Would you ever get in your car and just start driving to an unfamiliar destination with no directions or GPS? What if you are headed in the wrong direction? What if your route could be shorter and more direct?
Ironically, this is how most entrepreneurs and investors behave today. As companies evolve in their maturity, poor planning and lack of preparation is often exposed. In fact, nearly 90% of all startups fail before ever reaching scale. In my experience, this is due in large part to startups lacking what I call a North Star.
The North Star is designed to align a company to their end goal, including their potential acquirers, and sets the stage to your strategic vision. It acts as a GPS for your company, allowing you to begin with the end in mind and ensure the decisions made today are enabling the shortest and most direct route to your profitable exit in the future.
There are 5 strategic components of the North Star:
1. What
2. Why
3. Who
4. How Much
5. When
The What:
What does your company do? What does your product do? Although they seem similar, these are not the same questions. Often, startups have a difficult time defining what it is they do for their customers and often they confuse what they do as a company vs what problem their product or solution solves.
Let’s look at the company side first. Your company is more than just a product or service, it is a culture an ideology and a feeling. It is important that you can explicitly describe exactly what value your company proved to the market. When developing your company “what” statement you will focus on three things:
1. Description
2. Features
3. Benefits
Now let’s look at the “what” statement for your product. Using the same approach as above, you want to apply your product or service to the same three steps: description, feature and benefit.
What you have now are two distinct what statements and the first element of the North Star.
The Why:
Why should the market choose to solve their problems with your solution?
The “Why” section is broken into three parts:
1. Problem
2. Solution
3. Impact
The first step in compelling your customers and prospects to purchase your product or service, is to accurately describe their problem. The problem could be rooted in the status quo or it could be a new or unforeseen problem, at any rate you must prove to your customers and prospects that you understand what pains them the most.
Once you have the problem identified you need to accurately and completely describe your solution to their problem. Make sure as you describe your solution that it is written in the voice of your customer. In many cases we try to describe our solution from an inward out perspective. It is always important to embody the voice of the customer when describing your solution to ensure to resonates with your audience.
And finally, the last step in defining your “why” statement is to describe the impact your solution has on your customers. When describing the impact, do your best to use financial metrics positively impacted by your solution.
The Who:
The “who” section of the North Star is split into two sections; the Ideal Customer Profile or ICP and the Ideal Acquirer Profile or IAP. This “who” is also the first step in developing your exit strategy. It is not by coincidence that the ICP and IAP are completed together. In fact, it is critical that your potential acquirers have the same ICP as you, this ensures target market alignment and smoother acquisition.
Ideal Customer Profile:
To start, in essence, an ideal customer profile is a description of the company, not the individual buyer or end user, that is a perfect fit for your offering. In developing your ICP, you will take a look at company revenue, company size and number of employees, industry and vertical, size of customer base, technology in use, geography, ownership, customers, products sold.
Ideal Acquirer Profile:
The development of your Ideal Acquirer Profile (IAP) will focus on creating a clear and concise profile of who your potential acquirers are. This is a critical step in developing your exit strategy and designing your Go-to-Market approach. Remember the GPS analogy I mentioned earlier. From this point forward you are plotting your destination and creating your turn-by-turn directions.
The How Much & When:
This is where the rubber meets the road. You are now in a position to have vision and strategy validate reality. Most entrepreneurs enjoy this section the most, who doesn’t want to talk about when you sell and how much you want to make, right?
Let’s look at “How Much” you can sell your startup for by answering these 5 questions:
1. Why the buyer wants to make an acquisition; either to save money or make money
2. What the buyer hopes to acquire; either Intellectual Property or an experienced team?
3. Will they buy you for top-line or bottom-line revenue?
4. What drivers are the buyer motivated by… Growth, Margin or Retention?
5. What multiples are consistent with the recent acquisition activity in the industry?
Regarding when you can sell, there are three things to look at:
1. Revenue
2. Profitability
3. Exit Metrics
Revenue encompasses a working product with paying clients and product validation. Profitability encompasses expense, income and profit, and determines your break-even point. Exit encompasses the achievement of the metrics you worked towards when determining how much you can sell for: growth, retention, margin and attachment rate. Goals are established for each of these categories. They are then plotted on a chart. When the end goals have been reached, you are ready to sell!
This is the concept behind the BOSS North Star.
By beginning with the end in mind, i.e. determining who your ideal buyers are before you build the company, you gain a strategic advantage that drastically reduces the time to exit. Not only does this ensure you have the right mission, vision, and key objectives to build the company around, it also aligns your Ideal Customer Profile (ICP) with your eventual acquirers ICP, ultimately making your company extremely attractive to potential buyers. By aligning your IBP with your business roadmap, you will burn less cash while achieving your growth milestones, resulting in less dilution for you and your team. The BOSS methodology and framework perfectly blends strategy and execution giving you specific steps from Day 1 to achieve your growth targets and key objectives.