Three Strategy Insights for Small Business
Good strategy lets you outmaneuver your bigger competitors. Bad strategy can sink your business. Here are three insights you can use to harness strategic thinking and planning for your small business:
- Have a Strategy Kernel
- Build a complete strategy from what you have now
- Make your strategy executable
Here is how you can do each.
1. Have a Strategy “Kernel”
So, what is this thing we call “Strategy”? The word gets used a lot, so confusion is rampant. Mintzberg identified five different meanings — different ways the word “strategy” was actually employed — in business writing: plan, ploy, pattern, position, and perspective.
The version of the word “strategy” that will help you most is “plan” — and as Rumelt put it, a true Strategy always has a “kernel” of three elements: a Diagnosis, a Guiding Policy, and a plan of Coherent Action.
Here’s an example.
Suppose you own a construction firm, and you believe the real estate market is moving away from single family homes toward multi-family rental units for the next three years — and your think your firm can take advantage of this trend. The trend isn’t enough — you have to know how your firm’s Strengths and Limitations (from a good SLOT analysis) stack up against that market trend AND against your competitors.
Next, say you believe your firm has a Strength in general contracting. You are awesome at finding the best subcontractors, at sweating all the details, and at minimizing delays, mistakes, re-work, etc. You have lots of testimonials and reference clients.
Further, suppose your firm has Limitations including little working capital, not owning any property, and not having any multi-family work in your pipeline.
Once you have the right Diagnosis, the Prescription can become easier.
One Prescription might be that you need to either obtain those missing elements of capital and land yourself, perhaps by borrowing. Another might be to find a partner. If you can find a partner who really cares about minimizing delays, mistakes and re-work, that would play to your strengths.
Next, you have to commit to one Prescription, and kill off the others. If you try to pursue multiple approaches, especially as a small business, you’ll fail to focus on anything. So, you commit to finding a best-fit partner.
Your final element is to be relentlessly focused on executing the Prescription. You might turn down work that would distract you from the plan, even if it’s tempting to take it to pay the bills. You don’t spend time seeking bank loans. Instead, you make a list of every developer with capital and land, and rate them based on (a) not owning their own general contractor and (b) having a need for minimizing delays, mistakes, re-work, etc. You then pitch those firms on a partnership to develop multi-family rental units.
2. Build a Complete Strategy
Most small businesses either have no strategy, or only have part of one. The most common is the firm with a Prescription.
That’s dangerous. Having a partial strategy leaves you vulnerable to being blindsided, and also makes it likely you won’t carry the strategy out well.
Blindsiding occurs when one of the parts of the Diagnosis changes, and you didn’t notice. If the market shifts away from multi-family rental units and you don’t notice, you could get tied up in failing, half-finished real estate projects, and go bankrupt. Hundreds of developers were heavily invested in single family homes during the “housing bubble” that popped in 2007, and went broke.
More common is not carrying out the strategy. If you lack a plan of Coherent Action, having the Prescription right won’t help, and having the Guiding Policy right won’t help.
Here’s how to build forward and backward to complete the strategy.
First, identify what parts of the Strategy Kernel you have. Most who have a partial strategy, have a policy. That could be something as simple as “be the low cost provider” or “focus on selling to small medical clinics.”
Next, work backward. If you have a set of policies, then ask, what strengths and limitations am I implicitly working from? Write down your SLOT analysis. What market assumptions am I making? Write down your market trend assumptions. Now you know what market factors to monitor, and how to see if your strategy really fits your strengths and limitations.
Finally, work forward. If you only have a Diagnosis, then pick a Guiding Policy and commit to it. Once the policy is written down, devise your plan of Coherent Action. This is where most strategy fails — policies are chosen but not committed to, and action is not coherent and focused. If you lack the discipline to truly commit to your strategy, you will at best half-implement it. At worst you’ll hamstring yourself.
Failing to commit is bad. Just as taking half a dose of antibiotics can just breed resistant bacteria, implementing half a strategy can leave you worse off than doing nothing — you’ll have costs without benefits, and your people will lose faith in you.
3. Make your Strategy Executable
Now you must carry out your plan of Coherent Action. As Drucker put it, no decision means anything, until somebody has a work assignment.
To make your strategy truly executable, you need everyone in your firm who ought to be carrying out your plan of Coherent Action, actually doing so.
Here’s how to do that.
First, roll out the strategy to your people. That can be a half hour briefing, led by you, where you explain your Diagnosis, Guiding Policy, and plan of Coherent Action.
Second, tell your direct reports to devise, with their direct reports, a detailed plan for how their departments are going to carry out their portion of the plan of Coherent Action.
Third, have each of your direct reports co-present with you at their department meeting. You re-present the three parts of the overall strategy, briefly, and the department head then presents how the department will take responsibility for their part of the plan.
This will include milestones, deadlines, and so on.
One senior consultant recalled spending two hours asking a CEO a series of simple questions about the business. How do you make money? Where’s the market going? How are customers changing? What are the competition doing? What pressures are your suppliers facing? At the end he was surprised when the CEO warmly thanked him for “the most valuable conversation I’ve had all year.”
Good strategy is like that. It pulls you out of the weeds. It makes you think deeply about the big things. It makes the complex simpler, and easier to handle.