What is business strategy – for the SME business leader at least?
It’s whatever you want it to be… or whatever your board wants it to be. Or so it seems. Strategy appears to mean different things to different people. I don’t claim my definition of strategy below is ‘correct’. It’s simply my view of the key elements of a good strategy.
I’ll start with three beliefs I have about strategy:
- a good strategy is short: One or at most less than half a dozen pages of very focused and very carefully constructed, argued about, and thoroughly understood, text and (ideally) diagrams.
- strategy is about what is to be achieved at a high level rather than the detail of how to achieve it. I would call the latter tactics.
- strategy is narrowing and limiting. It says as much, or more, about what you don’t or won’t do as it says about what you will do.
So let’s start with my definition of strategy:
Strategy is a clear and precise definition of three things:
- customers: who your customers are, and are not
- value proposition: the problem they have that you can solve for them more effectively and more efficiently than anyone else
- channel: the way you get to the point where they engage you to do so for them.
Most good strategies can be summarised in one carefully crafted and precise sentence of the following form:
We (do this) to (deliver this value) for (this sort of customer) that (has this need) and that values (how you differ from competitors).
The tightest possible definition of your target market; your customer profile. This needs to include both your target customers and the customer people and roles involved in their decision to buy and in benefitting from the solution. (And possibly those who will lose from the solution).
It is a common mistake to think a small share of a massive market is attractive. For most businesses most of the time, that is not the case. Reaching and serving a big broad market is usually more difficult and more costly than being more focused. For most, a narrower (and smaller) market is easier to reach and easier to service.
Business demographic: Facts that define the target customer, typically including size, scale, ownership, sector, funding model and their market position and ambition.
People demographic: Facts that define the people involved in your customer’s buying decision and in the use of the product or service post sale.
People psychographic: The likely personality and interests of those people.
Market size: The best estimate available of the number of businesses that match that demographic.
Logical rationale: Why logically should the customer business buy your product or service? How does buying your product or service help them to serve more customers more effectively, and/ or improve profitability and/or reduce business risk?
Alternatives: What other solutions to the problem are there? What solutions are most commonly used? What are the consequences for most potential customers of doing nothing?
Logical and emotional rationale for the person/role: Why would each individual role involved logically want your solution for their business? Why might they oppose it? And why emotionally might they want it or oppose it? What is the emotion they are feeling before procurement? And what emotion following completion?
Channel to market
What channels do you use to reach the end customer business to whom you deliver the product or service?
Awareness: How do they become aware of you?
Engagement: How do you stay engaged with them and develop their interest until they have a specific need?
Disclosure: How do you get them to disclose to you when they have that need?
Sales process: How do you take them from that initial identified need to contracting with you to service that need?
Differentiator: What is your unfair competitive advantage? What is it that you can truthfully say about your business that your competitors can’t?
Capability and capacity
Capability: What do you need to be able to do to both win and deliver business?
Capacity: How much of each capability do you currently have and how much do you need to deliver the strategy?
Development: How much can you do it now either yourself or through existing arrangements? What additional capabilities and capacity will you need to deliver the strategy?
Development: How will you develop the necessary capability and capacity and when? What are the milestones in getting the needed capability and capacity in place?
Purpose, goals, competitors, tactics and financial models
All are critical to strategy, sit alongside strategy and must also be defined. They are though not, in my view, part of strategy. For me strategy is simply the big picture. Stating clearly who you want to serve, the value you create for them and the capability and capacity you need to build to be able to do so.
Purpose: In my view fundamental and continues forever (more or less). Why, other than money, does the business need to exist? What is its place in the world? How would the world be a lesser place if it did not exist?
Goals: Business goals are a definition of where you want the business to be and roughly when. Achieving your business goals should also enable you to meet all your personal goals. Personal goals are likely to differ between individuals but the business goal should enable them all to be met. You should therefore share, debate, challenge and understand them so that all understand how the business goal meets everyone’s needs. For example, the business goal might be X by 2025. One personal goal might be to exit with £x by 2025. Another might be to float and continue earning X from 2025.
Tactics: The step by step detail of how you currently think you will progress the strategy. Consequently tactics evolve as the business and your understanding of customers and the market develops. You should only rarely change strategy.
Financial models: Clearly critical to ensuring your strategy and tactics are achievable, or at least to highlight to you where the funding gaps are so that you can address them when necessary.
There are a vast number of tools available to help business leadership teams develop strategy. I have found the following useful:
- SWOT – Strengths Weaknesses Opportunities and Threats
- Five forces
- Boston matrix
- Lean start-up
- Product adoption lifecycles and crossing the chasm
- The business model canvas
Personally I find debating and agreeing the sentence highlighted in bold near the start of the article creates plenty of ideas and debate!
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