Strategic Execution Part 3: The Six Stages of the Corporate Development Playbook
In previous blog posts, I explained what strategy is, why it is needed, and how it is developed and executed. In this post, I will outline the six stages of strategy execution or Corporate Development for growth from inception to Exit; mastering the highly differing and even contradictory demands and focuses of each of these independent stages is the key to successfully navigating the entire journey.
The six stages or plays of growth of any company are as follows:
1. Company Launch or Customer Development
2. Product / Market Validation
3. Business Model Validation
4. Product / Market Growth
5. New Product / Market Extensions
Each of these six stages is uniquely different and requires a different focus, management styles, metrics, and talent to achieve the unique strategic objectives of each stage. Some of these stages can be accomplished quite quickly; others may take years. The stages may take on unique characteristics, and each company is unique in its journey, but I have found these stages to be common to every company with which I have worked or that the company was in a turnaround driven by skipping or improperly executing one of these stages.
Some might want to add acquisitions (and divestitures) into this; while the act of acquiring and integrating (or divesting) other businesses is a distinct operation with many considerations unique to the action, I prefer to classify them as a strategy driven tactic that is one of several possible ways to implement within New Product / Market Extensions, and possibly Business Model Validation and Product / Market Growth. Looking at acquisitions and divestitures this way can help focus the purpose of the acquisition or divestiture on the method by which it increases corporate value rather than the glamor of the transaction itself. Recognizing that the process of acquiring often destroys at least some corporate value and success in M&A comes from creating more value through the acquisition and integration than is destroyed in the process.
These stages can be placed into a logical sequence as shown in Figure 1. It is important to note that while some of these stages may end up being accelerated and streamlined by circumstance, each represents a different problem being solved. For this reason, all product / service introductions follow a basic sequence of introduction, product/market validation, business model valuation, and then growth. When a company becomes larger and more mature, there can and should be multiple stages occurring in parallel; this is especially true when introducing business models and associated products that purposefully evolve as they move the market. Exit can occur at any time in these sequences, though it is very rare for it to occur during Company / Product Launch. Nevertheless, some of the considerations of Exit should always be kept in mind. It’s worth noting that Exit defines the end of the process for one set of owners and investors, but the process continues with the new owners either where it left off, when the acquisition becomes an independent subsidiary, or as an extension of the new parent company’s stages when integrated.
Figure 1: 6 Stages of Corporate Strategy from Concept to Exit
Startups evolving into growth stage companies are generally far better off establishing their launch product / service into the growth stage before taking on the New Product / Market extension cycle. That should not be viewed as an absolute rule; there are certainly cases where New Product / Market Extensions can be a critical part of building sufficient barriers to entry by competitors or in achieving the necessary market consumption transitions that occur as the market learns a new way of solving a problem.
By understanding the unique challenges of each of these stages, it becomes easier to understand the objectives, focus, and appropriate activities necessary to be successful. This understanding can prevent a very common problem for high growth companies: doing the right thing at the wrong time. Investing in product development before the target market and problem are well understood and the potential for building a viable business evaluated can introduce substantial risk of wasted resources and enterprise failure. Likewise, investing in sales and marketing expansion before the product / market fit is truly developed and understood and the basics of those processes are developed, will often result in high customer acquisition cost and the acquisition of a cadre of customers for whom the enterprise cannot deliver value. These customers will eventually churn resulting in lost revenue and confidence, the inability to raise capital, and a myriad of other negative enterprise-killing effects. Similarly, pivoting to growth before the production and delivery processes are made sufficiently efficient, can drive substantial cash losses, and customer satisfaction issues with loss of reliability and effectivity in the delivery. The result, via a slightly different mechanism is the same. As a veteran of five successful turnarounds, I find clear causation of many turnarounds in failure to follow these stages in a logical and appropriate order.
It would be logical to ask how this process flow relates to the strategy development and execution processes laid out in my previous blog post. That post laid out a reference process to be followed on a periodic basis (development) and ongoing basis (execution). Within that process, there was a reference to the corporate development stage; this post relates directly to corporate development stage. In fact, that blog post outlined the process for a company in Product / Market Growth. For early-stage companies, the corporate development stage is on the spectrum of 1-2-3-4-6 (referring to the stages in Figure 1); later stage companies will include stage 5. As noted in that post, corporate development stage is critical to diving the appropriate focus of strategy development and execution. This post explains further how the process laid out in that blog post is tailored as a function of corporate development stage.
Once a company becomes mature enough to introduce product / market extensions, then the corporate development state is a blend of stages driven by the plurality of product and services within its portfolio and the maturity of each of those. I will write a deeper blog post on product portfolio management and product management to relate product to corporate strategy. In Figure 1, it may seem that there is no explicit strategic step for trimming the business and product portfolio. This very necessary step should be addressed explicitly as part of Product / Market Growth and is also a decision point in New Product / Market Extension, as well as both Product / Market and Business Model Validation.
Before discussing the six stages, it is important to discuss a key principle of entrepreneurial processes and agile management methodologies and contrast these concepts with more traditional management methods. Startups and even innovation efforts in larger companies are not small versions of larger companies; they are fundamentally different initiatives focused on the pursuit of a series of risk-focused discovery experiments that enable them to discover new business models. The reason for this is fundamental in psychology; we as humans tend to be far more effective at iterative convergence for solving complex problems versus big-bang solutions. Iterative convergence requires us to study the problem and propose an hypothesis for a solution and then test that hypothesis, using the results of that testing to drive another and another test, tuning or discarding and reinventing the hypothesis as we go until we finally converge on something that meets all of our requirements. For those of you who think in agile development concepts, the only difference is that both the hypothesis and the requirements are converging in agile. The contrast is big bang, requiring that we study deeply the problem and then create a unified hypothesis that solves all the constraints and objectives and requirements. Big Bang tends to fail, sometimes spectacularly, due to fundamental psychological limitations of both the innovation team as well as the customers. To be successful, the team must fully capture the requirements, preferences, needs, deep pain points, and the tradeoffs between these facets for even a tight micro-niche of customers and this generally requires an iterative process for discovery; in many cases, the customers don’t even know this data.
There are a class of products and services that appear to be successfully brought to market in big bang approaches; these are generally very complex engineering based solutions such as a Boeing 787 airliner, a geo-synchronous communications satellite such as the Boeing (formerly Hughes) HS702, or the Apple iPhone. However, this is an illusion. These products have complex customer requirements that must be discovered and substantially more complex engineering requirements to be discovered and satisfied through iterative, risk-based, R&D processes. The approaches I describe in my work are most on-point for businesses developed around software and services of all types. I will delve into a deeper future blog on the differences between manufactured product companies, pure service companies, and software product/service focused companies, as there are considerable interpretation differences and approaches.
Corporate value is created by experimental ideation discovery that identifies opportunity for true value and then through purposeful evolution of the solution to that opportunity to create predictable cash flow. Both steps are required, and they require different thinking that must co-exist in the same organization and leadership team. Those teams must be able to apply these different conceptual frameworks to stages and processes that may be occurring in parallel within the same company, meeting, or team. This need to embrace two very different ways of thinking is precisely why so many startups have difficulty accomplishing growth and predictability and so many established companies have so much difficulty invigorating innovation.
In future blog posts, I will explore some of the details of each of these stages including the objectives, key metrics, and some areas of consideration in how to develop and execute strategy in these stages. Specifically, I will explain how they differ in each stage from the conceptual model laid out in “Strategic Execution Part 2: Building and Executing Strategy”.
What stage of corporate development are you currently in and what challenges are you facing?
For most companies, the usage of external parties to facilitate the strategic planning and execution process produces superior results. The process typically involves a great deal of information processing that isn’t core to running the business on a daily basis and a facilitator in planning sessions frees up the team to focus on the critical questions rather than the process and can inject highly productive objectivity into the discussion and decisions. If you would like to discuss where your company is in the evolution of strategic planning and execution or would like some assistance in setting up or performing this critical process or just have a question please contact us.