How to develop a strategy for your small business
One of the key components of a winning business is a winning strategy. But strategy is one of those things that evoke images of off-site retreats, consultants in three-piece suits, lots of money and time devoted to building a strategy and documents that live on shelves because real life took over. When you’re in the start-up phase of your business, a strategy is not a heck of a lot of help. You’re still trying to figure out your business model, what the market really wants, what it should cost and whether you can actually build a viable business.
But as soon as you have a half-way stable business model, a strategy can help a lot to clarify your road forward. The problem is that few people will give you the same answer to the question “what is a strategy” and fewer still will be able to help you develop one for your small business.
So here’s some help. I don’t claim that my method for developing a strategy for a small business is necessarily better than anyone else’s. But it is suitable for small a business, does not require you to spend a lot of time or money to develop it, and it is based on some of the greatest leaders’ thoughts on what a strategy should look like - even for small businesses.
So just what is a strategy - for a small business?
Michael Porter (one of the management gurus in the last few decades) defined strategy in 1980 as the "...broad formula for how a business is going to compete, what its goals should be, and what policies will be needed to carry out those goals" and the "...combination of the ends (goals) for which the firm is striving and the means (policies) by which it is seeking to get there."
So a strategy sets out:
- the goals you are aiming for; and
- the policies you will be following to achieve those goals.
We can get a lot more sophisticated just with defining strategy, but for a small business this definition is quite enough.
Why have a strategy at all?
Now that we have a basic definition of a strategy, it’s useful to understand why you should have one at all. It’s quite simple:
A strategy helps you decide what you should do - and shouldn't do.
If you’ve read any of my articles before you will know that overwhelm is one of the key themes in my writing and in my work. In a small business you can very easily get overwhelmed with all the detail you have to manage and the decisions you have to make.
A decent strategy will help you deal with overwhelm by making it easier to make decisions about what you should and shouldn't be doing.
A decent strategy will also help you understand if you’re still on the right track.
It’s easy to get lost in the day to day details of building and running your business. Sometimes you wake up in the middle of the night and wonder why the heck you decided to do one particular thing, or why you decided to pass up on an opportunity.
A strategy can help you make better decisions by providing a clear direction. Anything that doesn’t help you achieve that strategy is probably not a good idea to start with anyway.
So now that we have a definition for a strategy, and understand why it’s useful, let’s look at how we can develop a strategy.
Six questions for developing your strategy
The following six questions are not my own. I’ve adapted them from some of the leading lights on strategy (like Michael Porter), famous leaders of large companies (like P&G CEO A.G. Lafley) and my own work helping small businesses develop their own strategy.
1. What does winning look like?
The first question to answer is what winning looks like. How will you know that you’ve reached where you want to be? It’s not always about more money, more profit or growing every quarter or every year.
As a small business you may be winning when you have a steady revenue stream and time to take vacation. Or you have enough passive income that you can afford to work 20 hours per week. Or you’ve built up enough value in the business to sell it to the right buyer.
Whatever your measures are, define success so that you’re not always needing to run harder and faster and lose your life in the process of building a business.
2. Where am I going to play?
The next question to answer is where you’re going to play.
If you provide in-person consulting services it is a lot less profitable to provide those services all over the world than it is to provide them locally.
If you provide online services you can - in theory - provide them all over the world, but language will present barriers to where you can reasonably deliver those services.
And if you have to ship physical products you may not be cost-competitive if your shipping costs are prohibitive.
And whatever you do, you may want to focus on specific market verticals and avoid others.
These constraints limit where you can profitably play, but you don’t need to limit yourself if there is a good case to be made for playing wider or further. But it is useful to know how the constraints affect what you can do and how profitable you will be in different markets.
3. How am I going to win?
The next question to answer is how you are going to win. Another way to phrase this question is how do I distinguish myself in the market?
One of the worst things you can do is build your business based on what the competition is doing, or not doing. You are not in control of what they do, and they may change how they compete at any time.
But you do need to determine how you’re going to be different in the market. There’s a lot of competition out there, and to stand out in the market you have to have something unique, something that sets you apart.
So determining how you’re going to win is really about defining how you’re different. You don’t have to be radically different, you just have to pick one thing that sets you apart from the competition. That competitive advantage will allow you to compete even in a crowded marketplace.
4. What core competencies do I need?
Once you know what winning looks like, where you’re going to play and how you’re going to win, you need to figure out what core competencies you need to build and run your business.
If you’re delivering, for example, web design services, your core competencies need to include web design. If you’re a business coach you need to be able to coach, and so on.
But there are at least two core competencies that every company needs. This includes marketing and sales and money management. Without marketing and sales expertise you will struggle to generate leads for your business and generate revenue. And without decent money management you won’t be able to manage your cash flow and make informed decisions about how and where you spend your money.
5. What systems and measures will help me execute?
Now you need to determine what systems you will need to deliver your services and build your business.
Just about every business needs a system to help automate some of the tedious or repetitive marketing tasks. You will need a system to manage your finances and possibly a system to track your time. If you deliver services remotely you may need online video conferencing or screen sharing systems.
You also need key measures - or metrics - to help you keep track of how well things are going. For example, you may want to track website visitors or lead magnet downloads. You may want to track how well your marketing campaigns are converting.
You can easily overwhelm yourself with lots of different metrics. So my recommendation is to start with a small number of metrics and make sure a) that they’re meaningful and b) they’re easy to track. Then add more as it makes sense.
6. What are the short- and long-term consequences of these decisions?
Finally, you need to take stock and review how the decisions you made in the first 5 questions will affect you in the short and long term.
Each decision you make has consequences. Some decisions may require you to say no to some things. Some will require that you build new competencies or subscribe to management systems.
In the longer term, your decisions may require that you market your services more widely or enter new or different markets. Weigh each question carefully for its short- and long-term impact and revise it if necessary.
Those six questions are all you need to answer to have a decent strategy for your small business.
Documenting and reviewing your strategy
For a small business, it is quite enough to keep your strategy in a document and review it regularly. My strategy is all of one page long and I review it every quarter.
I am a solopreneur so I usually don’t have to answer to other shareholders or present the strategy to a team. But I do find it useful to present my strategy to my mastermind group. They provide me with feedback that makes sure I’m not completely off the charts - and they help me stay on track with reaching my goals.
What you can do now
If you don’t have a strategy, take these 6 questions and answer them in a text document. It does not have to look fancy or be much more than a page long.
Then take a careful look at your strategy. Will it help you make decisions in future? Will it help you say yes to things you want and no to things you don’t want?
And finally, realise that your strategy is not set in concrete. It can (and will) change over time. But when you do need to change it, do it with care and foresight - a little bit of time spent carefully considering a major change in what you do will pay back time and time again in future.