Small companies tend to wait until far too late into the year to start their strategic planning for the next year.
We’re going to change that with this series. I’m going to give you the strategic planning road map.
And I’ll chunk it down for you into manageable pieces. You simply need to know which questions to ask, and when to ask them…
Your yearly strategic planning process needs to start well in advance of the end of the year.
Depending on your size you may involve a team or you may go through this process by yourself or even with just one other person. If you’re still on the small side of small business then just simply follow the timeline in this series. This series is intentionally divided up to keep the process manageable and deliver a solid plan.
The size of your team isn’t that important. You are where you are. What’s important is the questions. And what’s more important are the answers to those questions.
You’ll start your strategic planning with your sales team, person, or effort.
The first section of your plan is due on October 1st. This means that your review of these questions should begin no later than September 1st. And you might even think about starting a couple weeks earlier than that.
If you’ve only got 5 people working for you and you are the sales effort in your business then that means that rather than a full-blown presentation you might just have a three page write up from the sales perspective. Wherever you are today is fine.
There’s just a handful of questions that you should be able to answer from the sales perspective. Let’s jump in…
Strategic plan question #1
How are our clients changing: what do our clients want and need in the future?
That’s a big question!
Every year’s strategic plan must begin with this question. If you’ve been following me for a while you’ve heard me talk about the fact that you must be willing to change when the evidence in your business changes.
If I had to pick a question that Blockbuster failed to ask itself each year, I’d bet it was this one. As long as you ask yourself this question every year your target market won’t make a left turn without you noticing.
For this question if you serve different segments or markets you should be looking for differences as well as similarities. Each major market should be reported on separately.
This is where your sales people write down notes and themes from all their client conversations throughout the year. Those notes are used to create a profile of your clients wants and needs in the coming year.
If you sell into other companies your answer shall (yes, I used “shall”) include descriptions of what new products or projects your clients are funding or launching. More on that later.
The idea is to understand where your clients are going. This is no time for shallow one sentence answers. This question isn’t first by accident.
Go at least one more layer deep and understand why your clients are changing. What’s causing them to fund those projects or buy those new products? Why do they think it’s a good idea? What are your client’s pain points or what do they think they will become? What do your clients think their choices are for dealing with those issues?
The next three strategic planning questions
Where is growth possible?
Your sales team, person, or effort should look at growth from three angles.
First your strategic plan should look at growth possibilities within your existing geography and services. This isn’t “do more with less”, it’s “do more with the same”
The big idea in this question is to increase your sales without adding more locations and while keeping capital investments low. How do you stretch what you have?
This is a challenging question and that’s the point. Don’t let yourself or your team off the hook on this one. Push your team to come up with ideas you can act on.
Second, your strategic plan should look at what growth can be achieved by increasing your geography (adding stores or distribution points). Only after you’ve gotten all the production you can from the assets you have is it okay to spend money on new equipment. This is where you give your sales team more latitude to suggest spending money and buying new equipment.
The challenge here is that they need to be on target and they need to compare and rank options. I like to challenge teams with a venture capital mindset: What’s the ROI and when will I get my money back?
The third angle your strategic plan should look at growth from is: How can we grow by developing new products or services?
Innovation drives growth.
The founder of Investor’s Business Daily has proven through his research that the best stocks are often those where the company has just launched a new product or service.
What new product or service are your clients asking for?
There are a couple follow-up questions to this. How much would they pay for it? What problem will it solve?
Don’t invest any money in developing a new product if you don’t know the answer to these three questions…
Where’s the opportunity gap? How much will people pay? What specific problem does it solve?
Knowing how much your clients would pay for something is helpful because it gives you an idea about whether or not you can make money at it, and it tells you how much pain they’re in.
In my experience when you ask someone what problem their idea will solve you’ll also get some other information with their answer that helps you understand your client’s pain point.
I’ve been in situations where the answer to the ‘what would you pay for that’ question comes back “not much, it’s not really that big of a problem”. And I’ve been in situations where I’ve been told that my client’s company would create a holiday in my honor if I could solve a certain problem.
Hold your sales folks accountable for knowing the answer to these questions…
Because clients can’t always tell you what they will buy, but they can do a great job of telling you what they won’t buy, why, and what’s wrong with it, your sales team needs to read the tea leaves a bit…
When you’re looking for growth opportunities for your strategic plan your sales team should be looking for patterns and similarities among your clients’ problems and pain points. Your clients won’t all describe the same problem in the same way. It’s your job to figure out what they want and design something that solves all their problems.
That’s the Bonus question:
How are our client’s pain points similar?
Your sales team should provide an answer to this question when they present their growth opportunities.
New products and services don’t always have to be “new new” products and services. The other two ways your sales team should consider growing the business are vertical and horizontal growth.
What does vertical growth mean?
Years ago I worked for a major manufacturer who purchased solenoids for valves they sold to the big box DIY chains. In order to improve the quality, reduce the cost, and have better control of their supply chain they made the decision to start manufacturing the solenoids themselves.
That’s vertical expansion. When you decide to get into doing something that your previously paid some else to do.
Vertical expansion is commonly thought of as moving up or down the supply chain. Another version of vertical expansion would be a manufacturer who buys a small distributor to move their company closer to the end user customer.
Doing this usually means you’ve gotten big enough that it makes good business sense or you need to do it to open up new opportunities.
What does horizontal growth mean?
The same manufacturer that I used in the vertical expansion example also decided to offer a line of valves that were basically identical to valves they already sold, but smaller.
They gained three advantages by doing this.
First, they filled a void in the market and this allowed them to grow their sales.
Second, they gained an advantage over their suppliers because they would now be buying more product that was made with the same raw materials as their other products. Volume is addictive.
Third, they gained an advantage over their distributors because they now offered a more complete product line to the end user. Distributors couldn’t help but push their product line.
Let’s bring this all down to earth a bit…
Let’s say you own a pizza parlor and you’re looking for a way to grow.
If you’re looking for vertical growth ideas you might begin making your own pizza sauce so that you can control the quality, cost, and delivery. At the same time you could begin selling your special pizza sauce online and to your customers who love to occasionally make their own pizzas at home.
If you’re looking for horizontal growth you’d consider either opening up a second location or possibly buying a competitor.
Your strategic plan should consider each of these ideas every year. Consider does not mean act on them though. If your sales team chooses not to offer one of these as a possibility to your planning process, that’s fine. They should state why and which questions they were not able to adequately answer.
Who are your best clients?
No strategic planning process would be complete without a discussion about your best clients. What are the demographics of your best clients and where can you find more of these clients?
You’ve heard it put several ways: client avatar, ideal client, target market, most profitable clients. You’re profiling your clients…
If you sell to consumers you’d want to know what zip code your best customers live in, what’s their median household income, how many children, cats, and dogs they have. You really need to know who they are.
And then go out find someplace else that has more people just like them.
If you’re selling to businesses then the questions are similar. Develop a profile of your best client and figure out where there are more of them.
Your sales team should put together a plan to target the new prospective clients.
Presenting the Sales Plan
There are a few things that Sales needs to do when they present their strategic plan recommendations.
First, they should present well researched High and Low revenue projections for the coming year.
You should expect them to break this out by client, industry segment, or however you group your clients. Some small business might not do this, like pizza parlors…
You should expect that Sales’ plan will explain what will drive both their high and low projections, what the differences are, and what will cause those differences to happen. “If we do “x”, we’ll hit the high number.” If the market does “y”, we’ll come in on the low end.”
Secondly, your sales team should make recommendations for products or services that you should introduce over the coming 2 – 5 years. Pizza sauce anyone?
Sales should explain why these products should be introduced. What competitive advantage is it going to bring; What emerging market need is it going to fill; They should present volume, price, and profit projections for these ideas.
The third thing they need to discuss in their presentation is how the business should position itself over the coming 5 to 10 years. How is your business going to compete over this time? Price? Brand? Quality? Location? Or some combination of these?
What is going to drive the business forward?
In Sales presentation of their strategic plan suggestions they should address issues like market growth, economic policy changes (interest rates), and consumer market shift.
Finally, your sales effort should summarize the key points of information that are the answers to all the questions we’ve asked so far. Think of this as the reference material for the first part of their presentation.
One last thing… Sales should realize that their strategic plan suggestions are at this point exactly that: suggestions. They are meaningful but not yet concrete until we go over the Operational and Financial pieces of the strategic plan.
Next Month…
We covered several important questions about the strategic planning you’ll be doing for next year.
Just answer these questions and don’t get concerned about the operating or financing questions that pop up.
Over the next two months we’ll cover Operations and Finance.
We’ll have you ready for next year with time to spare.
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