Why have a Strategy for Your Business?
Why have a strategy for your business? The answer is straightforward: 30% higher annual growth, less risk, and reduced stress for the business owner. But, recommendations and literature on strategy and business plans are anything but straightforward. Small business owners need a streamlined solution that doesn’t require significant expense, incur high opportunity cost, and is practical.
I’ve built a couple of eight-figure revenue businesses and successfully took a company through a sale. I’ve also started companies that could only claim to have broken even when I finally shuttered them. I’ll share my thoughts on why you should have a strategy, what should go into your strategy, and how to use your planning after you create it.
First, let’s get on the same page. Strategy is one of those terms that benefits from a simple definition. The one I find most useful defines strategy as the balance of potentially unlimited aspirations with limited resources. There is necessarily a balance between what is real and what is imagined: between your current location and your intended destination. You don’t have a strategy until you connect those dots across time, space, and scale. (1)
For a small business owner, your strategy should cover several vital elements captured in a few documents. Your strategy or strategy framework should have a business plan, organizational blueprint, and a business development plan at a minimum. I’ll cover the elements more thoroughly below.
As a small business owner, you have multiple pulls on your time and attention. Why bother with strategy when you could spend more time marketing or selling? I suggest that building a business without crafting your strategy is like getting in your car and driving on a trip without having a destination, budget, or timeframe. You’ll get somewhere, but will it be where you want to be in the circumstances you desire?
So, to begin, let’s look at three benefits you’ll realize from creating a strategy for your business.
Growth. Small businesses with a business plan as part of their strategy grow 30% faster year-over-year (2). The study by Burke, Fraser, and Greene showed that businesses with a business plan increased their growth by 30% annually. Not that their growth was 30% a year, but that it increased by 30% a year above what it was previously. So, if you typically grow 10% a year, you could expect to see that growth rise to 40%. Every year. Einstein famously said, “compound interest is the 8th wonder of the world.” This growth increase is effectively compound interest for your small business growth.
Furthermore, a study in the Journal of Small Business Management (3) found that 71% of the fastest-growing companies have business plans as part of their strategy. The companies in the study created budgets, set sales goals, and clearly documented their marketing and sales strategies. Interestingly, they found that the companies they studied didn’t all call their plans “business plans.” They used various names such as strategy, strategic plans, frameworks, growth plans, operational plans, etc. The key wasn’t the name but the contents, effort, and alignment of their strategy as expressed in plans and documents.
Reduced Risk. Owning a business is a risky endeavor at its core. There is no safety net. Therefore, eliminating as much risk and uncertainty as possible is critical for small business owners. Your strategy will help you manage your cash flow (too many profitable businesses fail due to cash flow timing), create predictable and reliable growth through your marketing and sales efforts, and ensure you build your organization with the right people who are hired into the right roles at the right time.
Cash flow is a typical challenge for small business owners, and establishing cash reserves and operating capital means reduced risk. Frequently, the cash reserves come through lines of credit, investment, or venture capital. Businesses with a well-designed strategy establish legitimacy more quickly and are more likely to acquire the funding they need to reduce their cash flow risk. (4)
Improved Quality of Life. Business owners can often be “owned” by their businesses. Typically, this happens when hope and luck are the primary elements of their strategy, and heroic effort is poured into the company to make it successful. The more successful we are, the harder we must work in this model. When 5, 10, 50, or 100 employees depend upon the company for their jobs, we as business owners feel the pressure and stress of keeping the business running and growing more acutely.
The first victims of the “work harder, not smarter” philosophy are standard working hours, vacations, and weekends. According to a Kabbage survey (5), just 57% of business owners take a vacation, and 75% work while on vacation. Respondents said they didn’t take vacations because they felt that there are tasks that only they can do, many that work on vacations cited the same reason.
Owners are feeling the time crunch at work as well. 62% of small business owners relate that they would work on growing the business if they had more time at work. (6) As the business owner, growth is likely your leading priority. Yet, most owners surveyed find their time available to focus on growth is limited by the perceived need to do many other roles in the company. Typical owners say they spend more than 20% of their time working on “low-value work.”
The New York Enterprise Report found that business owners work twice as many hours as their employees, and 85% of them see themselves working more in the upcoming year.
So, the effort isn’t lacking. But, as business owners, we often get caught up in the details of doing jobs in the company and lose track of the big picture of what we are trying to build. We can even waste time micromanaging our teams and lose more time while reducing the initiative, output, and job satisfaction of those employees.
If your strategy includes an organizational blueprint that projects how your organization will grow as your revenue grows, you can begin to reduce the time you focus on low-value activities and focus on actions that move your business towards your goals.
While there are many more reasons to develop a strategy for your small business, typically, faster growth, reduced risk, and increased quality of life are incentive enough to take action.
What elements should you include in your strategy?
While different companies call their strategy by various names, the contents are similar across the board. I’ll list the various standard elements along with the role they play. The quality of the plan and the effort put into crafting it are far more important than the format.
Business Plan. It doesn’t matter if you use an extensive business plan template, a business model canvas, a Right-Brain Business Model, a lean business canvas, or an SBA template. The size should match your company size. A shorter version will suit you better if you are just starting, as you will likely “pivot” more often as you gain traction. If you are more established, a slightly more robust plan is appropriate as you are already underway and have more elements to work with.
At a minimum, your business plan should contain:
- your company definitions such as value proposition, founder values, organizational values, company description, etc.
- your vision for the company
- your “elevator pitch” that everybody in the company should know
- definition of the services and/or products offered
- your growth targets and cash flow projections for revenue and expenses
- a rough overview of your organization (more robustly defined in your organizational blueprint)
- market definition and analysis
- competitor analysis
- how you plan to market and sell (or build your pipeline and manage business development)
Organizational Blueprint. While some place these elements within a business plan, I find they deliver much more value when captured in a separate document. The organizational blueprint will include:
- your organizational chart showing titles and hierarchy
- a role map showing what roles are accomplished within the company and by whom
- defined roles and responsibilities, so people understand their jobs, and you can recruit accurately
- IT that will support different roles identified (financial, operational, email, etc.)
- growth plan based upon revenue projections from the business plan and updated as the pipeline develops and the business growth - this lets you hire people into roles as the company grows and ensure you do so at the right time and hire the right person for the position
Pipeline Plan. How you market and sell. This plan defines how you identify opportunities, vet which ones you will pursue, find partners when needed, write proposals, etc. Components of the pipeline plan include:
- you should have a pipeline process and procedures spelled out that let your team work together seamlessly as marketing and sales can often touch almost everybody in the company
- simple pipeline chart to show sales projections, hiring needs based upon future sales, the profit margin on each opportunity, etc. If you blend the pipeline chart (future revenue) with your cash flow chart (existing revenue), you have a cohesive view of your company’s growth
Policies, Processes, Procedures, and Templates. These don’t typically find their way into strategy, but I find them critical and emphasize their status by including them as part of your strategy. At a minimum, in the policies, processes, procedures, and templates you’ll have:
- your processes define how you handle various situations such as leave, discrimination complaints, dress code, etc. It gives everybody in the company a clear understanding of the workplace.
- processes are the high-level pictorial flow of how you accomplish jobs within the company, such as a marketing process, sales process, hiring process, onboarding process, project management process, etc.
- procedures are the steps to accomplish each element of a process. You will have procedures on placing job ads, beginning a project, writing proposals, manage contracts, and anything else in the company where jobs must be accomplished similarly.
- templates support your procedures; you don’t want to have everybody creating their own leave request forms. Instead, you create a leave request template which can be paper or digital.
Another advantage of defining your policies, processes, procedures, and templates is that if you opt to apply for an ISO or CMMI certification, your work is already 90% complete. You’ll save thousands and won’t have to pull people from their jobs to go through these certification processes as most companies have to.
Reporting Structure. Many business owners work long hours because they don’t have situational awareness across their company. Establishing clear reports and the processes, procedures, and templates to ensure they are delivered correctly solves this problem within a week or two. There are some critical reports that every company should have, and each company will likely have several that are unique to it. Typical reports include:
- cash flow report that shows you what is owed to you (A/R), what you owe to others (A/P), current cash status, cash reserve status, sales projected, etc. You should receive this report every Friday and, with a glance, understand the cash status of your company. Your bookkeeper or CPA can build this with ease.
- pipeline report that shows what business you are pursuing and the status of the pursuits over time with a likelihood of a win.
- contracts report that shows your current work and monthly income/costs through the lifespan of the work. Coupled with the pipeline report, you will see your company’s growth at a glance.
- HR report that shows the status of your organization. What positions are open, what recruiting is ongoing, any updates suggest to the Organizational Blueprint components, complaints, etc. This tends to be a short and sweet report that is easy to create and consume.
- Operations report that provides information on clients, projects, product updates, internal operations, etc. This tends to be a report that doesn’t change much, and you can quickly look for changes to consume the information.
You’ll probably have elements you want to know in your company that aren’t on this list. The key to creating reports is to ensure they are short, have clear ownership, can be consumed easily (so you don’t waste time in meetings having people explain them to you), and are on established timelines. Often, it is helpful to have all reports due on the same day at the same time. You can then review company performance at a glance, and your team will synchronize their efforts as they build and update the weekly reports. You’ll also have more robust quarterly reports and annual reports that typically include strategy reviews, accounting reviews, etc.
How should you use your strategy?
Many of the elements described above have straightforward usage, such as the reports. But how do you use the “elevator pitch” you have in your business plan, for instance? You have an Organizational Blueprint, but what do you do with it?
Each element will have practical use; I don’t believe in strategy or components that are academic or theoretical. For instance, you might include the company vision and elevator pitch as briefing items in your “onboarding procedure” to ensure new employees understand the company and can quickly share a description of the company. The Organizational Blueprint will include triggers (revenue or employee count) for when to hire people into specific roles. You’ll hire people into other positions as current employees need to shed roles to focus on areas of their jobs that have become bigger. Your strategy should be adaptable and flexible to accommodate the changes that will occur.
You should review your strategy quarterly with your executives or if you’re still very small, take time to review it yourself. These reviews should be company reviews to see if you are hitting your goals, what you can improve, what is working, what needs to be changed, etc. Annually, you should have a more robust review to look at the year past and look one more year into the future with your strategy.
You shouldn’t review and adjust your strategy more often than this. Elements of it might change, but the overarching aspects should only be touched upon quarterly or annually. Your strategy is meant to align your organization, not create another workstream to distract you.
So, how do you craft your strategy? If you are familiar with business plans, organizational design, business development, operations, etc., you can put one together yourself along with your team. If you aren’t a subject matter expert, you can employ outside consultants to lend a hand. They will typically have a framework and work with you to add your specific information into it.
The good news is that creating your strategy isn’t a time-consuming process. If you decide to use consultants, that is indeed good news (less costly)!
Some considerations if you use outside help. Participate. It is your company, you know what you want the company to do for you, and you know what you want the company to be. You set the targets, have insight and knowledge about the company and what you offer, and know your market. When we work with clients, we gather data to understand where the company is at the moment and roughly where the business owner wants the company to go. Then we start working with the owner and any of their executives to build THEIR plan. I emphasized THEIR because once the strategy is crafted, it is up to the business owner and the company to put it to work for them. If it is a stock strategy and mostly “cut and paste,” it won’t produce the desired results.
Want to know more? Our process always starts with a 30-minute phone call to learn about your company, your goals, and the goals you have for the company. We’ll share our thoughts and describe the process and outcomes with you. If we both feel there is a fit, we’ll set up a one-month assessment to start. The assessment is a comprehensive review of your company via hundreds of data points, documents, and interviews. It forms the “where you are” portion of your strategy that is essential to understand to get to your “destination.”
The result is a report with suggested detailed improvements and how we would approach helping you craft your strategy. You’ll also have a chance to see if you enjoy working with us. There has to be a fit and comfort level for you, allowing you to ensure we’re folks you enjoy working with. Even if you opt not to work further with us, you’ll have a roadmap to improve your company that you can put to work immediately.
Contact us here to set up an informational call: contact us or fill out the form at the bottom of the page.
(1) Gaddis, John Lewis. On Grand Strategy. Penguin Books, 2019.
(2) Burke, A., Fraser, S., & Greene, F. J. (2010). The multiple effects of business planning on new venture performance. Journal of Management Studies, 47(3), 391-415.
(3) Upton, N., Teal, E. J., & Felan, J. T. (2001). Strategic and business planning practices of fast growth family firms. Journal of Small Business Management,39(1), 60-72.
(4) Ding, E., & Hursey, T. (2010). Evaluation of the effectiveness of business planning using Palo Alto’s Business Plan Pro. Department of Economics. The University of Oregon.
(5) Survey by Kabbage and Bredin of 400 American small businesses
(6) Survey by The Alternative Board