If you're doing things right, the business strategy you develop when you first start your company will be obsolete before long. There will be unforeseen obstacles and opportunities, and even the best marketing research can't fully capture the ways your unique products and services will be received. Despite these uncertainties, you'll be better positioned for success if you develop a business strategy than if you set off flying blind.
TL;DR (Too Long; Didn't Read)
To formulate a business strategy, define long-, medium- and short-term goals, and then plan your business activities around them.
Start With Strategic Planning
The business strategy development process revolves around a set of goals reflecting your objectives for different time frames. These goals are then broken down into sets of quantifiable objectives to measure success and progress. This strategic planning process allows you to sync short-term objectives with longer-term goals and frame each daily decision with an eye toward the bigger picture.
To plan effectively, first define your company's vision and mission. Your vision is your overall impetus for being in business. Although the word "vision" is often equated with a lofty visionary perspective, your vision for your business can be as concrete and pragmatic as you like. It's just as valid to frame your company around making as much money as possible as to frame it around saving the world.
Your company's mission expresses the "what" that corresponds with your vision's "why". If your vision revolves around making as much money as possible, your mission may be to provide accounting services that attract ongoing repeat customers and referrals. If your vision is to improve lives around the globe, your mission may be to import goods produced by companies that provide living wages and humane working conditions.
Quantify Your Objectives
As you work out the details of how your mission and vision will manifest in short-, medium- and long-term goals, your ability to evaluate your company's performance will depend on setting specific goals and measuring your progress in achieving them. It's not enough to simply say that you want your company to grow significantly during the coming few years. It's far more useful to aim for 20% growth per year during the next three years.
Because it's impossible to predict the future, the quantifiable objectives you set may become less relevant over time. Despite these inevitable inaccuracies, you can still employ strategies to make these goals and projections as meaningful as possible. Base future predictions on past patterns, such as seasonal variations, and correlations with external events, such as the growth of compatible and symbiotic industries.
Step Back and Evaluate Progress
When your business doesn't meet its strategic objectives, you have the opportunity to step back and assess the situation. Rather than treating the situation as a failure, you have the opportunity to collect data and make additional observations that will help you to set more realistic and achievable goals in the future. Alternately, if you exceed your goal by a long shot, this could mean that your performance has been outstanding, but it can also indicate that you set your sights too low.
The fact that a goal hasn't been met may be due to unforeseen circumstances that will affect additional goals moving forward. A new competitor may have entered the market or a useful technology you provide may have become obsolete. Alternately, the goals themselves may have been unrealistic and the shortfall can be an opportunity to reevaluate them and create alternate objectives that are more meaningful.
The degree to which your actual performance exceeds or falls short of your goal is known as the variance. It can provide information as to whether your goals were completely unrealistic or whether you simply need to do some tinkering. If the variance is wide, then a large-scale change will probably be necessary to address it. If you've fallen short of your goal by a statistically insignificant amount, you may simply need to tighten some processes or slightly increase your marketing efforts.
Specify Long-Term Goals
Long-term goals generally apply to a time frame of greater than five years. Because this time frame is so far in the future, the specifics of these goals may not be especially meaningful as time elapses. For this reason, long-term goals may be less specific and more generalized than goals that apply to a less distant time frame.
Although specific quantifiable objectives are essential to the strategic planning process overall, long-term goals create a bridge between the broad generalities of your mission and vision and the practical and technical orientation of shorter-term goal setting. A useful long-term goal may be to build a regional brand over the next five years. Specifics may boil down to how many stores or wholesale accounts you plan to open.
Although you may frame your longer-term goals in specific terms, the process of evaluating your progress toward meeting these goals will be looser. It may even be more qualitative than quantitative. For example, you may venture into the wholesale market to scale up your operations but find that it makes more sense to stick to retail and keep your production small and your margins wide.
Create Milestones With Medium-Term Goals
Medium-term goals usually cover a time frame of two to three years, a short enough period to be relevant but a long enough period to make things difficult to predict with accuracy. These medium-range objectives make real and concrete connections between your long-range plans and your day-to-day business activities.
Medium-term goals sync with long-term objectives by providing significant milestones. If you've kept your growth and product development on track for this interim period, there's a greater chance your business activities will play out according to plan for the longer term. These mid-period benchmarks also provide opportunities to step back and evaluate whether you're on the right track as you move forward over time.
Medium-term goals link to short-term goals by providing enough of a big picture for you to keep your eye on the prize, but not enough for you to lose perspective on daily decisions. It can be easy to lose sight of longer-term goals when your most urgent priority is paying for rent and payroll. Medium-term goals provide broader perspective without forcing you to look so far out that it's difficult to see a path between where you are and where you're eventually going.
Create Urgency With Short-Term Goals
Short-term goals are the most concrete and relevant to the concerns that feel urgent as you manage logistics and operations. Well-crafted short-term goals recognize the limitations you face taking care of daily business while still keeping an eye on the long term. If your long-term goal is to open four stores in five years, you must start with an initial location, which must be profitable enough to help finance additional outfits.
In the short term, you'll undoubtedly be focused on managing your first store, and your short-term goals will reflect this attention to the immediate need. However, if your first location is planned as a model for future retail spaces, your short-term work will also include creating and solidifying a model that you can replicate.
Short-term goals are easier to frame and meet than medium- and long-term ones. This is because the time frame is familiar and understandable enough for you to create goals that are both realistic and challenging. If you have difficulty meeting your short-term goals, this shortfall is an opportunity to rethink your strategy at the ground level so you can develop more fitting goals for the medium and long term.
Focus on the Business Model
Your business model is the way your business earns and spends money. To survive, your company must spend more than it earns, at least in the long term. Your pricing structure, purchasing strategy and product line all play key roles in your business model, allowing you to create systems that will sustain you over the long term. Gross and net margin are especially key because they reflect the foundations of your profitability that you'll be able to scale up as you grow.
A sound business strategy will be based on a sound business model. Your company may have money in the bank because of successful financing or prepayment for future orders, but if you aren't earning more than you spend, at least over the long term, your business is unlikely to endure. If you have cash flow without profit, it's just a matter of time before you run out of money. However, if you have profit without cash flow, it's just a matter of time before you pay off your debts and have capital to spare.
Making your business model an integral part of your business strategy will save you considerable hassle down the line. It's much easier to start charging enough for your products right off the bat than to raise your prices once your customers have gotten used to paying less. You can incorporate the business model into your business strategy by doing careful cost analyses before launching new products and emphasizing continuous improvement in your operations, increasing productivity and increasing profitability.
Business Strategy Areas
- Marketing strategy. Your marketing strategy is a vital component of your business strategy, reflecting on how you present your identity and offerings to the outside world. You can sync your marketing strategy with short-, medium- and long-term goals by devoting marketing resources toward promoting the aspects of your business most likely to help you achieve your objectives.
- Finance strategy. If your long-term goal is exponential growth aimed at attracting serious investors, your finance strategy will be geared toward raising substantial capital even if you can't repay these sums soon. If your long-term strategy involves incremental growth, you'll likely choose more conservative sources of financing, such as credit lines and bank loans.
- Purchasing strategy. The rhythm of your inventory purchases should also reflect your company's overall mission and vision. If your business is devoted to social justice and reducing your environmental footprint, your purchasing will be thoughtful and targeted. If your overall purpose is to earn as much money as possible, you'll probably look for opportunities to buy as cheaply as possible, either by purchasing in bulk or negotiating shrewdly.
- Human resources strategy. The way you treat your staff reflects the strategic decisions you've made and the type of business you've chosen to be. A business geared toward the greater good will likely invest in its personnel to provide a decent quality of life and keep employees over the long term. This is a sound business strategy as well because experienced employees usually do a better job. A business with a short-sighted emphasis on profit is more likely to pay employees poorly in the interest of maximizing its bottom line.