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Benefits of Strategy

Sean Dowling
May 21, 2012

In my past life as a former strategy consultant, I liked to remind clients that strategy is often most helpful in informing what you won’t do, rather than defining what you will.  Some of the most difficult decisions an organization needs to make are those on the margins, where the allure of an attractive opportunity – into a new market, new product line, or new investment – can result in stretching the boundaries of the strategic sandbox an organization has declared as its focus.

Recently at Osage Ventures Partners we had to pass on just one of those attractive opportunities that sat on the margin of our strategy.  As readers of our website are hopefully aware, the OVP strategy rests on three pillars: early stage (which we define as first institutional round and significant market traction, typically seen through visibility into $1 million of revenue), enterprise software, and the Mid-Atlantic region.  We spent significant time on diligence with an exciting new company, growing very comfortable with the team and excited about their potential given a set of attractive market dynamics and the value they purported to deliver to customers.  As we dug deeper in diligence, however, we recognized that the company had not achieved sufficient market traction to meet the OVP definition of early stage, and we made the difficult decision to walk away – and, we hope for the sake of the entrepreneurs, possibly miss out on the potential to invest in a wildly successful business.

Dedication to a clearly defined strategy may mean we miss out on the occasional home run, but that is a risk far outweighed by the benefits derived from a strategy we believe in – and that we convinced our limited partners to invest behind.  The rationale for the OVP strategy is best saved for another post, but our experience suggests that we are executing against a unique strategy that has proven successful.  Regardless of whether or not we have the right strategy, having one that guides all of our actions and decisions helps to:

  • Build a portfolio of companies with similar characteristics facing similar challenges that can learn from each other to create a whole greater than the sum of its parts
  • Guide entrepreneurs in knowing how – or even whether – to pitch us
  • Establish a clear brand in the market that guides our relationships with potential partners and other stakeholders in the early stage ecosystem
  • Ensure efficiency and focus throughout the deal process, allowing us to maintain a small and nimble team
  • Provide confidence to our investors that we will act as responsible stewards of their money

For entrepreneurs seeking institutional funding, my advice would be to dig carefully into the strategies of your potential investors, as doing so will help you execute a more focused and efficient fundraising process.  A fund without a clear strategy should raise a red flag.  An investor with the ability to carefully define and then execute against a clear strategy for her own fund will hopefully bring similar discipline as a board member, while a focused strategy leads to a focused portfolio that you should be able to leverage to help drive your business.    And if you ever find yourself on those tricky strategy margins, proactively address the grey area right from the start to prevent a lengthy diligence process with a fund for which your company may not be a good fit.