Unfortunately, startups exist in tumultuous environments filled with uncertainty and risk. An intransigent strategy often fuels failure in a world that ultimately requires resilience over rigidity.

To emulate the good practices of mature organisations, most startups perform a SWOT analysis that explores their strengths, weaknesses, opportunities, and threats. SWOT reinforces many existing perceptions because it is locked in time – its signals truncated by the latest industry report or newsfeed. It is hard to imagine the future and understand its challenges if organisational strategy remains fixed on the present. Scenario planning offers startups a framework not for analysing the present but for envisioning the future.

At its core, scenario planning spawns several alternative futures to the essential strategic story that an organisation tells itself. It need not be an arduous, multi-month task. Startups can leverage existing scenarios to test their assumptions despite admonitions from practitioners that all scenarios need a specific contextual fit. In practice, a set of scenarios that focus on a broad, shared context, such as the future of the work, can be applied effectively to numerous organisations.

The following ten points make the case for why startups should not just consider scenario planning but make it a core part of their strategic dialogue.

1. Navigating Uncertainty

All startups operate in an environment of uncertainty. Scenarios put a name on the social, technological, environmental, economic and political (STEEP) factors that might otherwise be overlooked or, worse, assigned a value that the organisation “believes” will persist into the future. It is critical that startups grapple with the identified uncertainties, or they risk being surprised by the vehicle of their demise.

Scenario planning helps founders explore how different future states – such as changes in regulation, technology shifts, or competitor actions – could impact their business. This allows them to develop plans for contingent success pathways. Monitoring the uncertainties as they evolve will help them decide which pathway to take for the future that is actually developing rather than the one their original vision assumed would emerge. Scenario planning allows organisations to practice various futures and, therefore, be more prepared for them should they arise.

2. Resource Allocation and Prioritisation

With limited capital and human resources, startups should strategically choose where to invest their time and money. Scenario planning can help prioritise these investments by identifying which initiatives will be valuable across multiple potential futures and which might only pay off in a narrow set of circumstances. This helps avoid overcommitting to paths that may not align with future market conditions.

3. Attracting Investors

Investors are acutely aware of the risks associated with startups. A company that can demonstrate a sophisticated understanding of potential future risks and opportunities can make a stronger case for funding. Scenario planning makes a startup's strategic thinking more transparent, allowing investors to see that the founders are not only aware of risks but have thought through how they would navigate them. Scenarios can also act as the basis for market-differentiated thought leadership content.

4. Creating Resilient Policies, Processes and Practices

Scenario planning involves engaging team members in a collaborative exploration of possible futures. I have an aversion to amorphous definitions of company culture, preferring to advocate for policies, processes and practices that embed an organisation’s beliefs. Rather than talking about resilience and adaptability, create mechanisms that encourage, expect and require them, along with performance measures that recognise their results. When employees have a better understanding of the broader uncertainties and prepare for different outcomes, they become more comfortable with change. A shared framework for evaluating challenges is crucial for startups, where teams must rally around decisions and adapt to evolving priorities.

5. Identifying and Testing Assumptions

Startups often have a lot of untested assumptions about their market, customers, and technology. Scenario planning helps them identify these assumptions and test their validity against different future scenarios. For example, virtual reality (VR) startups assumed that rapid growth fuelled by industry research was real; A 2016 Goldman Sachs forecasted VR to hit around $70 billion in 2024. The reality appears to be about half of that. Scenario planning would have allowed VR startups to consider what to do if growth was slower or non-existent. Even the most successful VR firms, like Meta, who renamed itself for its belief in VR, are struggling to make that vision a meaningful reality. Most VR startups no longer exist. Sceptical scenarios about the VR market existed. Scenarios must be actively applied to be effective, not just a tick mark on a to-do list.

6. Exploring Market Entry Strategies

Emerging market startups can leverage scenarios to explore entry strategies. For instance, if a startup is considering expansion into international markets, scenario planning can help assess how different regulatory environments, economic conditions, or cultural trends could affect its success. This helps in designing flexible entry strategies that can anticipate potential local contexts and provide an off-ramp to other entry points should the “reality” not align with the forecast.

7. Preparing for Competitive Threats 

Startups often find themselves facing competition from both incumbents and other new entrants. Scenario planning allows startups to consider how competitors might react to their products, services and positioning. While scenarios do not model the near-term environment, the longer-term context can help them extrapolate the impact of potential counter-strategies and prepare strategic adjustments designed to play out over longer horizons than their more “in-the-moment” competitors.

9. Aligning Long-Term Vision with Short-Term Goals 

Scenario planning can help startups reconcile the tension between short-term survival and long-term aspirations. It allows founders to think about where they want the company to be in several years and work backward to understand what decisions they need to make to bring about an envisioned future. Scenario planning helps ensure that short-term actions align with long-term goals, even as uncertainty prevails.

10. Enhancing Strategic Partnerships 

Startups often partner with larger firms, other startups, or organisations like incubators and accelerators. Scenario planning helps them understand how those partnerships evolve under different conditions, such as partner priority shifts or market demand changes. It enables them to build more robust relationships by planning for the sustainability of these partnerships across a range of future scenarios.

Final thoughts

Startups will also benefit from a better platform for understanding the environmental or social impacts of their products or services and to explore a range of exit strategies.

Several VCs have told me they want their portfolio companies to stay focused, even as they admit to the high percentage of failures. Arrogance can throttle innovation. Scenarios introduce humbleness as teams confront what they can’t possibly know but will need to deal with anyway.

Scenario planning provides tools to help founders become more strategic. They not only help them avoid surprises, navigate uncertainty and better manage risk and resources – they also permit stakeholders to imagine alternative paths to success or failure by unleashing creative responses to obstacles and the early identification of reinforcing options.

Strategy involves crafting a story that avoids failure and defines paths to success, even in the face of uncertainty. Scenario planning should be a primary tool for helping startups tell the best story possible about their future.

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