Twelve years of coaching EU-funded companies, and the five questions I still ask first. In 2014 I learned that the European Union was recruiting business coaches for its new Horizon 2020 program. Small companies that had won grants would be coached by people who had built and run businesses themselves.
By then I had mentored a few companies and served on a few boards. I applied and was approved. The commitment was a few hours a month, and it became one of the most interesting things I have done, mostly because it kept bringing me into rooms with new people and new companies.
Then the first clients arrived, and with them a practical problem. I had to help a company I had met an hour earlier. Every founder wanted to start somewhere different. One wanted to talk about investors, another about a sales plan. A third kept coming back to the product.
So I made a rule. Every engagement starts with the strategy. To examine it, I used a model I came across years earlier, though I no longer remember where. It is called the strategy diamond.
Donald Hambrick and James Fredrickson developed the model. In 2001, they published an article in the Academy of Management Executive titled “Are You Sure You Have a Strategy?” They argued that most companies have only fragments of a strategy. A slogan, a growth target, one large initiative. Each gets called strategy, and each answers only one question.
A complete strategy, they wrote, answers five questions together. Arenas are where the company will be active. Vehicles are how it will get there, alone, with partners, or through acquisitions.
Differentiators are how it will win. Staging is the order and speed of the moves. Economic logic is how the company will earn more than its cost of capital. The whole model fits on one page. In the grant-funded companies I coached, the differentiators were usually strong. They had won the grant because of them. The technology was excellent, the patents were real, and the team could explain in detail why their solution was better.
The other four corners were often thin. The arena was “Europe, and later the US.” Nobody had chosen a vehicle. The staging followed the project timeline and ended where the project ended.
The economic logic was a revenue line growing every year, with no explanation of why a customer would pay that price. A company in that position has a budgeted research project.
Drawing the five corners on a whiteboard helps. The empty ones become visible to everyone in the room, and nobody has to be told the plan is unbalanced. From those sessions, I learned that a strategy works only when its initiatives span all five corners. Every company runs initiatives. A new product version, a trade fair, a key hire, a funding round. Each makes sense on its own.
When I place each initiative under the corner it actually moves, most of them often end up in the same place. The company keeps investing in what it already does well and starves what it hasn't figured out yet.
Hambrick and Fredrickson described strategy as “an integrated set of choices.” A diamond with one sharp corner and four blunt ones will not cut much. Balance still leaves room for priorities. A young company should spend more energy deciding where to play and how to get there than on fine-tuning its margins. Staging decides which corner gets attention now and which can wait.
Still, every corner needs an owner and at least one initiative moving it forward.
I use the model with the companies I coach today, and in my own work. It has aged well because the question behind it has stayed the same. You can run the test this week. Draw the diamond on one page and write each corner as a single sentence. Then list every initiative your company is running, place each one under the corner it moves, and count them.
The corner with nothing under it is where your strategy will fail first. What began in 2014 as a few hours a month became a habit. I ask the same five questions of every company I meet.
Kauko Väinämö, CEO, Ginolis.