- Do your homework before taking action! You should know how to provide the product or service, and know how your existing and potential customers will act. For example, changing your pricing strategy to acquire new customers may serve to alienate existing customers.
- Develop a break-even for the strategy. Include your start-up costs, fixed and variable costs and ask determine where you need to get to in order to break even. Look at that figure and determine if you can achieve this sales target in a reasonable period if at all. This alone is a great vetting tool.
- Develop a plan with milestones and budgets. If things are not on time or on budget, reconsider the strategy. This is also a great way to determine if you have the tactical abilities to execute the strategy.
- Unless you are going to the moon, there is no point of no return. As a part of your plan have a number. For example, if this has cost us $1,000,000 and we are still not profitable, we stop. This is difficult due to the Sunk Cost Fallacy. This is the notion that once costs are incurred, must be recouped. This is, of course, nonsense. We feel we are abandoning our investment of time and money. You are, but you are also preventing this from getting worse. Track and take action.
- Try to test quickly and on a small scale. This is the putting the toe in the water approach.
- Ensure that each new strategic direction pays its own way. Each strategy must have its own business case.
Thursday, 4 September 2014
Billy's Thirtieth Law - Skill Three: Becoming a Strategist
“The essence of strategy is choosing what not to do.”
Michael E Porter.Running a business is important, however; it is imperative that you keep your ultimate destination in mind. Deciding on your destination is your strategy. When we start out, or strategy is usually as simple as ‘make enough sales to avoid bankruptcy’.
When we decide to grow our business, simply saying, “We’ll just do more of the same.” is just not going to work. Most businesses start as singular strategy organizations. They sell one set of products, or provide one set of services to a fairly homogeneous customer group. You eventually exhaust the market potential for a single service.
For a business that wishes to remain small, this strategy need not change. My father was a self-employed electrical engineer. He offered engineering services in a fairly limited geographic area. He was limited to his own skill-set and to the number of hours he could offer for ‘sale’. His marketing was primarily word of mouth. He successfully operated his business for nearly thirty years.
Many entrepreneurs want to grow their businesses. Some do this by selling the same products or services, but expanding their market size. Others increase their product offerings and sell to their existing clients, or at least a similar market. Others do a combination of the two, selling a new set of products to different customers.
All of these represent strategic change to the company. New strategies must be vetted…to that the entrepreneur does not just go off and to the first thing that comes to his or her head. (Oh yeah, they do that and then call people like me two years after the mistake was made.)
Here are some tips for vetting potential growth strategies in your business:
Think of several different, potential strategies that help you achieve success.You can think on pivot around things like adding products increasing customers, adding outlets or changing distribution. Don't stray too far from your core competencies (the things you do really well) or you may end up starting a new business, and not building your existing business.