“Can we go for a walk? I think we have a huge opportunity to offer SaaS tools to participants of our marketplace instead of monetizing customers.”
– Representative quote from a founder I work with evaluating a change in strategy
Building a new company, I find myself faced with opportunities to revisit and modify Beacon’s strategy much more than I would have expected. Some of this is due to the nature of Beacon’s business, but I think it is natural in the early stages of company building. Every opportunity looks like it is open to you.
More frustratingly, lots goes wrong day-to-day, which creates doubt that the strategy you originally articulated is even the right one. This is particularly pronounced because you have limited data to prove you are on the right path.
As I reflected, I realized this was not a Beacon-specific phenomenon. The conversations I have with founders and entrepreneurs I support also frequently veer to strategy drift —specifically, questions about when it makes sense to change strategy.
Lessons from Instacart
At Instacart, our mission was to partner with grocers to facilitate their transition from traditional brick-and-mortar sales to a seamless blend of in-store and online transactions. We broke down our strategy into three distinct phases—each phase meant to last multiple overlapping years.
Phase 1: Building Moats
The first phase focused on forging deep, enduring relationships with grocers. This involved securing long-term, often exclusive contracts, integrating our technology with their systems, and offering a variety of technological services tailored to their needs. This approach helped us create a strong foundation and a competitive moat around our business.
Phase 2: Driving Growth
With solid partnerships in place, we shifted our focus to growth. This phase involved geographic expansion, co-marketing efforts with our retailer and CPG partners, and introducing innovative approaches to acquire new customers – many of whom had never shopped online for groceries before. We aimed to add high-value users by showcasing exclusive content (our grocers) on the Instacart marketplace and on the white-label websites and apps we powered for our retail partners.
Phase 3: Achieving Profitability
The final phase was about leveraging advertising sold to CPGs to create a new profit pool, allowing us to reinvest in reducing service costs for consumers and retailers. This reinvestment, in turn, drove further growth. We continuously invested in R&D to stay ahead of the competition, enhancing our quality, speed, and breadth of selection.
One key reason we avoided strategy drift and succeeded where others failed in making grocery e-commerce work was our unwavering focus and prioritization.
However, it’s important to note that:
A) Knowing how an alternative strategy might have played out is challenging. Perhaps we could have achieved more if we had pursued entering food delivery, expanding internationally, etc.
B) During my eight years at Instacart, while we executed this tight strategy, we spent an immense amount of internal energy debating and revisiting potential strategic shifts.
Why is Strategy Drift So Alluring?
Several factors make strategy drift tempting:
- Lack of a Convincing Strategy: Sometimes, companies don’t have a well-defined strategy or lack belief in their existing one.
- Founder Confidence: The act of founding a company is inherently irrational, and this irrationality can extend to evaluating alternative paths. Things that may seem impossible for most/all objective observers may not seem that way for a visionary founder.
- Monotony of Execution: Day-to-day execution is hard, boring, repetitive, and tedious, while strategy discussions are fun and allow for the crafting a narrative of success in your mind before anything has even been done.
- Extrapolation from Limited Data: Anecdotal evidence from customers or clients can be misleading.
- Board Meeting Dynamics: Quarterly board meetings encourage experimentation due to the lag between updates. Investors often assume that everything has already been tried (and do not fully appreciate the monotony of execution). Investors also are in the business of adding value. How ‘value added’ is an investor comment in a boardroom that simply amounts to “get back to work”?
Earning the Right to Drift Your Strategy
“The person who turns over the most rocks wins the game.” – Peter Lynch
I believe we must earn the right to drift our strategy at Beacon. This means sufficiently proving that we have exhausted all avenues of our original strategic path before considering a change.
When Have You Earned the Right to Drift Strategy?
- Market Conquest: You have conquered your market and run out of high ROIC growth within your core TAM. Evaluate your market share, retention and customer satisfaction, win rate for new customers, and the potential for additional value to your core customers.
- Exhausted All Options: You have tried every idea and option to implement your strategy, including bringing in new resources and evaluating leadership changes. Often, founders change strategies due to personal exhaustion rather than a genuine lack of options.
- Excess Organizational Capacity: You have built enough organizational capacity to execute your core strategy while experimenting with alternative paths that leverage core elements. This scenario, while ideal, is rare, especially in startups within their first ten years.
Why is Strategic Consistency Important?
- Waste of Energy: The worst part of strategy drift is the energy the evaluation of alternative paths takes away from executing your plan. Execution is extremely hard and takes relentless, unwavering, consistent effort. Fantasizing about alternative strategies can be a form of escapism from the brutal day-to-day hand-to-hand combat that is startup building.
- Respect for Partners: Your partners, both capital and team members, invested in the original strategy. They explicitly signed up to take that ride.
- Time to Change Direction: Strategic changes come with significant communication costs and implementation friction. Strategic plans become ingrained, and changing direction can take months or years to implement fully.
Winners Stay Consistent
The businesses I admire most, including Costco and Constellation Software, have maintained fundamentally the same strategy for decades. They recommit to their founding idea even during years when the markets don’t reward them.
At Beacon, it’s easier to drift strategy because all roads seem open in a startup. However, I constantly remind myself of the lessons from Instacart and other successful companies. Resisting the urge to say yes to too many opportunities is crucial. Without choosing and committing to a consistent path, we’ll never truly know if our strategy or execution was the issue.
Writing this post serves as a personal reminder that strategic clarity and consistency are key to long-term success.