June 11, 2016

Navigating Your Startup in a VUCA World

Building a startup requires a number of important leadership skills, particularly since the environment we operate in is extremely complex, fast-paced, and chaotic. First-time founder/CEOs may find themselves learning on the job, which can be extremely difficult. VUCA is a concept developed in the military over the last 20 years that provides direct parallels to the startup world. VUCA stands for Volatility, Uncertainty, Complexity, and Ambiguity. I learned about VUCA and several other important concepts this week at West Point Military Academy.

West Point Military Academy (“the Point”) is one of, if not THE best, leadership programs in the country. They have been training the future leaders of this country for the last 214 years. I was fortunate enough to attend a CEO Summit this week as a guest of Edison Partners. First I need to say a huge THANK YOU to Chris Sugden and Chris Sklarin for inviting me, and to Gregg Michaelson for organizing a terrific event… HOOAH!

The 2.5 day session was run by Thayer Leadership Development Group (“TLDG”), all former West Point graduates and retired officers. Thousands of people from corporations like GE, P&G, and Mercedes have been through the TLDG program since 2010. We heard lectures from distinguished leaders, participated in workshops with other CEOs, ran mission simulations and even did PT at O-Dark-Thirty every morning. If your company is looking for a great leadership training organization, I would highly recommend the team at TLDG.

Note: this post will focus on VUCA, and I will share other important lessons in subsequent posts. A quick primer from the Harvard Business Review:

Volatility: the challenge is unstable, but not necessarily hard to understand.

Uncertainty: despite a lack of other information, an event’s cause and effect are generally known. Change is possible, but not a given.

Complexity: the situation has many interconnected parts and variables. The volume of information can be overwhelming.

Ambiguity: causal relationships are completely unclear. No precedents exist.

Since 9/11/2001, we’ve been living in a VUCA world. Not just from terrorist threats, clashes of cultures, economic transformations, political changes and societal shifts in terms of values and expectations, but also in the world of technology where innovation and disruption are happening at an accelerating pace. We see companies like AirBnB, Facebook, Uber and others disrupt and grow at phenomenal speed. This puts a premium on a leader’s ability to bring clarity from chaos, and develop teams that are adaptive, in order to identify and exploit opportunities in the market.

We learned five strategies to operate effectively in VUCA environments. Let’s look at how they might apply to your situation as a leader in a startup environment.

Be aware of your operating environment
How well do you know the market you’re operating in? In military parlance, you need to have a common operating view of the battlefield. Do you know the structure of the market? Who are the major players and customers? Is the market going through a transition? Can you define the “blue ocean”opportunity? And what are your capabilities and resources? You need to know as much as you can about the structure and dynamics of your target market. Investors need to be convinced that you are the expert in the space and that you know more than they do. You should be bringing a unique insight that others don’t have, perhaps about the weaknesses of your competition, or shifts in customer attitudes and demands. And because we’re in a VUCA environment, it’s critical to have a real-time picture of the operating theater.

Evaluate the risk/reward trade-off: “Who Dares Wins”
If you want to own your target market, you’ll need to make some strategic bets. Consider how your plan will optimize for the one variable that may be a big gamble, but would assure you of winning. Many trade-offs need to be considered. Is speed to market the most important variable? Distribution? Intellectual property? Go where others are not, or cannot, go. Tip the scales in your favor. Once it becomes obvious that a market shift is happening and new market leaders may emerge, competition will become intense. You need to be able to sustain your advantage and thwart the enemy. Can you business plan stand up to attack?

Effectively leverage all available resources
Your number one resource is most likely people. We know how important it is to get the best talent, and the right people on the team. Now that they’re with you, are you maximizing their talents and networks? You are an elite squad about to become the market leader. As you recruit, consider how each member brings unique insights and capabilities. When you’re a young, small team, you’re not likely to have much redundancy so make sure you have the entire skill sets represented. Also, consider other resources that might be available to you like partners, customers, board members, distribution networks, access to proprietary data, etc.

Too often the entrepreneur laments lack of capital. I’ve done the same thing. You don’t have enough budget to hire enough developers. Your marketing spend is too low. If only you could hire more great salespeople. We all operate in a world of limited resources. Even generals and commanders in times of war have to fight and scrape for more men, more ammunition, more trucks. You would think that in the context of battle finding the support and resources would be straightforward, but it’s not. The commander needs to prioritize as well. What capability will eliminate the most risk, or assure a victory? What is the ROI to be had? These questions are no different than those that entrepreneurs face. So choose wisely and force the tough decisions to make sure you are absolutely certain you have the right resources in a world of constraints.

Make clear choices and stick to them
In the fog of battle, confusion is death. There is a time for planning and a time for execution. Know the difference. Take the best information you have available and be clear in your path. All decisions have consequences, and that’s awesome. You may make the wrong decision, and as I’ll cover below, you need to learn and adjust. However it’s very difficult to learn if you didn’t execute properly. General Douglas MacArthur called this “honest failure”. Own it and move forward. Communicate clear Commander’s Intent to your team, explaining the WHAT and WHY of the decision. Then get out of their way, and let them do what they know how to do. You will be amazed at their ingenuity. The worst thing you can do is frustrate your troops by not making a decision.

Evaluate the plan continually as you go
Plans are very important and need to be made. But keep in mind, the enemy has a vote! You can’t predict how competitors will respond. The market may shift. Your team may not execute flawlessly. Maintain self-awareness and an objective analysis of the situation. Decide how frequently you need to assess your plan. In a VUCA environment, it may be quite frequent. Think about your goals for the company and break down your timeline into manageable periods of execution and evaluation.

Anticipate mistakes will happen. Adjust.
I’m a big fan of the OKR (Objectives & Key Results) process that John Doerr took from Intel and gave to Google.  One of the guidelines is to set stretch goals such that achieving 70% would still prove to be sufficient to meet your plan. Whether your goals are aggressive, or your team simply runs into unforeseen complications, give yourself a buffer to learn and adjust. Perfect execution, even by high-performance teams, is rare. The process used to learn and adapt in the military is call the AAR (After Action Report). It’s considered the most effective tool for learning and adapting after a mission. In the corporate world we often refer to this as a post-mortem, which is ironically more morbid than the military where life and death hang in the balance. I’ll post more details on good hygiene for AARs, but suffice it to say that this is an opportunity to discuss what worked and didn’t work, and how you can do better the next time. In other words, If Then….Riff!

Thanks to James (Jimmy) A. Gagliano, (USMA, 1987) for these best practices and sharing his experience.