Strategic Business Planning

In this article we consider how your strategy and business model impacts on your chances of success.

Planning Your Strategy

Planning is important for every business. Statistics show that businesses that have put some form of business plan in place are more likely to succeed. While the outputs from business plans are often inaccurate, the process of planning is essential.

A business strategy is a plan that helps a company to achieve a long-term vision. It clarifies the choices a business makes in determining what sectors or customers you will and won’t serve, your economic logic, your positioning, and your timing. It can also capture any north star that will shape and guide your business, for example making environmentally conscious choices throughout your business if you are targeting more values-based customers.

For startups in highly innovative sectors, the right path can be difficult to determine so an emergent strategy experimenting with different approaches might be more appropriate than detailed planning. But even these approaches require a plan that details the experiments that will be carried out, with measurements to determine their success.

We often hear of successful entrepreneurs who have the skills to sketch out their business on the back of a napkin, but this is not the norm. For many founders it can be easy to procrastinate, hiding behind the development of your business plan and never taking the next step of getting started. So you do need to achieve the right balance between planning and getting out there to build your business.

Defining Your Business Model

Your business model will define how you will make a profit through your revenue / cost model and your go to market strategy. Founders have moved towards using frameworks like the Business Model Canvas over producing detailed business plans.

Your go to market strategy can include combinations of direct-to-consumer or using a network of partners, affiliates, retailers, distributors, or platforms and marketplaces. Some businesses have found that the direct to consumer approach has been less profitable than planned when their customer acquisition costs have eroded margins. Others have failed to take into account the retailers or distributors fee levels leaving the business with margins that are unsustainable.

The key here is to do a reality check when you have determined your business model to ensure that you have chosen the optimum route to market and to run the numbers to ensure that they stack up.

What Do Investors Look For

A good example are the SaaS (software as a service) business models. They have become popular among investors due to their scalability that allows them to expand revenues while maintaining high gross margins. Their subscription based business model produces recurring revenues, with annual subscriptions paid in advance helping cashflow. A key to success for SaaS businesses is their customer retention levels and their ability to create stickiness with customers.

Knowing When To Pivot

Pivoting means fundamentally changing the direction of your business when you realise your current strategy, business model or products and services aren’t meeting the needs of your market or your business goals. There are many famous examples of companies failing to pivot such as Kodak, Nokia, and Blockbuster.

Failing to pivot when it has become apparent that the direction the business is taking is not working, is a common cause of business failure. Pivoting your business can be a difficult exercise for many founders, or companies that have experienced success, leading some to keep going even when the writing is on the wall.

While it is impossible to put contingency plans in place for every risk or major events like Covid-19, you can create an agile culture or mindset that allows you to pivot quickly when a major event occurs.

 

The planning needed to develop your strategy and business model is an essential part of setting up a business for success. While your business model can define the mechanism that will generate a profit, your strategy and business plan detail the sectors you will target, your positioning, timing and projections of your financial performance. Even if you have been successful remember that markets can change rapidly, so you have to constantly review your strategy and business models and develop or reinvent them.