Everybody knows it…
Your ability to make the right decisions without wasting time has a lot to do with how successful your business will be.
So what’s the process for making this possible?.?.?…
a) Have a strategic plan to begin with; and
b) Have a strategic planning process that allows for change
The first part is knowing what your strategy is; actually having a written two page strategic plan you can reference quickly…
I remember the first time we ever had a conversation about how our target market and strategy at HGI…
There was frustration about whether or not we were pursuing the right kind of clients. In reality, our target market hadn’t changed. We had changed where we were taking the business…
One of our Project Managers walked into my office and demanded to know why we were doing a $25,000 job because it was such a loser.
I looked at him a little concerned and asked what he meant. After all, just two years before we considered a $5,000 job to be small and $25,000 was a big project.
Was it possible that in 24 fast months we’d become so uppity and successful that the table scraps we’d built the business with were now just that? What was once our treasure and another man’s trash had now become our trash too?
Over the previous year we’d successfully won multiple mid six figure projects, opened two more offices, and were considering going transcontinental and opening our first office in South America.
In that time our overhead had grown along with our labor costs but we followed a strict activity based costing approach and had a sound set of rules about managing project costs to make a profit.
We weren’t losing money by any stretch of the imagination. But because we served both government and commercial clients we had two different project cost models with strict rules to prevent mixing costs between the two.
To make a long story short, this statement sparked our first real internal debate about what kind of projects we would and would not pursue anymore. It was our first real strategic planning conversation after climbing into the multi-million dollar revenue category.
If you’ve never had this kind of discussion in your business it can be an emotional one as you cling to the roots of your business and who you once were.
We had to answer questions like: Could we become even more profitable by no longer doing certain kinds of work? What sort of projects would we focus on in the future? What kind of clients would we focus on in the future?
These are the kinds of questions you answer when you start developing a strategic plan…
If you don’t know the answers to these questions from a cold dead sleep at 2AM in the morning you won’t be able to make fast business decisions. And every time you’re faced with a big decision it’ll be like developing a strategic plan from scratch.
Rule number one is you’ve got to know what your strategic plan is to start. You’ve got to know all the answers about your vision and plan before the questions are asked.
Many small businesses waste time looking at opportunities that are almost like their target market but not quite; or they’re similar to what they were going to do with their brand, but not quite…
They waste time trying to stretch to something that they’re years away from being able to do. You do need to force your business to stretch, and we’ll talk about that process a little later in this post.
Once you know who your current target market is and more importantly who they are NOT, or what your plan is for your brand, or what zip code your next branch will be in, it gets very easy to not waste time on opportunities that you aren’t ready for you quite yet.
That’s actually a set of big questions!
Let’s unpack them one at a time…
The Location version of “Where” in your strategic plan
Which states, cities, or parts of town do you want to dominate? Why, and in what order?
This is important because if you’re in Albuquerque, and Phoenix is the logical next move for your company and you get an opportunity in New Orleans; having already made this decision helps you say “no” quickly and keeps you focused on where you’re going.
If you’re thinking about saying yes then at least you know what the important questions are because you’ve already thought about them. You’ll be able to move through the key questions quickly. You’d be able to intelligently compare the New Orleans opportunity to the Phoenix plan.
If the comparison doesn’t work out rather quickly you don’t have to stop and spend precious time trying to figure out how to make a move you already know you’re not ready to make.
Let’s scale it down a little. Let’s say you own a beauty shop or an appliance parts distributorship and you have only one location. It’s likely that your next best move isn’t another city but another part of town if you’re in a city of a million people or more.
So what part of town are you going to next?
Take a look at the clients that you’re currently successful with. What other part of town has similar clients. Or what about the location of a competitor who’s executing poorly. Pick a location that makes their life difficult. If you distribute to installers, where are their clients? Pick a location that makes their life easier.
If you have a beauty shop, which other zip codes have similar household incomes and similar family demographics? If you’re an appliance parts distributor the questions are similar but you might layer in questions about repair technicians and handymen. Where are their businesses located?
One of the things you might think about for your next location is also how easy is it for you to move back and forth between the two locations. If the trip is too far and too expensive then it may not be worth the investment, especially on your first expansion move.
If you sit down and decide where your business needs to move to next based on data, then when a “good” location in the wrong part of town becomes available you can quickly compare it and say “no thanks, it’s not in our strategic plan”. It’s an easy, fast decision with no sacrifice and no screw ups.
The Brand version of “Where” in your strategic plan
How will your company brand transform in the coming years?
To transform your company brand as part of your strategy there are two concepts you’ve got to commit to…
There are great examples of these in the major brands that you’re familiar with like Toyota, Apple, and now Hyundai with its move into the luxury car segment.
In each of these cases “where” was about targeting a new consumer rather than a new neighborhood across town. It was about transforming what the company was known for.
In the Hyundai case it’s a pretty simple and logical step to move from the economy car segment to the luxury car segment. Back when Toyota did it people weren’t sure an economy brand could be successful in the luxury segment.
In the Apple case, Jobs defined a completely different target market. Sure it was the same consumer but Apple answered a different problem in that consumer’s life. By following the iPod with iPhone, Apple moved from being a computing company to being a mobile device company. In fact, they dropped the word “computer” from their name to finalize their brand shift.
In all three cases the brands were permanently, significantly, and forever altered in the consumer’s mind. Yet they all shared one common step before transforming their brand.
Both Toyota and Hyundai solidified their financial positions before launching luxury brands. At Apple, Jobs did the same though he took a different approach by cleaning up their product offering.
The takeaway here is that the underlying business must be capable of supporting the brand shift; If not the new effort will be doomed to failure.
The second piece if you’re considering a brand shift is to know the number one expectation consumers have in the arena you’re looking to move to.
Before Toyota moved from economy cars to luxury cars they mastered quality. When buyers considered purchasing a Lexus they already thought of Toyota as a company that built high quality cars. It made the move easy.
When Apple launched the iPod their customers had always thought of them as an innovative and different kind of company with a knack for design. Diving into the digital music player space with such an innovative device wasn’t hard for Apple because their previous branding supported that effort.
Here’s the point: Knowing where you’re taking your brand lets you walk away from work that doesn’t fit the direction you’re moving. It’s very easy to say “no thank you” to work that’s quick and cheap when you’re strategic plan is to focus on building lasting quality.
Ultimately, where your brand is going helps you make decisions based on two goals:
1) What creates lasting financial stability in your business?
2) Which qualities does your future target market require in brands they are loyal to?
Reverse engineering the “How” in your strategic plan
How are you going to get there?
The answer to this question looks a lot like this: “First we’re going to get to $2MM in this market. Then we’ll start marketing in that market on social media and television. We’ll spend $25K on marketing each month. As we start marketing we need to start interviewing candidates for some certain talent, skill, and background. Our ideal first location there will be in a zip code with the following demographics…”
Simply put, what major factors are going to enable you to make this move? That’s the how in how you’re going to get there.
But you don’t walk into the answer through the front door…
You reverse engineer it.
How do you know what you’ll need to make that jump? It’s not that hard to figure out.
If you’re doing a brand shift identify the single most important attribute that your brand will need and start the process of adding it into the current version of your brand. Add it in bit by bit, day by day.
If you’re adding locations figure out what a fully functional location looks like. From there list out the major, expensive, or difficult to acquire items. You’ll need to be able to cover a lease for a year before you get profitable. You might need some specific major pieces of equipment. You’ll need a talented branch manager you can trust.
You’re developing a business plan and then setting up a strategic order to acquire these things in. This will tell you how big and profitable your current business will need to be to support the added debt. It’ll let you identify that branch manager ahead of time and develop them.
When you’re reverse engineering the “how” to get where you’re going with your business don’t focus on the little things. Use the 80/20 rule to figure out the big stuff first and the little things will fall into place.
Now you have a financial goal to work backward from and you can put some timing to it.
When a good person comes along without the skills or talents you need, you can quickly say “no thank you.” When you can get a smokin’ deal on a piece of equipment that isn’t part of your strategic plan, you can say “no thank you”. It’s that easy.
When are you going to get there?
All goals have a date.
No date, no goal.
Time is the great equalizer and the great compressor.
By what date will you own a certain market? On what date will you start marketing in the next market?
If you haven’t set a date then you’re removing all sense of urgency. No decision will have importance. It’ll wait.
No date equals complacency and decisiveness. Without a date you’re committed to, you really won’t be forced to compare an opportunity to your strategic plan. Or worse yet, you might be willing to put off your strategic plan because of some shiny object.
Set a date.
That way when you need to make a decision you’ll be forced to compare the opportunity to your plan quickly and smartly. You won’t have time to mess around.
The question most business owners are asking at this point is: what if something changes?
Making quick decisions easy
Steve Jobs was famous for many reasons; among them were his blue jeans and black turtle necks. Long ago he committed to wearing the same thing every day so that he wouldn’t have to waste precious mental energy making that decision every morning.
Going through the annual strategic planning process is a lot like picking out your blue jeans and turtle neck way in advance.
The key to making quick business decisions is knowing what you’re doing ahead of time and why you’re making a commitment to it. If you know these things, you don’t have to waste time evaluating opportunities that are outside your plan when you should be executing.
The value of an annual planning process is that it causes you to consider many possibilities and commit to only a few so that you can execute very well on those few. Planning makes you think. If you do that thinking once a year, you won’t waste time doing it several times during the year.
A framework for changing your strategic plan
Change Happens.
It does.
Once you’ve got your plan outlined you need to be prepared for the fact that the world, your competition, and your clients will change on you; especially if you take two or three years to get where you’re going. Given that, you need to be prepared for change.
So far everything I’ve said sounds a bit rigid. It’s only rigid for short periods of time though. A good strategic planning process also has a process for changing the plan built into it.
Throughout the year you need to keep track of the opportunities that present themselves. These opportunities become some of the first inputs into your plan each year.
You’ll analyze these opportunities each year to see which sector is growing, which geographic area is improving, and what’s driving the change.
Every good strategic planning process has a fixed set of questions that are known to leadership and many other people throughout your company.
Everyone who’s involved in your annual planning process knows to be watching and listening for throughout the year. They know to pay attention to information that’s related to these questions. They look for this information for two reasons:
First, they’ll need it for the annual plan. Your annual strategic planning starts with your sales team presenting what they’ve learned.
Second, if something new and wild happens they’ll know to bring that information to you immediately rather than waiting for the annual planning meetings.
As long as everyone knows what to be looking out for, you’ll be ready to spot and react to change if necessary.
At the end of the quarter sit down with any new information that you’ve learned and decide whether or not it runs against any of the assumptions that you made when you wrote your plan earlier in the year.
This is an important step and it really only takes about 15 minutes each quarter.
If information challenges or proves one of your assumptions wrong it may be time to adjust your plan rather than waiting until the end of the year.
As an example: If you own several convenience stores and you’re looking at opening your next one in a specific location and a large national competitor opens one very near your next planned location, it’s time to change your strategic plan.
If you’ve planned major equipment purchases or other investments based on profitability and a competitor does something that radically changes your profitability for the worse, then you would seriously consider pushing out that investment until you figured out how to regain your profitability.
That’s the rule on changing your plan. If new information is wildly different or proves one of your assumptions wrong, change your strategic plan before the year ends.
What does a Strategic Plan look like?
It sounds so big and important: “Strategic Plan”
No. Not really.
Two Pages. That’s it.
I’m a big fan of the two page strategic plan. The first page is your plan for the next calendar year. The next two-thirds of a page is your plan for the year after. And the last third of a page is the plan for five years out.
Here’s why I’m such a fan of this format. There is no point in devoting a massive amount of energy and writing ten detailed pages about where your business will be in five years when things change as fast as they do these days.
For the purposes of this article we’ll keep the discussion to the first page. The first page should address three key questions for the next year.
• What are your critical priorities this year?
• What are your critical financial numbers this year?
• What are your critical key performance indicators (KPI’s) this year?
Limit your critical priorities to 3 to 5 for the year depending on how many resources they consume. Your critical priorities help improve everything from your financials to your KPI’s to your execution on your brand promise.
Focus on the financial numbers you’ve got to deliver on for the year. Is it profitability and debt reduction? If so, make sure you’re hitting your marks throughout the year. If its revenue growth, then make sure you’re monitoring that and taking action throughout the year.
Your KPI’s are what makes it possible for you to deliver on #2. As an example, if you have ship a certain number of pallets of product to make your financial goals happen then figure out which basic things you need to do to ship those pallets and do that.
Each year, as a result of reviewing your business, the changes around your business, and the changes with your customer base, your plan will change.
As the saying goes, if you don’t know where you’re going then any road will get you there. Decide where you’re going first.
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