What Not-for-Profits Can Learn from Startups: Part 2
This is part 2 of our series of articles that explore how NFPs could consider adopting new approaches practiced by successful startups. From alternative organisational structures, to strategy development and innovation. It’s not about replicating startups, it’s about learning and adapting to meet the challenges facing NFPs in our rapidly changing world.
Strategy
First of all we want to acknowledge that we are taking a top-level broad view of the contrast in common strategic practices between NFPs and successful startups. The finer details and nuances of good strategic practice are too broad to be thoughtfully captured in this article
NFPs and Strategy by Template
Many NFPs adopt “Strategy by Template”, otherwise known as “Strategic Planning”. This process consists of stakeholders ‘planning’ huge shopping lists of goals and things to do. After a few days locked in a boardroom the team push everything they have listed into a table of goals and KPI’s and call it a strategy. This mess of things is overwhelmingly complex, so it’s labelled ‘long term’ or ‘5 year plan’ as to avoid creating clear actions that can be taken today. With good intentions, some higher level concepts are added to the goals; such as the vision, the mission and the values. When done well these can offer guiding principles, but when rushed they offer little value.
In this strategic style the bias is towards analysing, planning and long term measurement. In reality it is often guessing and fluff.
Startups and Strategy by Doing
If we look at startups, we can see what might appear as the opposite end of the strategy spectrum. Successful startups view their business idea as a hypothesis that needs to be proven as quickly as possible through actions and measurement. They are aware that the course of their business will change based on what they learn. Instead of hiding from reality, successful startups embrace that the future is impossible to predict. Long term strategic planning is replaced with learning from actions in the field. This is the lean and agile strategic philosophy adopted by so many successful startups. It focuses on action, responding to change and frequent measurement.
Let’s briefly look at a few characteristics of strategic practice that successful Startup’s have implemented and how NFPs could benefit from integrating them.
Flexibility That Allows for Course Corrections
A key difference in mindset is accepting the fact that we cannot predict and plan the future in the boardroom. Silicon Valley startup guru Steve Blank is often at pains to remind startups of this fact by echoing Mike Tyson’s quote ‘Everyone has a plan until they get punched in the mouth’. In this example, Mike Tyson is the future. The future will punch you in the face within 5 years and there is no way to see it coming. Due to limited time and resources, NFPs need to ride these punches better than most. The paradox is, as Dr Jason Fox puts it, to create certainty we must embrace fuzziness.
There is no faster way of predicting the future, other than just going there.
— Igor Nikolic
Successful startups use a science-based approach, baking flexibility into their strategy.
Rather than making big 3–5 year bets based on assumptions and planning, successful startups get clear on the reality of their current condition and business model, treat it as a hypothesis and look to test it with small bets and experiments. The outcomes are measured, and insights are used to course correct the strategy. Rinse and repeat.
A powerful tool for forming your organisation’s hypothesis is Strategyzer’s beautifully simple Business Model Canvas. With some tweaks this tool can give NFPs an insightful birds eye view of how their organisation operates and what assumptions are being made in the hypothesis.
Be stubborn on the vision, but flexible on the details.
— Jeff Bezos
There are many examples of successful startups course correcting into a more successful state based on what they learned through small bets. The collaborative chat platform Slack was originally a game company before realising through experiments that it’s chat function was valuable to organisations. Instagram was originally called Burbn, a check in app that was failing until the founders realised people loved to share photos on the app and rebuilt the app around photography.
While NFPs don’t have the luxury of being able to make such pivotal cross-market course corrections, they can still adopt the underlying principle; build in flexibility by testing whether your hypothesis is working, and be open to course correction to achieve the organisations vision.
Clear Actions
A huge negative of the ‘Strategy by Template’ style is the unavoidable complexity that comes with it. There’s a huge disconnect between the ‘strategy’ and what to do today. This often results in incoherent actions and low autonomy for staff.
Vision without action is hallucination.
— Thomas Edison
Successful startups on the other hand understand that it is from action that we learn the most. They accept that strategy is about doing. Doing = running experiments. Measuring experiments is how we learn. Learning is how we grow.
To take action through experiments team members need to ask two simple questions:
- What do we need to learn to test our hypothesis?
- How will we learn that?
The answer to the second question provides the basis for designing actions that are highly autonomous yet highly aligned to the organisation’s strategic intent.
Spotify offer a fascinating insight into how this plays out in their organisation. They call it the DIBB framework and it played out in the following way a few years ago:
Data > Insight > Beliefs > Bet
Based on their hypothesis AKA business model canvas they had assumed their biggest delivery channel was desktop devices. They ran the DIBB framework to test this hypothesis and create actions from the what they learned. You can see the results in the diagram below.
Adopting an action based strategy provides many benefits to NFPs. The key to an action based strategy is having the data to inform the actions, which we will look at next.
Measuring & Data
Successful startups measure things often to make better decisions and most importantly, to know if the strategy is working. Some of the biggest gaps between successful startups and NFPs can be seen in the frequency and level of measurement. Long term planning which is often used by NFPs can create the phenomenon of sunk cost fallacy, which makes us inclined to measure less and do less with measurement. Strategy through action on the other hand relies on measurement as the oxygen for its lungs.
Measurement is difficult because it requires deep thinking and questioning about how to best design a measure for often ‘intangible’ things. However there are many ways to measure just about anything. Doug Hubbard, the author of the outstanding ‘How To Measure Anything’ states 4 useful measurement assumptions:
- It’s been measured before
- Your have far more data than you think
- You need far less data than you think
- Useful, new observations are more accessible than you think
Because of the perceived difficulty of measurement, many NFPs do not measure the outcomes of their strategy often enough. In the diagram below we have made the visual analogy of a NFPs frequency of strategic measurement similar to shooting their team out of a canon at a goal (don’t try this at home). Compare this to a startup team walking through the terrain and adapting as they go by measuring frequently, adapting from what they learn through minor course corrections.
When shooting the canon however, you make a guess on what angle and power to use to get to the goal (strategic planning). The problem is there is no measurement if you hit the goal until your team hits the ground. If you missed, the team need to make the long walk back to the canon, all the while debating on how to adjust the power and angle of the canon for the next shot. In short, the feedback loop is too long and imprecise to provide learning that can be acted on, and the strategic bet is too big.
Measuring less often might seem like less work, but you do pay for it in the long run. This is why startups make difficult things easy by doing them more frequently.
Waiting for perfect is never as smart as making progress.
— Seth Godin
A less recognised second-order consequence of measuring often is a more motivated team internally. In a study by Amabile and Kramer of employee motivation, the number one motivator for employees was a ‘clear sense of progress’. The Progress Principle was recognised as the top breakthrough idea by the Harvard Business Review in 2010. It seems that we all want to know if we are making meaningful progress towards the shared goal. This might partly explain why startups are doing so well at recruiting young millennial talent.
Strategy is rarely thought about through this lens of employee motivation. NFPs that can articulate each employee’s contribution within a clear, action based strategy will reap the rewards that only come from having a highly aligned and engaged team.
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The next article in the series will examine how startups consistently deliver innovation and increased value to their customers.
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By Luke Schoknecht | Co-founder & Strategy Lead
At Raine & Makin we work with organisations to understand their challenges and turn them into opportunities. We focus on defining the problem, before rushing to the solution. If you have a problem that is stopping you from achieving your organisation mission, get in touch to discuss how we can work together to solve it.
