What Startups Need To Focus On

Firm size has more to do with where you are in the explore-exploit spectrum of a business.

Are you looking for a strategy to be successful (explore)? Are you attempting to leverage a strategy you’ve discovered (exploit)? Or are you trying to squeeze any remaining value out of that strategy (execute)?

As I’ve said elsewhere, strategy is a set of tactics coherently united towards some goal.

The goal you’re trying to solve depends on your explore-exploit-execute phase.

Startups are in the explore phase.

Very mature businesses looking to execute are setting profitability goals. Execution often involves squeezing down costs.

Maturing businesses looking to exploit are setting revenue growth goals. Exploitation is about expanding in the market.

What about startups? What’s the goal for explore?

Startups looking to explore should set reducing uncertainty goals.

To exploit a business model, you must understand and have intuitions about it. This is a system of making money.

For example, with Guildmaster, I’m writing a book. I hope the book will sell and lead to speaking engagements or calls from folks wanting advice. There’s a conversion rate for the book (how many will buy it) and a rate for those who want services. Of course, some percent of those will want continuing services.

I don’t have excellent estimates for those things right now because I’ve never written a book.

This would be a bad strategy if they were all near 0%. If they were high, it’d be a great strategy. They’re unknown.

By writing a book and trying, I’m attempting to measure these unknowns to make better decisions about what to do in the future.

Thus, if you want to model how your business makes money, that model will be wrong, and the estimates you write down will be bad. But you don’t know how it will be wrong yet. You must take that model and find the cheapest and fastest way to learn the most about it.

That’s the explore phase.