How to measure Strategy? (Featuring Spotify, Zynga, Starbucks)
When it comes to tracking Strategic progress it makes more sense to treat it like a product rather than treat it like a complex agenda to be discussed in United Nations.
Last week while at Product-Led Alliance event in Berlin, one of the most interesting questions coming from a round-table discussion was:
How do you measure whether you’re being successful at your strategy?
Indeed, just like creating a good strategy is not an easy task. It is also not any easier to understand if you’re going in the right direction because:
Unlike product metrics, strategic progress takes time.
During the execution of strategy (which is over a period of time), many changes can happen such as market changes, competitive landscape, regulatory aspects and even internal changes at your company.
Depending on the stage of the company, a hard-coded strategy may not even be needed. So what do you track against?
In my experience and learning from how the best in tech do it, there seems to be a clear trend of being ambitious in strategizing and then putting a number to it to stay accountable, as the first step.
During Investor Day 2022, Spotify laid down its strategy and KPIs - there were some interesting things said two years back:
User Growth:
Spotify aims to double its reach to over 1 billion users globally, with a target of having 50 million creators on the platform.
Revenue Projections:
The company projects its advertising revenue to reach $2.1 billion in 2024, marking a 13% year-over-year growth, with expectations to rise to $2.6 billion by 2026. This growth is attributed to new content formats and enhanced advertising strategies.
Profitability Goals:
Spotify is shifting its focus towards profitability, projecting an earnings per share (EPS) of $5.02 for 2024, increasing to $7.21 in 2025 and $9.58 in 2026. The company reported a net income of EUR 274 million in Q2 2024, a significant turnaround from previous losses.
Average Revenue Per User (ARPU):
Spotify aims to achieve an annual ARPU of €100 across both free and paid users, enhancing total revenue potential across its entire user base. This strategy includes leveraging its freemium model to create value propositions tailored to different user segments.
and lot more. Check the references at bottom of page to see the full list of strategic promises.
Now Spotify pretty much laid down their multi-year ambitions in a summit, and there must be both practicality and an ambition in these numbers.
For example, today Spotify has a user base of 626 million monthly active users as of Q2 2024, so quite far away from the 1 billion ambition.
But on advertising revenues, Spotify is on track to achieve approximately $2.1 billion in ad revenue for 2024.
On profitability, Spotify reported a net income of EUR 274 million in Q2 2024, marking a notable turnaround from previous losses and aligning with their profitability ambitions.
So you could say that Spotify is doing pretty well on its Strategy when it comes to profitability and ad revenues, but quite behind on user growth numbers.
Another example is of Starbucks, who came up with ‘Reinvention Plan’ in 2022 and mentions how it plans to achieve below by 2025:
Revenue Growth:
Starbucks projected 10-12% net revenue growth and 15-20% net earnings growth annually over the next three years.
Partner Experience:
The plan included initiatives to improve the retail partner experience with wage innovations, well-being benefits, and personalized career mobility to enhance retention rates.
Digital Experience Expansion:
Starbucks aimed to elevate its digital experience, making mobile orders more personalized and expanding this capability across all store locations.
Global Store Growth:
The company committed to expanding its global footprint, targeting nearly 45,000 stores by 2025 and 55,000 by 2030, equating to opening approximately eight new stores per day.
So how is Starbucks doing on its Reinvention plan in 2024?
Starbucks reported Q3 2024 net revenues of $9.1 billion, reflecting a slight decline year-over-year, indicating challenges in achieving projected growth.
Retention rates among partners have improved due to initiatives enhancing their experience, although rising operational costs persist.
Mobile orders now account for about 25% of transactions in the U.S., showing progress in digital engagement.
Starbucks opened 526 new stores, bringing its total to approximately 39,477, but still has significant expansion ahead to meet long-term targets.
When looking at Spotify’s and Starbuck’s promises made in 2022 vs. achievement levels today, you can with high confidence assess the achievement levels of not only tactical stuff but also big strategic bets.
So, what’s the takeaway here?
Treat Strategy like a Product
The more I have read about Strategy and write about it as part of Productify, the more I realize that when it comes to tracking Strategic progress it makes more sense to treat it like a product rather than treat it like a complex political agenda to be discussed in United Nations where it could go either way.
Spotify probably did some analysis and background work to come up with its growth pillars and profitability bets, and then put some numbers to it that needs to be achieved in a certain timeframe.
Starbucks came up with its Reinvention Plan and then backed it up with investments in those areas - some succeeded some not.
It is not different from how you track a Product.
First, see if your strategy makes sense for the customer and the business (financial business case, strategic market analysis, investments needed and more), and then assign some target KPIs to it to see if you can align all investments and resources to make it happen.
It is generally hard to predict KPIs that are long-term, which is needed for Strategic direction tracking.
But you can always start with growth rate assumptions.
If you’re Starbucks, you’re probably looking at global coffee house market, and if you’re Spotify you’re looking at global music and podcast streaming market. First thing to set as an ambition is whether you will grow higher or more than the market growth rate?
Or you maybe operating in a niche space or a key disruptor, so the norms of market growth don’t apply on you - in that case, you still do a market sizing to see how much of the market will probably become your customer - while you replace not only competitors but also substitutes.
Spotify wants 1 billion users listening on its platform every month.
That’s a huge bet. But the ambition level matters here and not that 1 billion is a correct figure or not.
In your strategic exercise, list down key long-term KPIs -and if possible make them ambitious and motivating enough that teams want to pursue them even if they are extremely difficult. That extra push is what makes the strategic ambitions even more exciting to chase.
In case of startups, you might not have a strong strategy in place because you’re learning and pivoting often - then having some loosely defined metrics that dictate strategy could help.
Such as you launched a SaaS product in B2B space, and may not know what year on year retention you need to aim for, then starting off with a ballpark could help. Say 60% YoY retention is what will help us know if we’re succeeding.
Maybe later you learn, you should have been more ambitious and then change it to 80% for next year.
This is what is called as strategic metric iteration. You can’t predict strategic progress, so you put a number to it that is your best guess and as time progresses refine it. Just like how you might start a product and refine it until it achieves product-market fit.
Pivoting your strategy is worth considering just like you would pivot your product
Just like you might pivot your product’s direction often based on new learnings, it is also true for Strategy. Just that the cycle differs. You might look at product metrics every day or week of month, strategic metrics maybe reviewed more at a 6 month or 1 year cycle (or maybe multi-year cycles).
One good example is that of Zynga - which is the same company that was famous for FarmVille on Facebook back in the days.
Zynga's games, once popular on platforms like Facebook, saw a decline in user engagement as social media dynamics shifted and players moved towards mobile gaming and other entertainment options.
The decline in active users led to decreased revenues, prompting concerns among investors about the company's long-term viability.
In response to these challenges, Zynga pivoted its strategy towards mobile gaming, investing heavily in developing mobile-first games that could capture the growing audience in that space.
Zynga also pursued acquisitions of successful mobile game studios to bolster its portfolio and enhance its competitive position in the market.
The company began emphasizing live services and ongoing content updates for its games, aiming to increase player retention and engagement through regular new content.
Bottom line:
Strategy seems like a complex animal because it has many moving parts, but it becomes much easier if you were to imagine it like a product but with some key differences:
Time scale to measure progress is much larger
More variables and moving parts because of timescale
KPIs need to be extrapolated based on your best knowledge
But it is very similar to a product:
You don’t know what target KPIs would be exactly like, so you put an ambition and then see how far or close you end up.
You can iterate on your strategy with new learnings. (at a larger time scale)
You can pivot your strategy when assumptions are no more true.
You need to put actions to be performed to make you product successful. Same goes for strategy - you need to say exactly what you will do and invest into to make it successful.
Thank you for this! I need it!