STRATEGIC PLANNING FOR SMALL BUSINESS
What’s the Strategic Plan? This is one of the most over-used phases in business and implications of the answer can create anxiety in CEOs, boards and investors alike. The strategic plan has taken a lot of hits in the business conversations lately, mostly questioning its overall usefulness. But the doubts directed towards the strategic plan are unfair for one simple reason: the concept is so broad that is cannot be defended. But as one would expect, the question cannot be answered without more context such as how it’s applied, managed and how often performed.
For small business strategic plans are often considered an unnecessary luxury. Too much time and money and for what? It will just end up in my drawer. This is the type of response I most often hear when the subject is broached. Let’s change the lexicon which is misleading. Copper Beech Ventures prefer to use the term strategic review. The strategic review is an internal exercise that could be completed in hours, not days. It’s more of a business planning process than the mechanism used to design strategy.
Strategic decisions should be the ultimate output of any strategic review exercise. The strategic review should be an investment of time for creative thought – hopefully resulting in innovative ideas. If the subjects discussed are not about important topics such as competitors, risks, markets, scale, customers or new growth then they are the wrong discussions. Revenue and sales volume targets come later. Strategic thinking is usually indirect and unexpected rather than head-on and predictable. It requires a mindset of curiosity because the process should help question everyone’s unquestioned assumptions. The Strategic Review is comprised of three distinct phases:
Full Potential Assessment
The full revenue potential of the business is the stretch goal that represents what’s truly achievable from a revenue perspective. Empirical research indicates that potential revenue targets that are two to three times a company’s initial estimates are achievable—not the exception. This approach means dispassionately identifying the elements that contribute to performance. This full-potential examination is similar to what an outside private equity firm would perform if considering an investment in the business.
The Critical Questions
Next step in the strategic review is identifying the right questions to ask. These questions set the stage for thoughtful debate and ensure that management does not waste time and energy on less important topics. Answering these questions is a lot easier with the massive information sifting that can be done on the internet. The list of questions will be tailored for internal exploration and debate – the answers will be the foundation of the company’s strategic decisions. CBV recommends the following questions be considered for this phase:
- Where and how does the business create value? This will provide a deeper insight into the starting position of the company and may help identify new revenue sources. Ideas could include using historical sales information in a new way, find a new use or market for an existing service/product or enhance customer service.
- Where and how can the business generate higher revenues? Output from answering this question could result in a shifting of resources towards high margin business or examination of the relative profitability of customer or product segments.
- Where are the trends? Have things changed? This should help create a point of view on how the future may unfold. Topics may cover competitive actions, pricing, digital tech advances, regulatory issues, etc.
- What risks does the business face today or in the near future? Are sales too concentrated with one customer? Threats form substitute products? Variability in cash flow? The results of this kind of discussion can contribute to the organizational structure and roles of personnel.
The Business Forecast
More granular in detail than the business forecast, it establishes the detailed financial projections for the coming twelve months. More importantly, it sets operating targets to be used to determine compensation formulas and formally links the strategic priorities of the business with management team priorities. Because sales targets are usually talked down by the sales team, CBV strongly recommends sales team participation in the forecast process. Members of the sales team would be engaged in a consultative manner but not in a decision making capacity. The transparency of this consultative process will help everyone understand the company’s decision-making around sales and revenue priorities.
No strategy, however well-conceived, can be implemented successfully unless everyone in the business knows what they need to do differently, understands how and why they should do it, and has the necessary infrastructure. Without understanding the reason and benefit of such changes, an organization can’t connect the necessary steps to the longer-term goal. Paramount to successful implementation of the business’s strategic plan is addressing any existing or foreseen issues around the performance expectations.