. Spreads destructive rumours and misinformation.
  • Passive resistance e.g voices opposition, allows failures to occur. I call this “malicious compliance”.
  • Apathy, compliance e.g Go along with the transformation. No negative or positive comments regarding the transformation. Show little interest in the transformation.
  • Agreement e.g. agrees with the change, tries to avoid failure, agree with transformation when asked
  • Enthusiastic support e.g. Champions the change, seeks ways to enable success

What determines how individuals respond to transformation?

Individual emotional and intellectual perception of the transformation is driven 5 factors

  • What will be the day-to-day changes to behaviour, decision making, and actions?(e.g. processes/procedures, how to interact and work with others inside or outside the organization).
  • What will change in the individual’s environment changes (e.g. salary, benefits, who they work for, who their colleagues are, the work space, the technology they use, etc.).
  • How is the individual’s perception of their identity, value, or their future is impacted (e.g. career path, chance for promotion, perceived status, value of their knowledge, skills and past experience).
  • How are the individual’s purpose, values, morals, and ethics impacted and the alignment with the company’s purpose, values, morals, and ethics?
  • How consistent is the transformation with the company’s purpose, values, morals, and ethics?

The perception of the personal impact of change is determined by the individual.  A change which company leaders believe is “minor” may be perceived as “massive” by individuals.

What is the one factor that ensures transformation failure?

If individuals do not trust their leaders and do not believe what they are being told, then there is no reason for their emotional and intellectual perception to be positive. The individuals’ personal ecosystem may be providing mis-information and false rumours.

What is the leadership challenge with transformation?

Transformation can be very different from leaders past experience.  Past experience may often have focused on using analysis and logic to enable change.  Formal authority (i.e. the “Manager” tells people to do things differently) may have been the basis for driving change.  Transformation requires a new set of leadership skills e.g. being able to put themselves into the heart and mind of others, understanding what causes emotional reactions, how to behave and communicate in order to manage emotional actions, etc.

If the leaders are unable to transform themselves, then the broader transformation will fail.

Your next steps

  • Determine which individuals in the company’s ecosystem must support the transformation to enable success.
  • Assess how those individuals will respond based on their perceptions of the transformation. You’ll initially make assumptions and then validate by engaging the individuals to understand what they perceive.
  • If the transformation is at risk due to negative perceptions, too much resistance, and too little support, what changes do the leaders need to make?
  • Assess the degree to which employees and the company’s ecosystem trust what leaders say.
  • Is there sufficient trust to enable transformation success? If not, what changes do the leaders need to make to themselves?

Further reading

What is business transformation?

https://koorandassociates.org/business-transformation/what-is-business-transformation/

How do you succeed with transformation?

https://koorandassociates.org/business-transformation/how-do-you-succeed-with-transformation/

Why is trust critical for transformation?

https://koorandassociates.org/business-transformation/why-is-trust-critical-for-transformation/

Tom Koor

If you’re going to ask someone for an introduction.

The purpose of this article

Identify some things for you to think about before you ask someone to do an introduction for you.

You may download a PDF of this posting from: https://koorandassociates.org/wp-content/uploads/2021/04/if-youre-going-to-ask-someone-to-do-an-introduction.pdf

What made me wonder about the introduction process?

  • Recently a friend of mine asked me to do some introductions for his daughter, who has just finished 1st year university and is looking for a summer job. I asked some relevant people I know. Many of whom agreed for me to do an electronic introduction, leaving it to the daughter and the people I know to then connect directly.
  • But that made me wonder. Why did I do the introduction?  No financial benefit to me.  Why did people accept?  Each of them said there were no jobs available for the summer.  No financial benefit to them.

Who are the three people involved in the introduction process?

  • The seeker – the person seeking an introduction e.g. my friend’s daughter.
  • The introducer e.g. me .
  • The introducee e.g. the person or people I know.

Why is the seeker asking for an introduction?

  • Address a short-term financial need. g. need a job, need a sales lead.
  • Address an information need. g. learn how to find a job, learn how law firms recruit lawyers.
  • Build new relationships which might be of value in the future. Each individual relationship will not be of value but the pool will be. A relationship implies long-term communications and interaction.

Why does the introducer agree to do any introduction?

  • Knows the seekers and is will doing to do favour. May also believe that the seeker will then “owe a favour”.
  • Believes the introducee may be able to help the seeker in some way.
  • Believes the introducee might learn something.
  • Knows that the introducee has a current problem or issue for which the seeker might have insights or be able to solve.
  • Believes the introducee might have a future need for someone like the seeker.
  • Some seekers pay for introductions. E.g. sales leads.

Often there is not short-term value to the introducer.

Why does the introduceee agree to the introduction?

  • As a favour to the introducer.
  • Believes may be able to help the seeker in some way.
  • Believes might learn something.
  • Has a current problem or issue for which the seeker might have insights or be able to solve.
  • Might have a future need for someone like the seeker.
  • Some seekers pay for introductions. That is not my model.

Often there is not short-term value to the introducee.

Why will the introducer decline to make an introduction?

  • The relationship with the seeker is seen as too little value to warrant any effort.
  • Too busy.
  • Believes there is no value to the introducer or introducee.
  • Cannot think of a single potential introducee.
  • Does not want to help for a wide range of reasons.

Why will the introducee decline the introduction?

  • Too busy.
  • Believes there is no value to the introducee.
  • Perceives the introduction as a “sales call”.
  • Does not want to help for a wide range of reasons.

What might an introduction process look like?

  • The seeker determines why they are looking for an introduction, the type of introduction, the characteristics of a potential introduce, the potential value to the introducee, and potential introducers.
  • The seeker asks a potential introducer to make one introduction. It’s only one, in order to minimize the effort of the introducer.
  • The seeker prepares for the introducer, perhaps in an email:
    1. Why seeking an introduction and with whom;
    2. A few sentences about the seeker.
    3. A link to the seeker’s LinkedIn profile.
  • The introducer asks one introducee they know if open to an introduction. The information is point 3 above is shared with the introducee.
  • The introducer then sends one email to the seeker and introduce, thus allowing them to connect directly with no further effort on the part of the introducer. The introducer should include a sentence or two about the introducee.
  • The seeker needs to thank the introducer.

Not every introducer will make an introduction for you.  Not every potential introduce will tell the introducer that it’s ok for an introduction.

Your next steps.

Prepare your own introduction process.

Tom Koor

Why is trust critical for transformation success? V2

What is the purpose of this article?

Illustrate some of the reasons why trust is critical for transformation success.  This article is appropriate for any size company undergoing major change.

You may download a PDF of this article from: Why is trust critical for transformation success V2

What does successful transformation require?

People within the company and its ecosystem need to change. These changes can include:

  • Learning new skills and unlearning old ones;
  • Gaining new knowledge and unlearning old knowledge and experience;
  • Learning new processes and techniques and unlearning old ones;
  • Learning new behaviours and unlearning old behaviours; and
  • Potentially new values and culture and dropping old values and culture.

Successful transformation requires individuals to transform themselves.

People may transform themselves when they:

  • Believe there is personal value to them and/or to those they care about;
  • Understand why the current situation is not viable in the long-term;
  • Understand what the future looks like and the path to the future;
  • Feel some sense of control over their future;
  • Believe the leaders have heard and understand individual concerns;

Why does transformation fail?

  • Individuals see no reason to transform because they don’t trust what their leaders are telling them.
  • Individuals don’t transform because they emotionally resist being told what to do without understanding.

Going from a slowly-changing business to transformation makes visible:

  • All the issues with lack of trust in management; and
  • Management’s inability to deal with all the emotional factors of trust and resistance to change.

Your next steps

  • Determine the degree to which your employees and others in your companies ecosystem trust and believe what you say.
  • Define what changes in you values, moral, ethics, behaviours, and actions are required to improve trust.

Further reading

Society’s trust in corporate leadership and political leadership is low.

https://koorandassociates.org/values-morals-and-ethics/societys-trust-in-corporate-leadership-and-political-leadership-is-low/

What is business transformation? V2

https://koorandassociates.org/business-transformation/what-is-business-transformation/

How do you succeed with transformation? V2

https://koorandassociates.org/business-transformation/how-do-you-succeed-with-transformation/