By: Martin Eriksson, Adam Thomas and Matt LeMay

These are challenging times for many founders and it’s these challenging times that formed the basis of our recent Survival Mode On sessions, a series of online talks and events held for our portfolio companies on how to make it through the ongoing downturn. The final session from this series was hosted by EQT Ventures Operating Partner Martin Eriksson, in collaboration with Product Leaders Adam Thomas and Matt LeMay. In the piece below, read the insights Martin, Adam and Matt shared with our portfolio on the importance of startup strategy, survival metrics, team alignment and more.

There’s a fatal flaw in the way startup teams connect with strategy. Martin Eriksson, Product Partner at EQT Ventures, has seen it happen time and again: “too many startup teams operate under the idea that everything is fine — until it suddenly isn’t.”

In a challenging funding environment, that needs to change. Martin believes that startups should foreground sustainability, and ensure success by building strategies for survival first.

That’s a paradigm shift for the majority of startups. Typically, strategies are built around achieving ambitious sales and product goals. But there’s often a mismatch between those success metrics, and the critical milestones startups need to reach before those sales materialize. Without reaching those milestones, startups won’t survive. But many aren’t clear on what they are, or working strategically to achieve them. The result is that valuable time is wasted on the wrong initiatives — and startups don’t realize until it’s too late. By the time you realize you’ve missed your goals it’s too late to course correct and in the current funding environment you may not be able to raise more money to buy time to do so.

To avoid this, startups need to get clear on the difference between success and survival. As Martin points out, “if your team doesn’t understand what your strategy is, and what survival means, they can’t help you get there.” Getting clear and aligned around how to survive requires some “uncomfortably specific conversations,” but is critically important for startup teams.

Startup strategies focus on the wrong things

The standard approaches to defining business strategy aren’t fit for purpose in a startup environment. Martin explains that “most strategy books talk about 3/5/10 year goals, but in startups, that timeline is more like 6–12 months.”

Compressed timelines aren’t the only issue. Focusing on outcomes — the end state of what success looks like — fails to take into account the development process. Adam Thomas, the creator of Survival Metrics, agrees. “Success metrics are valid ways to communicate a milestone, but they aren’t great at talking about work in progress. If you only use success metrics, it can lead to the false idea of a straight line — as if you are building towards a well defined spec. But every startup has committed itself to complex innovative work that by definition isn’t a straight path towards a well-defined end state. That is why Survival Metrics are really important for startups — they need to move faster, iterate more, and don’t have the luxury of a ton of money in the bank to waste.”

Startups have to be able to throw their strategy out and start over when they learn something new — or the market can flip on them seemingly overnight. Pivoting to survival metrics can help. As Martin explains, “survival metrics are much more focused on progress — how do we get there, is this worth continuing, are we on the right track or not. Success is easy to visualize, but it’s all the steps in between that are really important.”

Survival Metrics turn startups into sustainable businesses

Martin puts it simply: “a good strategy is whatever helps you make the day to day decisions that will ensure your survival.”

Adam created Survival Metrics in order to help startups make those decisions. In startups, “we don’t know what the endpoints are, so we need to have a sensing mechanism to help guide us in the right direction.” Instead of looking at success metrics (lagging indicators which ask ‘was this successful?’), Survival Metrics look at the development process and ask “is this worth continuing?”

Survival metrics are high impact and high specificity:
Low impact, Low specificity — day-to-day goals, eg. feature usage, and releases
Low impact, High specificity — product and marketing KPIs and metrics
High impact, Low specificity — mission and vision
High impact, High specificity — specific indicators of whether or not the business will survive.

Product Leader Matt LeMay suggests startups use a traffic light system to map their survival metrics:
Green (Invest) — specific indicators that suggest we are on track to achieving our next big business-critical goal, and should move resources towards it
Yellow (Pivot) — specific indicators that suggest we should pivot to a more modest strategy
Red (Stop) — specific indicators that suggest we will not survive through our next business critical milestone, and should stop resourcing current activity.

Matt explains why this approach is helpful for startups. “Until you know where you need to go, you can’t set a strategy to get there. Startups are working under specific conditions: there are benchmarks for revenue and growth that must be achieved to raise that next round or become a sustainable business. But a lot of people inside startups don’t know what those numbers are, and aren’t working towards them. They may actually be working against them, optimising for the wrong thing.”

Martin recommends the traffic light system because “it maps out two different strategies — what would you do if you had to reach just the yellow numbers? What would you do differently to hit the green numbers? By contrasting them, you will realize that yellow and green are probably in conflict — which is intentional, as it helps you decide what’s really critical. Highlighting the differences helps you figure out which trade-offs you’re willing to make, and what goals are most important for this stage of the business.”

Survival Metrics require whole-team alignment

For Martin, the value of Survival Metrics is that “they really help you understand where you are today, and change the conversation from which shiny new feature to build next, to how to build a healthy, sustainable business. It’s a critical part of what I call the Decision Stack — how you connect every decision in your business from top to bottom, and from bottom to top through alignment and clarity on vision, strategy, objectives and so on.”

For startups to become healthy, sustainable businesses, alignment and clarity across the whole team is critical. It’s important to expand the conversation to involve everyone — marketing, product, data, ops — as people on the ground are closer to the insights that will help startups figure out their trade offs. Martin says that “metrics need to be broken down really closely, not from the ivory tower of the leadership team.”

Startup leaders might worry that such radical honesty is demotivating for the team. Matt’s emphatic that it isn’t. “Knowing what the targets are empowers teams to make the right decisions, and ultimately keep their jobs. It’s much more motivating than finding out after the fact that you could have done something differently. The traffic light scenarios are motivating because they are clear and realistic.”

Survival Metrics get startups out of ‘work harder’ mode

Without the clarity offered by survival metrics, it’s easy for startups to get into ‘work harder mode’ — and still fail. Survival metrics force startups to look at the underlying health of the business, and figure out whether doing more of the same will change their fundamental metrics. If not, they’re forced to refocus or pivot, and to do so before it’s too late.

This was the experience for Neil Cameron, Head of Product at Flow, an EQT Ventures portfolio company. “The conversation we had on survival metrics was quite eye opening. We discovered that we had a clear idea of what signals would tell us that we are on the right track and ready to progress, but no shared idea about what the ‘error bars’ were. If we hit 50% of our numbers would we change strategy or stick? Without this extra maturity of thinking we would probably have just ‘worked harder’, rather than acknowledging that there was the option of being smart and changing strategy to get by.”

Matt thinks strategising for survival could be a game-changer for startup teams. “When do you recognize that you are optimising for a vision of success that is no longer in reach? Not a lot of startups are having this conversation, and it could save them if they are brave enough to ask.”

Adam agrees — “Not even Facebook does fail fast and break things anymore”, or as Martin says “startups can no longer afford to make any mis-steps on their way to success, and need to focus on what’s most important to get to the next step.”