This article builds on my previous three articles. They discussed some important steps in strategy development: Clearly framing the customer problem, defining assumptions that must prove to be true for a strategy to be successful, and running small experiments (as Amazon calls them) to test those assumptions.

It sounds difficult. Why not just get on with it? It’s all about execution, isn’t it?

Harvard Professor Clayton Christensen taught that there are two main reasons why new businesses fail to meet their financial objectives. Either the firm spends all its resources before it finds the right strategy, or it doesn’t invest sufficiently once it finds it. (So, you can blame poor execution. But you can continuously improve and, at the right time, scale up execution IF you haven’t spent all the resources). Christensen added that business leaders cannot know the right strategy at the start. So, take comfort in this. But then go through the steps.

Christensen advocates the use of a rigorous process called Discovery-Driven Planning (DPP), developed by legendary business professors Rita McGrath and Ian MacMillan. DPP provides a framework that encompasses the three steps above. Importantly, it assumes that the right strategy cannot be known at the start.

Simplistically, DPP runs as follows:

1. Determine, up-front!!!, the required long-term financial returns, and key milestones, for a new business to be worth investing in. DPP challenges the more typical approach of presenting optimistic returns to win investment for a new business.
2. Identify critical assumptions that would need to prove true for the required financial returns to be achievable: There is a sufficient market with the problem, the firm can solve the problem, buyers will pay what the firm requires to be profitable, the firm can sell to those buyers etc. This is Roger’s Martin’s powerful “what would have to be true?” question.
3. Test the above assumptions. This is where the firm fires Jim Collins’ bullets (see my “Fire bullets, then cannonballs” article). If a critical assumption is not proven to be true, then this flags risk in the strategy.
4. Once the assumptions are proven to be true, then immediately fire Jim Collins’ cannonball and scale-up investment significantly while continuously monitoring the results.

So, please don’t assume that you know (or should know) the strategy when developing a new business. It’s impossible to know. Take comfort from this but then follow a rigorous test and development approach.