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Resource Allocation for Business Strategy

by | Feb 20, 2020 | Uncategorized

Resources come in several categories: human capital, financial capital, time, and asset capacity/availablity.  Optimzing the mix, much like one optimizes an investment portfolio is critical for success particularly in the lean times of starting and incubating a new business.  Taking the time to stop, slow down, and make an honest, data-driven, and objective assessment of resource allocation is surprisingly not always prioritized as it should be.  I once had a sage leader share a simple concept with me that has stuck and yielded measurable results for my clients and for me over the years. He stated that “Strategy is nothing more than the allocation of scarce resources to achieve a clear and prioritized objective.” It seems evident on so many levels, but so often, it is overlooked or under-applied by founders.

“Strategy is nothing more than the allocation of scarce resources to achieve a clear and prioritized objective.” It seems evident on so many levels, but so often, it is overlooked or under-applied by founders.”  Former Strategy Professor

For startups and their founders, there is usually great pride as they talk the talk and espouse how they integrate agility and speed into the DNA of the company they are building. Speed and agility are, no doubt, significant contributors to building successful startups. There is a plethora of articles, opinions, and how-to guides to apply them in your startup. On the other hand, a concept like “resource allocation” is often either ignored entirely or trivialized in startup culture dialogue. However, if you break down the core idea of “agile,” it rests upon the notion of engaging the right quantity of the right talent for a specific well-defined mission. Essentially, strategically allocating resources to achieve the mission.

How does such a fundamentally obvious thing as smart resource allocation go awry?

Possible root causes for misallocation of resources:

Emotionally avoid resource allocation discipline as a rejection of their past.

Leaders and founders often have deeply seeded emotional aversion to the very concept of strategy as the result of prior experience. The entrepreneur’s passion for creating something new and quite the opposite of what was experienced in “pre-startup” life biases perspective about strategic planning to the extreme.

Unconscious bias creeps into decision making around talent.

Startup teams, or any team pushing to be innovative and successful, often go through a lot together. Company building is hard. The best leaders build strong and positive relationships with their team members as they should. However, because of the fast pace and wicked competition of today’s business environment, it is essential that they step back on occasion to honestly and objectively (without emotion) assess talent and skills mix as the company grows and evolves. Different times in the evolution of a business or idea demand different talents to bring them to life. There are people who are good at incubating a project or solution, others who are good at refining a process for efficiency, others at sustaining and scaling a capability, and even others who shine when market forces demand innovation. Rarely are the same people good at all stages. Has an excellent incubator been allocated to solve an innovation problem? Are they struggling or moving slowly as a result of the mismatch? Biases could not only be hurting the business but are likely not doing that employee or contractor much good in the long run.

You are not thinking enough about opportunity costs and tradeoffs.

Applying a successful strategy for resource allocation always takes the concept of opportunity costs into play. In a world of resource scarcity, any resource unit, whether that is time or budget dollars or human capital is applied at the expense of something else. This can take on many forms. Sometimes founders have overly invested in every new shiny productivity tool, racking up mountains of annuity costs that are not being used or applied effectively and as such, sucking resources from the ad budget or something else. Sometimes, founders are so determined to do anything themselves that they can – not recognizing the huge opportunity costs of them taking precious hours working on contextual tasks that are not the most strategic use of their valuable time. A wise mantra to remind yourself of always is, “just because you can does not always mean you should.” As an example, you can do your own website, but is that really the best use of your time as a founder?

Foundational steps to check your resource strategies.

Turning an idea into a successful business is exhilarating, challenging, and rewarding on the one hand. However, on the other hand, there are countless stories of the sacrifices and daunting statistics of failure for startups. It is invaluable to consider the strategic nature of resource allocation and evaluate it at an interval that works best for each business – maybe that is monthly, quarterly, or annually for your business. Schedule it. Whatever the interval, put it on the calendar. Carve out a time to conduct an honest and unbiased resource allocation assessment. It can make a world of difference in your success to achieve your goals and the process is straightforward.

  1. Revisit the basic foundation of good strategy.  Start by considering this simple concept again, “Strategy is nothing more than the allocation of scarce resources to achieve a clear and prioritized objective.”
  2. Get clarity around the most important three things.  Being very specific about what you believe are the most important things for you to achieve in the upcoming month or quarter or year is important. I call it your “three things.” It can be four or three or five things. The key is that it is a small number of things that can be measured which are essential to your success in a specific timeframe.
  3. Evaluate your current state. Do this with objectivity and without emotional bias.  Step back, be honest and objective as you evaluate the current state of how you are applying your resources. Sometimes I recommend folks keep a super detailed journal of their own time or challenge their teams to do so as part of this evaluation.
  4. Consider your current trajectory.  Ask yourself, does the current and run rate “mix” of core and context feel right with respect to achieving your “three things”? Do you have the right resources (time, money, talent) applied in the right mix to accelerate your chances of success?
  5. Muster up courage to make hard choices.  Be courageous. Adjust, tweak, and enhance the mix.
  6. Measure, learn, and repeat.

While it sounds relatively simple, be cognizant of overcoming the emotions and biases which could cloud the work. I have a framework explicitly developed to assist and support owners and founders in this process. If you are stuck or having a hard time removing your own biases from the evaluation, I’d love to engage with you to bring this concept to life for your business success. Let’s connect and speak further about how I might be able to help you through this process.

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