Just as, in life, we set goals to give focus and structure to our present activities, so, when running a business, is it considered wise to develop a clear sense of where you’d like to be and how you’re going to get there. The process of doing so falls within the realm of business strategy. In simple terms, a ‘business strategy’ defines your vision for a business and sets out the steps that you’ll take to ensure the business remains competitive and achieves optimal performance.
Developing a strategy for your business can be a complex endeavour, but it’s also one that rewards with you a strong sense of how you can steer the business towards success. In this article, we’ll cover how you can develop an overall plan for your business and then use it as the foundation for specific strategic actions.
Using a business plan to outline your overall strategy
If you’re planning to start a business, or hope to clarify the direction of your existing enterprise, then a written business plan is essential. In the process of creating one, you’ll answer questions that are essential to developing an overall business strategy, such as:
- Who are your competitors?
- What is the state of the market you’re hoping to enter?
- What defines your business and why might people patronise it (or not)?
- What are your major expenses (and how can you reduce them)?
- What are your main revenue streams (and how can you increase them)?
Contemporary business plans usually adopt one of two formats: a traditional format that focuses on providing a comprehensive overview of your business or a lean startup format, which could be more appropriate if you have a simple business proposition, wish to provide a quick overview, or anticipate needing to update your plan regularly as your business grows. In both cases, your business plan will focus on several key areas, including:
- market research
- marketing planning
- legal and risk management planning
- operational planning
- human resources planning
- financial planning.
If you’re unsure of how to format your business plan, it’s worth taking a look at the templates made available by the Federal Government’s Department of Innovation, Industry, and Science. You can find them on its business planning page alongside tips on how to develop your business plan to meet changing requirements.
Using your business plan to generate strategic initiatives
A business plan helps you figure out where your enterprise is now, and identifies general goals (such as increased growth or sales); a business strategy uses that information to plot a detailed course towards specific future outcomes. So, now that you’ve got a business plan, it’s time to take it to the next level by developing it into a comprehensive strategy. You can do this by following five steps.
1. Clarify your vision
Ask yourself: what will it look like if the business strategy succeeds? Your answer should involve a detailed vision of your business as it would be if it operated at an optimal level.
Developing your business vision requires you to consider three main factors: your value proposition (i.e. why customers might choose your business); your industry (i.e. who are your competitors and what makes you different?); and your customers (e.g. are they retail or wholesale customers? How will you reach them?). Taken together, these three factors will paint a vivid picture of what your business could become.
2. Identify your business goals
Business goals fall into three main categories: growth, competitiveness, and financial performance. For example, pursuing business growth could mean taking steps to increase customer demand, business volume, or sales revenue; boosting competitiveness could mean increasing market share, your growth rate (versus competitors), or brand awareness; and achieving stronger financial performance could mean increasing gross profits, expanding your operating margin, or aiming for a higher return on total assets.
Take some time to identify the specific goals you would like to achieve via your business strategy. Remember that all goals should be SMART: specific, measurable, achievable, relevant, and time-based.
3. Develop a strategic model
First, take into account the strengths and weakness of your firm (vis-à-vis the competitors you identified in your business plan). Second, plan your attack: for example, will you aim to differentiate your business by creating new products, adjusting your pricing to make it more competitive, building your brand, or reducing manufacturing costs?
The development of a strategic model could involve additional investigation into areas such as your business’s marketing strategy, pricing model, or approach to advertising. You can refer back to your business plan for ideas on where you might best focus your attention.
4. Test your business strategy out
Ideally, you’ll be able to test the viability of your business strategy by using computer simulations or mathematical forecasts. However, it’s sometimes easiest (especially if you’re running a small business) to experiment by partially adopting your strategy in the real world and monitoring the results.
For example, you might use new advertising to reach half your customers and see if they respond more enthusiastically than customers who continue to be exposed to your existing campaigns. Similarly, you might release a new product to a limited audience and use their feedback to determine the likely success of the product’s wider distribution. For tips on how to evaluate your business strategy, see this article by the leading consulting firm McKinsey and Co.
5. Continually refine your business strategy
Tempora mutantur, nos et mutamur in illis—the times change, and we, too, change with them. This principle applies as much to business as it does to life. Things happen—technologies change, new competitors emerge, customer preferences shift—and you must be prepared to adapt accordingly. So bear in mind that few business strategies benefits from a ‘set and forget’ approach: you must commit to the continual evaluation of the strategy’s effectiveness, and making adjustments as necessary. Therein lies the path to success.