strategic moves, chess game

Deciding Strategy Despite Uncertainty

Many of today’s leading founders and CEOs have never weathered an economic downturn. It’s been almost 10 years since the recovery from the great recession, and business has been booming.

Burt if you listen to the news, it’s hard not to be convinced that recession is around the corner. Yet, the indicators are more ambiguous than those media stories suggest.  During the last month I’ve witnessed stories that could lead one to conclude virtually anything.

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Choose An Interpretation, Any Interpretation

*Two of my clients had term sheets 6 weeks ago; those offers were rescinded within a week of YC’s leaked memo.

*Then again, two others (one current, one former) raised B and C rounds – together totaling close to $400m.

*Between those two big investment events, the stock market crashed.

*Then last week an old friend raised nearly $200m for his new venture.

Can you discern a single conclusion from these data? I cannot. Nor am I an oracle, so I will leave predictions to the super forecasters.

Throughout all these events, inflation has continued apace. The price of gas is compounding supply chain issues. And no business sector seems immune to inflation’s impact.

On the other hand, there are still tons of jobs available. All my client companies are trying to hire and can’t do it as fast as they want because of the tight labor market.

Optimism or Pessimism

You can craft virtually any economic prediction based on some subset of these and other data.

Whether you operate a dry cleaner chain or an AI-enabled data platform—you are likely having a debate with yourself. Will it or won’t it? Will things get better or worse?

The predictions we make about the economy are, in some ways irrelevant (unless you work at the IMF or the Fed). But those conclusions will shape how we view the real question:

What should I do in my venture?

Should I assume that a recession is coming and hedge my bets– grow more slowly, husband my resources and make sure that I can make it through a downturn? Or should I go all in and try to grow as fast as possible, place big strategic bets in the hopes that I grow fast enough to outrun the encroaching tsunami.

Known vs. Unknowable

We look for answers –or at least strong indicators to help us make these decisions. We want a truth. A single fact that will relieve our anxiety. But there will be none.

That isn’t to say that you know nothing. You can and should use the available data to extract as much certainty as possible. No matter how turbulent the environment, there are always some knowable facts.

You know things about your own cash position, supply chain, past performance, and your fixed financial variables. You know your own organization, its people, capacities, and their tolerance for stress. This is all important and relevant information.

But we don’t know if a recession is coming. And even if we did, we wouldn’t know it with 100% confidence, nor would we know the exact way in which it would affect every business. As long as things are turbulent, the prevailing factor in strategizing will be our states of mind, not the state of the economy. [Click to tweet this idea]

Let me give you two examples.

Going for Broke

One of my clients (let’s call him Daryl) has been trying without success to raise a Series A.  He has enough runway to make it for the next year if he’s careful.

But Daryl’s been doing that for six years because he failed to raise enough money 4 years earlier. And while he has $6 million in ARR and a boatload of marquee clients, he can’t seem to break through to the next level despite being inches away from profitability.

Should he continue the slow, careful approach, essentially operating a venture funded startup as though it were a mom-and-pop bootstrapped enterprise? Or should he throw everything he has into the next 11 months of business and try to explode growth even at the risk of going off a cliff?

There is no right answer to this.

What matters here is his own risk tolerance and his faith that if he explodes growth, he will raise money.

Those are judgment calls.

Knowledge about the economic conditions can’t address the phenomenon at the heart of Daryl’s decision: the nagging turmoil in his belly.

Ultimately, Daryl’s strategic posture will come from his state of mind and how well he can sway his key stakeholders. He’s tired of growing slowly. He never set out to bootstrap an organization. He founded a technology startup with the intent to raise enough funding to create explosive growth.

At this point, he plans to go for broke. That comes with a lot of risk. Over the next year he’ll have to manage both the anxiety and the exhilaration of living with his strategic choice.

Playing the Long Game

“Karen” founded a multimedia communication platform that she white labels to major institutional organizations. Unlike Daryl, she has only been in business about 2 years. She got a $2m seed round and she’s approaching $3m ARR. That’s awesome. But, in her business she isn’t projected to reach profitability until about $25m ARR. The last strategic plan we did has her hitting that in 2024.

She has also been trying to raise a next round and, like Daryl, hasn’t been successful.

However, unlike Daryl, she feels good about slow, incremental growth for the next year. She knows she has organizational infrastructure to build. So, while she would prefer to have a big investment and accelerate things even further, she can also see extending the current runway. She’ll develop her team, build a scalable culture, and refine her sales process and customer journey.

Even 18 months from now she will only have been in business for four years.

Karen is going to move forward conservatively-– extending her runway in service of raising money once the macro-economic conditions change. Her risk tolerance is not as high as Daryl’s.

Strategy in Turbulence

As much as we try to address strategy as though it were a scientific, purely data-driven activity, it isn’t. It is informed by information (hence using the facts that you do know), but it is driven by the hearts and brains of those who create it.  Strategy is not science. It’s more like multimedia art.

The leaders who must both execute it and live with its consequences are directed by their own states of mind as much as any information.

Like most things, when you acknowledge your own state of mind and bring it into the strategy discussion, it seems both less dire (or rosy) and less important. So, convene your team and collect both the knowns and the unknowable’s.  Use that data to craft a SWOT analysis, but weight your assumptions. With so little certainty, assigning levels of confidence creates transparency. Uncertainty is as critical a feature of your strategy as is your value proposition.

But every feature of your strategy pales in comparison to you and your team’s mindsets. Therefore, they too should be explicit. Bring it to the foreground. Discuss it. Optimize it and address it.

A few key takeaways

  • Don’t invent certainty when there is none.
  • Do collect and use known facts where you have them.
  • Don’t formulate strategy in your head. Include your team and stakeholders.
  • Do assess your own and their states of mind including your risk tolerance and stamina.
  • Remind yourself that strategy is dynamic and tomorrow may bring greater certainty.

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