Strategic decisions are hard. I always have a small sense of regret and anxiety about what I just decided NOT to do. I mentioned this to my friend Molly, and her advice was to focus on the goal and create clarity around what you’re optimizing for rather than worrying about what you’re giving up in the moment.
Sounds good – but how do you do this, exactly?
Then she shared a single, strategic framework to rule them all: The RoShamBo of startup strategy — the rock, paper, scissors principle for making any decision at your company. It works like this:
You can evaluate any outcome along the vectors of cost, time and quality. You can optimize for any two but not all three. All three matter, but your job as a manager is to know which one you are willing to compromise and optimize your decision making according to the way you stack rank cost, time and quality.
For product leaders cost is the project budget, quality is the product quality at release and time is measured against the planned release date.
a) Use a defined resource to ship whatever product is possible on a set date. Quality of the release suffers.
b) Use whatever resources are required to ship a specific product spec on a set date. You may be way over budget.
c) Use a defined resource to ship the best product when it is ready. Timing is variable.
For sales managers cost is the cost of sales, quality is the revenue quality and time is a measure of deal velocity.
a) Set a quarterly quota for new MRR regardless of revenue scale, potential growth or contract length.
b) Set a quarterly quota for new MRR regardless of the initial discount or the cost of implementation, customization and service.
c) Set bonuses for closing new, highly valuable accounts at any time during the year.
For hiring managers cost is total compensation, quality refers to quality of the successful candidate and time is a measure of hiring velocity.
a) Optimize for time to hire and budget by lowering your expectations on candidate quality.
b) Optimize for candidate quality and time to hire by offering a huge salary.
c) Optimize for candidate quality and budget by running an open-ended search.
This framework is simple. Next time you set a strategy at your startup, define the measures of cost, time and quality and then be explicit about the one you are willing to compromise. Rock, paper or scissors in 3-2-1 – Go.
Like any framework, there are pitfalls to the startup Ro-Sham-Bo. I will highlight two that I see leaders fall into:
First, it’s often easier to define and measure one or two of these things than it is to measure the third. As a result, leaders make decisions with a bias towards what is easily measurable rather than what is right for the company.
In recruiting, candidate quality is the hardest thing to measure. Instead of doing the hard work to best measure quality, it’s the first thing that slips. It’s easier to focus on candidate cost and time to hire. Managers often give recruiters goals based on number of hires per month or per quarter and — because the process is optimized for cost and time — quality declines and company culture suffers.
In sales, quality of revenue can get lost in deal counts, velocity and fully loaded MRR potential. You can have a lower cost of sale (less marketing spend, higher ratio of deals to sales reps), and rapid deal closure, but at the expense of short contract lengths, less desirable terms (discounts and monthly payments), and potentially high support costs (because of poor lead qualification). The consequence of letting revenue quality suffer is the high number of deals and the good unit cost of sales obscure the cost of churn.
Second, the area you are willing to compromise will change as the company evolves. If you make the same compromise for too long, your decision quality will decline. In sales, if you’re willing to let deal velocity suffer, you can have lower cost of sales with fewer reps and less marketing spend and higher quality of revenue by having those reps focus on really highly qualified accounts. This compromise on time in exchange for quality is probably the right approach for a new SaaS company. With initial go to market, a focus on deal quality, high usage, deep engagement and customer satisfaction makes sense.
Once the product is nailed, priorities shift and you go for scale. At this inflection point, the company is in a different financial position. You may be willing to compromise on cost of sales. You can require customers to have long contract lengths, with upfront payments, and throw tons of marketing and sales people at the goal. Cost suffers, but you have high quality deals coming in rapidly.