70 Strategic Questions To Ask When Founding A New Startup

“Startups, by definition, traffic in the unknown…Business plans are, for founders, a futile-feeling exercise in predicting the future…Maybe there’s a better way: a plan which, instead of predicting your achievements and the results of those achievements, identifies the unknowns you plan to make known, aka the hypotheses you plan to validate…Startups advance by making the unknown known, using intuition and data to validate the building blocks of a business.” — Roy Bahat, Investor at Bloomberg Beta

Even though it’s a challenge for me to put the above argument so eloquently as Roy Bahat did, it’s part of Higher Self Ventures’ ethos. As I venture into the unknown with every startup engagement, Higher Self Ventures will live and die by Bahat’s words. While many early-stage investors will advertise that a strong founding team is everything they look for, they will also deeply judge your business idea and the different potential avenues for getting a return on their investment. An idea, for me, is basically a strategic business plan with a couple of twists (keep reading to know about those twists). I’ve previously gone deep in writing about the concept of an idea maze, a term pioneered by a16z investors who also insisted that founders up their strategic game.

Higher Self Ventures’ investment thesis is predicated on engaging with startups at the pre-seed stage, and I call myself an “angel-operator”. I predominantly view the strategic hypotheses which your business is founded upon to be the leading decision factor behind an engagement. At this level of the startup growth game, and with nothing concrete about the business or maybe just a prototype in-hand, having a solid business plan that answers the most fundamental strategic questions about market potential, customer adoption, and avenues for monetization is a must. To get the best chance of achieving large outcomes, a good amount of strategic thinking about the market should be done before building the company starts.

To be honest, it sometimes strikes me how little strategic thinking has been done by founders, and it proved multiple times that such an exercise can be valuable to founders. Higher Self Ventures will put a big focus on finding the most interesting markets to play in, and make sure to engage with founders on the front lines of a disruption war in those markets. I will aim to find conviction in specific markets, to make bets on probable futures. Once hypotheses about the market and the business are clear, then the journey to validating each and every one of them begins. I will, for now, focus on the strategic planning stage, and leave the validation exercise for another time.

In essence, the goal of an early-stage strategic planning exercise is to provide insightful answers to four main questions:

• Which market category are you competing in?
• What value for customers are you bringing?
• Will you have a differentiating advantage?
• Will the company be able to capture value?

These questions underpin both value creation and value capture, the latter being something founders usually overlook in the very early stages. If answered right, these questions can steer the project wisely towards success. How this should eventually play out is that founders would create something that:

• Targets a large and growing market
• Customers value enough to pay for
• Is significantly better than the competition
• Enables long-term profitable economics

From each of those four questions arise multiple sub-questions that define a thorough and holistic strategic plan. Those are also further down the essay. But to put some context, first, around answering those questions:

• We believe that it’s best to start with the end in mind. We will not only ask you those questions and give you homework to prepare until our next meeting — we’ll try to answer them with you.
• We also know things can change considerably as the startup goes to market. We know that business plans cannot accurately predict how customers will actually react to a new product.

That being said, Higher Self Ventures has a different approach to strategic planning. It’s neither just in running straight through the questions above and the 70+ other questions below, nor in writing their answers on a beautiful deck. The two twists come here. Our process will include both:

• Creating a plan in which we put down multiple hypotheses and envision different scenarios for how a particular startup will maneuver its way to success. We insist this approach is better than producing a typical business plan because it helps forecast our own strategic possibilities for a future in which many possibilities could exist, thus contributes in building a resilient and adaptable company.
• Applying a hands-on approach in testing the many market hypotheses, experimenting with your product’s valuable features, and de-risking early-stage distribution tactics. Experimentation is key, and the beliefs behind the resulting strategic plan need to actually be tested, proven, and double-downed on. As hypotheses are proven or disproven, the project is to be driven according to those findings.

The relationship between those two twists in the planning process is simple — the more you have clear and polished hypotheses, the more you can experiment with the assumptions behind them. The other major advantage is not to let our expectations about the business get in the way of what it actually will be.

“Successful strategy is more than a roadmap; it’s philosophy put into a plan, flexible enough to adapt over time but concrete enough that it can never be misinterpreted. Its foundation cannot be built on untested assumptions or outdated data from as few as two years ago.” — Axion Zen, The Lean Approach to Strategy

As no subsequent investor at the seed stage or further will back a founding team if there is zero validation of the market thesis, we see our strategic thinking process as guiding you towards bigger financial milestones. This implies it needs to be a diligent process that can generate evidence for future success and can de-risk the business model, to a point where other investors would pay more than we did to have a share of the company.

Without further ado, here are the sub-questions you should be asking, and why:

Which market category are you competing in?

Being a startup with high-growth expectations, you never want to be in a mature or competitive market space. VCs are very focused on the potential size of the addressable market so that they can return their fund 3X or more, meaning they look for 10–25X returns for every company they back. The smaller and more limited a market is, the less likely you’re ever going to build a relatively big and successful company.

1. Is there a real need for the product by targeted customers? What is the evidence that proves this, so far?
2. What is your product replacing? How is the new journey (with your startup) better than the older journey (without you)
3. Are consumers switching from something else? Can you increase conversion rates relative to currently existing journeys?
4. What behaviour potential customers are already exhibiting which shows that we will have demand for our product?
5. Are there any switching costs that hinder consumers from trying/buying our product? What investments did they already make in older products, and what costs or risks are they facing in switching to the new one?
6. Why is the problem you’re solving a big and important one to solve?
7. How big is the market (top-down, Bottom-up, value theory approach)? Are there enough potential customers? Is it growing?
8. What’s your unique insight into the problem? What do you understand about it that everyone else doesn’t?
9. Is the Job-To-Be-Done clearly defined and targeted? (The JBTD analysis usually uncovers limitations and obscure behaviours)
10. What are some megatrends in the industry (Why now: new attitudes, new economic moment, new needs)? What is exactly proof of those changes on a macro level, in numbers?
11. Are you trying to disrupt an existing category that might be stagnant? Or are you actually defining a new one?
12. Do you know something nobody else does? (ie. a unique insight about customer behaviour, technical innovation etc.)
13. Is the industry in any kind of difficulty? Are you solving for the difficulty or you’re going to get stuck in the challenge?
14. Is this necessity or leisure (from which budget are consumers paying for it?)
15. If the business succeeds, what does the world look like in 5–10 years?

What value for customers are you bringing?

Understanding value creation requires to really understand customers, to deliver on underserved or unanticipated needs, and to just delight them in a way no other business does. To drive growth, you should be creating a high-NPS experience that customers will love, and get both qualitative and quantitative evidence of market demand. This approach proves that there is a specific market for our specific solution and that it can be monetized.

16. How can we reach Product-market fit? What are the PMF-validating milestones that you’re aiming to move towards?

17. What is the product’s positioning strategy? (ie. the value space you occupy in customer’s minds)

18. What is the product’s position of the Bain Value Pyramid? Are there any highly subjective/emotional value elements to your product offering?

19. What are the key brand messages for the product/company? Will they resonate with customers?

20. What is the customer’s willingness to pay for the product? Is that a new budget or is it benchmarked to similar services?

21. What are the supply efficiencies you are creating? (Increased access, increased abundance, friction-reduction)

22. What does an activated user look like? What’s the current conversion rate from user visit to trial/activation/customer/etc.?

23. Are there any accruing benefits or mounting losses for longer-term engaged users?

24. What are the motivation, the ability and the trigger for customers purchasing our solution?

25. What types of relationships do our customers expect us to establish and maintain with them?

26. Is there a high-repeat purchase rate? Would your existing customers care if your company died tomorrow?

27. Will the current product/MVP fit, or do we need to make iterations/adjustments? What is the 15-month product roadmap?

28. Are there any startups/products that already went after that market and failed? If yes, what’s different now?

29. What friction are we reducing along the existing consumption journey, what’s the marginal product utility?

30. Will the new product work as planned? What’s the likelihood of our value hypothesis being true?

31. What is the most effective customer acquisition channel today? Are you capturing or creating demand?

32. Is the startup using any new technology that enables new value creation, or the removal of scarce elements?

33. Will the product confront a chasm between early-adopters and the majority? How would we solve it?

34. Is your marketing “push” or “pull”? (ie. Are you actively selling your value or are people finding you because of unmet needs)

35. What are some testimonials and qualitative feedback given by current or potential customers?

Will you have a differentiating advantage?

Related to the first two questions, it is necessary to ask about competitors. Some markets are too crowded or might have unwelcoming rivalry dynamics, and hence are not worth it. “Competitive advantages” help your company become successful. To generate additional value with a new product, it is recommended to have an exponential mindset focused on introducing something 10x better than what any other existing competitor offers.

36. How different is your product from other competitors already out there? Do current/potential customers agree?

37. Will this be a winner-take-all market or will it have an oligopoly structure? How much room is out there to compete?

38. What’s the easiest way into the market? Are you entering a niche that is overlooked by large incumbents?

39. How will competitors, if any, react to our launch? Do they have deep pockets, will they be fast in reacting?

40. Are you going with a market entry point and staying there, or you’re later moving into a whole market disruption strategy?

41. Can the suppliers create the same product and bypass you? How easy is this for them?

42. Did you test market demand with an MVP? testing with them to see how much they are gaining?

43. Do customers know that they have the problem, or will the company need to educate the market about its solution?

44. How fast can you get market share from direct competitors or from existing similar services?

45. Can the moat/competitive advantage be sustainable? (Even so, what is the moat deterioration rate?)

46. Can you build any new moats as you grow? (network effects, defensible brand equity)

47. Is your product easy to imitate? Why won’t the value be competed away?

48. What’s our NPS vs the NPS of other products/services on the market? What drives this marginal user satisfaction?

Will the company be able to capture value?

Ultimately, the success of a business strategy is measured in a company’s ability to generate long-term profits and growth in cash flow productivity. On top of that, you want to have a defensible strategy that makes sure margins don’t erode as competitors try to copy your product. What you are looking for in addition is a “tailwind” (network effects, economies of scale, or other accumulating advantages…) that will help the business prosper as it grows.

49. Is the business model defined? If not, what are the hypotheses on potential revenue streams?

50. What is the company’s ability to capture the value they create? What % of the profit pool in the value chain are they taking?

51. What does financial success look like? What can go wrong (what are the risks) in combining the key resources/assets needed to fulfill the vision and produce the expected financial return?

52. How much can you charge customers (How is pricing defined)? If platform model, are you subsidizing one or more segments?

53. What are the most important costs inherent in your business model? Which key resources are most expensive?

54. How much are you willing to pay as CAC for a customer? Does the LTV make sense in terms of covering CAC?

55. Does the venture have strong incentives to race for scale due to network effects, high switching costs, or first-mover advantages? Do scalability constraints and late mover advantages offset these incentives?

56. What is the contribution margin? Will there be any changes to that margin after reaching a larger scale?

57. How fast are you transforming one $ of marketing into a $ of usable cash? Are there acquisition loops inherent in the model?

58. Will the company be profitable at an acceptable risk? What is the targeted IRR in 5 years?

59. Can you sell and market your stuff? How tough is it to reach customers? Will there be diminishing returns on marketing?

60. What are the metrics that you need to track in order to persistently measure success?

61. How will you enter the market at the lowest possible cost? (Strategic partnerships, organic/WOM, paid marketing, pull factor)

62. What are some potential post series-A growth marketing tactics? (B2B, content, partnerships)

63. What is the projected MoM growth rate? What is the resulting targeted % of Market Share in 3–5 years (in dollar amount)?

64. What is the accumulative strategic advantage over time, and how does that protect your margins?

65. Will there be high-repeat rates or high-churn? What are the implicit reasons users come back to your product again and again?

66. What milestones will the current fundraise help reach? Are those subsequent funding criteria for later-stage investors?

67. Will these milestones be enough that a VC to pay a higher price in the next round of financing?

68. Until what point are you planning to lose money? What’s the risk related to further funding rounds?

69. Can revenues be scaled to $1M (Series-A), and what are the main assumptions behind their further path to $100M?

70. Is the deal exitable? Are there potential future buyers for your company? Is M&A already hot in the industry, or will it be?

To conclude, it is important to note that the totality of your answers together — call it your strategic plan — will become a story you tell others. As Flurry founder Sean Byrnes notes, your company’s story will weave together your vision, how your market is changing and your differentiation. He argues that when people try to understand your new company, they will use this story. He then adds that the story you craft today will be constantly changing. After all, the beauty of strategic storytelling in the world of startups lies here: you’re always going to be finding new insights, bumping into new obstacles, making changes to the original story, and bringing on new characters that will craft it with you as you go along. This is how you will grow into, and progress towards, a more valuable company.

“When people try to understand your new company, they will use stories… The story may include metaphors (e.g. they are Google for Sheep Herding) or use personal anecdotes. Stories come in all shapes and sizes…Unfortunately, most of the time your story will be told by someone else. Hence, it’s important to craft a positive story that others will tell on your behalf…If you are successful, you may eventually have someone tell you the story of your company without realizing it is your story. That is the most fulfilling feeling a founder can have, since it means you have succeeded in spreading the story you are building.” — Sean Byrnes, Founder of Flurry and Outlier.ai