Rethinking Best Practices
“Best practices … means do what everyone else is saying you should be doing. Best practices are not that good.”
- Tobi Lütke, CEO, Shopify*
Startup founders are offered countless articles, books, and presentations about running a startup. Many incubators, accelerators and investors will provide a variety of resources to their companies. These frameworks and “best practice” guides cover topics like customer discovery, revenue metrics, pricing, sales process, marketing techniques, product management, and more.
These are useful—to a point. First-time founders may have never run a business before. These guides and frameworks can be eye-opening and valuable context for building a company.
However, as a company starts to get traction, too much adherence to these well-intentioned guidelines can be increasingly dangerous. They can be abused and mis-applied, for one simple reason: these “best practices” are, by definition, just average practices. They are just what worked, on average, for everyone else.
To truly succeed, a company needs to beat your competition in your space. To win inherently means doing at least some things differently and better.
The Dangers of Averageness
In creative fields, it is axiomatic that it takes grounding in the past to build something new for the future. Great writers, artists and inventors typically are steeped in the history of (and often very skilled in the traditional tools of) their craft. So much invention is imitation, after all. But great creators then go a step further. This extra step is essential. Otherwise you’re just making copies, which is typically uninteresting and not that valuable.
The same is true of creating great businesses. They aren’t carbon copies. Moreover, they are complex systems of interconnected activities. If product, marketing and sales activities are not aligned, the company literally cannot excel. You cannot take a sales “best practice,” a marketing “best practice” and a product “best practice” and just plug them together and create the bestest company ever. That company will by definition be average. Actually, that company will be worse than average because the interconnectedness of those systems was not considered in its design. Internal misalignments will eventually cause chaos and hinder growth.
Example: Agile is a means, not an end
As “best practices” go, agile software development is probably one of the worst offenders. Now, let me be clear: iterative, agile, user-in-the-loop software development lifecycles are virtually always better than the historical alternative: old-school “waterfall” development with long product requirements documents often resulted in slow releases of kludgy products. Waterfall was also a wasteful use of capital because you’d likely spent millions before your product even sees the light of day, and only then do you find out if you succeed or fail with customers.
The problem wasn’t with the concept of agile. The problem is that people started to make all kinds of silly rules about exactly how agile should be done. Some people gave agile a capital A, and starting saying there had a be scrummaster who did certain things and a product owner who did other things. Over time, various coaches and consultants had turned Agile into something resembling a religion. If you varied from the teachings, you were no longer a disciple. Luckily the vast majority of startups have now veered away from strict captial A Agile practices, but it is still quite common in large companies.
When I was at Kira Systems we had a line in our job descriptions - “To you, agile is a means, not an end.” (I believe our co-founder Dr. Alexander Hudek deserves credit for that phrase.) The meaning was simple: don’t be dogmatic about frameworks. Take from them what works for you, and if it doesn’t work for you, by all means means, modify them until they do!
Perhaps it seems obvious that you need to modify best practices for your own company. And yet it’s surprisingly easy for a startup to fall into the trap. When you’re running hard at growing a company, you’re hiring new people all the time, and they bring all kinds of appealing outside ideas that worked for them in the past. It’s important that these new ideas don’t rob the company of what made it special in the early days. And if the company is special it’s probably because it’s different in some ways that really matter.
Why integrated strategies beat best practices
Consider Tesla, which not only popularized electric cars but changed the way its cars are sold. Traditional automakers in the US used a network of dealers to distribute their cars; this model had been “best practice” in the industry for decades. Tesla not only overcame an apparent disadvantage but figured out how to improve consumer experience by going direct. This worked because their strategy was a system that was internally cohesive: they started with building high-end luxury vehicles to wealthy consumers in tech-savvy San Francisco, who would be receptive to buying a car online.
Now, imagine an alternate history in which Tesla copied best practices from the industry and created a dealer network. It wouldn’t have been totally coherent with the rest of the company’s strategy. The dealers would have to be trained on electric vehicles. These wealthy tech-savvy customers might have been annoyed at a paperwork-heavy buying process or hard sales pitch etc. Had they gone that direction, they might have been just fine… but I doubt they would have been great. They instead did what worked best for them, informed by what others had done.
Tesla is a uniquely visible example. More commonly, activities that differentiate a company are only really visible internally (at least until someone decides to reveal them). E.g., choosing a specific approach metric to track company wide and use for measuring success. It is reported that Netflix focuses on hours streamed per customer, and not a more traditional average revenue per user (arpu) metric. Ever think through why?
(I don’t know the exact answer, but it’s useful to take a pause and think through all the different teams within a company. How are their incentives — and therefore their activities — different as a result of simply by being asked to focus one metric rather than another?)
The point is to think of a company as a system. To function, it needs all the parts to work together. Through this kind of systems thinking, great companies can create a sustainable competitive advantage, i.e. to carve out a space for your company that is uniquely valuable to your target customers such that they choose you over the competition. Most of the time, that doesn’t mean doing the exact same things as your competitors only better. This is hard. But the extra thought and effort will be hard to replicate.
Errors in strategy often flow from not thinking through the startup company as an interconnected system of parts. An error might be adopting a core metric from the competition rather than figuring out which metric best measures your unique approach to value creation. An error could also be adopting generic sales pipeline stages without customizing them enough for your product and customer and how they actually want to buy. Or it could be adopting a marketing strategy that worked in a slightly different industry… but is misaligned with how customers want to learn about your product. And these errors almost always begin with a well-meaning idea from an advisor or new hire who had a framework that worked for them in the past. Be wary.
How to Use Frameworks
Founders are under pressure to be responsive to well-intentioned advisors (especially those who invested tons of money). And also when hiring an executive with lots of experience, a founder might think they should not question too much. It can be a challenge to take a pause and think critically about any such advice. Yet it is crucial. Otherwise, there is a risk of unwittingly destroying some things that made the company special up until now. Some of the things your company does differently are actually serving you well. Very well.
To be clear, frameworks are extremely useful. I use and recommend frameworks all the time. I try to maintain this mega-post of my favorite resources. The issue is simply that many startup leaders haven’t necessarily developed the skills yet to bend these so-called “best practices” to their own ends.
Above all, everyone in the company should know your unique value proposition: Identify the key differentiators that set your startup apart from the competition. Focus on building and refining these aspects of your business. Never waver from activities tied to the value creation you are providing to your customers.
Understand how your business uniquely operates. At a certain size (usually by 20 but always by 40 employees) the founder CEO can no longer monitor what everyone is doing. You literally can’t (and shouldn’t) make a decision without involving your team who are experts on that area.
When looking at a framework for a functional area, think about if it needs modification to match your company’s unique skills. Be especially wary of frameworks brought in by new leaders you have recently hired. Insist that they first analyze your startup's unique context and develop strategies that cater to your specific strengths, weaknesses, and market conditions. Their experience is a huge strength — this is of course why you hired them — but don’t let them start changing things without first doing a deep dive to learn about your company and its competitive advantages.
For example, consider a new marketing leader who wants to implement an account-based marketing (ABM) strategy. Ask yourself, how are we doing this today? What has made us successful in the past? Is now the time to make a change? Why an ABM strategy? Assuming this is the right general framework, does it need modification for our industry and our position in the market?
The answer to that last question is basically always yes, and it is self-evident: Your position in the market is always different from whatever company your new hire came from, no matter how close or identical the industry. Therefore your strategy needs to be customized. Let’s say you’re in financial services selling to investment banks. Your marketing strategy as a growing startup will be dramatically different from an incumbent provider simply because less of your target customers will have heard about you (and probably for a ton of other reasons relating to your unique and different way of value creation).
Different — but Aligned
Importantly, I am not advocating that companies adopt a free-wheeling approach, just going against the grain of the conventional wisdom. Quite the contrary. Great company leaders are aware of what others have done, but they find a way to focus on making the most of their unique capabilities — in a way that sets them apart from the competition.
When a company is small, doing things differently than others is actually pretty easy. A scrappy startup of 2-5 team members is always inventing a few new ways of doing things … just to get by.
The challenge really arises with growth. Some of your new advisors and new hires will come with so much experience that it can be tempting to just plug in those best practices they already know and expect great things.
Resist this.
With growth, the CEO’s job becomes to communicate — not just externally but internally. It’s not enough for only you and your cofounders to know what makes you special. Every team member needs an understanding of this as well. What did you do in the early days? What was great about it? What activities did you do that enabled that greatness? Certainly there are a million areas that need improvement; the growth stage is often chaos. But there’s a simple tool to managing it: Communicate to your team members your values, vision, mission — and strategy. Grounded in the knowledge of what makes you special, your team can then contribute to deepening your competitive advantage by taking what they have seen elsewhere and only borrowing the things that are compatible with where you want to go..
Advisors can do better too, simply by being aware of the pressures we may impose. A “one size fits all” approach to startup growth serves none of us.
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Gratitude to Rob Lynch, Andrew Kanapatski, and Anne McNulty for feedback on this post.
*Lütke quote source: The Knowledge Project Ep. #152: Tobi Lütke: Calm Progress (Transcript)