When you’ve got a long trip ahead, you need a roadmap to get you where you want to go. When you launch or grow a business, a business strategy is that tool – it’s a critical component that all business owners need.
Still, many entrepreneurs either don’t create one before launching or don’t update it as their businesses grow and evolve. That’s a mistake that can cost you dearly in terms of time and financial and human resources.
In this guide, you’ll learn the elements of a strong business strategy and why developing and updating yours is extremely important for your business. You’ll also find a process “roadmap” to help you create yours.
What is a business strategy?
A business plan and a business strategy are related components of your business success, but they’re different in some important ways:
- A business plan tells the story of your business, whether you’re in the pre-launch phase or have been in business for several years. It explains why you’re opening and growing your business, who you aim to attract and serve, who your competitors are and what sets your business apart from them, and what resources you need to accomplish your goals. It shows potential investors and lenders that you’ve researched your industry and markets, and it also helps you organize your day-to-day operations.
- A business strategy outlines the goal you aim to achieve, the value you want to build, and the specific tactics that will drive your success.
While your business plan contains many elements that you control – who owns the business, what services and goods you’ll offer, which staff positions you’ll develop – your business strategy includes less-predictable elements. These are in the hands of your customers, investors, and others outside of your business, and your strategy’s success is a reflection of how they interact with your business.
For example, let’s look at the differences between the two in a real company, Southwest Airlines. Per the Harvard Business Review, the business launched in 1971 with just three planes, and now has become a resounding success. The original business plan was focused on the steps needed to launch a new airline. The business strategy, however, was driven by making flying just slightly more expensive than the cost of taking a bus to encourage people to book flights instead. This business strategy guided them to the successful company they are today.
Why your small business needs a business strategy
In addition to insufficient financing, another leading reason that small businesses have a high rate of failure is due to lack of planning. Here’s how a business strategy can help you:
1. Your business strategy can create clarity and build consensus.
Regardless of what business stage you’re in, your business strategy can help you create clarity and build consensus among crucial stakeholders: business partners, investors, and key employees. Your strategy grows from your mission, vision, and goals. It gives you an opportunity to improve support for the outcome you want to achieve by clarifying your goals and increases buy-in for the strategies and resources needed to achieve it. Your business is more likely to be successful when all your key players are focused on the same goal.
2. A strategy creates sustainable competitive advantages.
Going back to the previous example, Southwest did several things that were groundbreaking, including using only one type of airplane to streamline training and maintenance and reduce expenses. They also eliminated the need for in-flight meals by flying short routes, and established an innovative flying distribution model. By the time Southwest had built the airline around these strategies, major carriers were scrambling to catch up, which created tremendous value for Southwest.
As you develop your business strategy, identify ways that you can do business differently to achieve your end goal – and show why this is better for your customers. You’ll need to conduct thorough research on your competitors to find where you’re best suited to differentiate your business. Keep your customers top-of-mind – can you better serve them with faster production times, higher quality products at an affordable cost, or a better customer service model?
3. A business strategy guides decision-making and resource allocation.
Customers, friends, and investors will inevitably tell you what you should offer or how to do business differently because of a competitor. Your business strategy will help you cut through noise so that your human and financial resources are focused on achieving your goal. When you’re considering suggestions, ask yourself, “how does this serve my strategy?” If it doesn’t, it might not be worth the resources while you’re focused on this particular set of goals.
How to create a business strategy
Your business strategy should focus on an outcome that creates value, primarily for your customers.
For example, Southwest didn’t create a new airline so that people could fly – those already existed. Instead, the value that it offered consumers was a way to get to their destinations that was easier, faster, and even fun – all for just a bit more than the cost of a bus ticket.
Consider this: What’s the value that you want others to gain through your business? Can you put into words a theory that drives that value, and how can you build your business across segments? Once you figure those out, creating an effective business strategy becomes easier.
When creating your business strategy, think of where you want to play and how you want to win. Then, determine if you have the skills, expertise, and resources to make that happen.
Think of it as the higher-level, bigger picture view of your business and goals. As you’re honing your ideas, it’s also wise to consider how your strategy can provide value to other key players, including employees and current or potential investors.
Here’s an example of what this could look like for small businesses:
- Let’s say that your business is an artisanal-chocolate shop. Right now, you offer the chocolates by the piece or pound or in gift boxes onsite and through an ecommerce shop.
In developing your new business strategy, you want to think about ways to build new revenue lines, the target audiences who may support them, and how you bring value to them. Given this, your new business strategy includes:- Offering onsite and online chocolate-making classes, including adding chocolate-making supplies to your in-person and online stores
- Creating a targeted wedding/special event program
- Adding a corporate-gift program
If you’ve been in business for a while, your business strategy may also include a product portfolio analysis to decide if you need to add or expand any product lines. You may even decide to remove some, depending on how successful they’ve been and how they support value and your overall offerings.
In this chocolate shop example, while adding corporate-gift and event programs that feature your chocolates, you may also decide to eliminate your line of pre-made food-based gift baskets, because sales and interest are low.
5 steps to create your business strategy
No matter what stage your business is in, you’ll follow five key steps to create a valuable business strategy. Each step includes a set of questions you’ll need to answer before moving on to the next one:
1. Develop your baseline
What are your business vision and values? What is your business ambition? What would you like to avoid? What are your business existing capabilities and assets?
2. Conduct a SWOT analysis
What makes your business successful? What could your business do better? What does the market want? What will give your business the “right to win” in the future?
3. Identify opportunities to grow
What are the growth opportunities available to your business? Why should these initiatives be considered? How does each initiative align with your business’s values? What enablers are required to capitalize on these opportunities?
4. Prioritize growth opportunities
What criteria should be used to prioritize opportunities? What opportunities offer the highest growth outlook? What is the implementation risk associated to each opportunity? What opportunities offer the most attractive risk/reward profile?
5. Get ready
What questions have we not answered? What are the key implementation milestones? What is a realistic implementation schedule? What system should be put in place to monitor progress?
If this process is new to you, start at the beginning with the development of your business’s mission and vision. If you’re updating an existing strategy, review the questions for consideration and use your team’s insight to revise and strengthen your strategy. Then, simplify your results so that everyone on your team is clear on your goal, theory, value proposition, and strategies – it’s an investment of your time that’s certain to pay off.
When to update your business strategy
If your business strategy is on the mark, it should have a relatively long shelf-life. If tweaks are needed, they should be reasonably easy to implement. However, it’s important to review your strategy regularly, especially when there are major disruptions in your industry or an unforeseen circumstance.
For example, think about how your business strategy needed to change during the pandemic. Your usual way of doing business was likely interrupted and perhaps not even possible. Instances like this call for a strategy review, but make sure you schedule regular reviews throughout the year. When reviewing, make sure that your strategy is still serving your goals, and that your current tactics are in line with your strategy.
Pursuit can work with you to hone your business strategy and get funding to see it through
Pursuit has a variety of loans and a line of credit that are tailored to meet the needs of small businesses at every stage. When you work with us, you’ll find financing for a range of eligible uses and with more flexible approval criteria.
In addition, eligible Pursuit clients can take advantage of our Business Advisory Services that include consultants for marketing, financial management, business strategy, human resources, and more, at no cost to you. Together, we’ll help you hone your skills and build strength, strategy, and success throughout your business.
Take a look at our financing options and consulting services, then contact us to learn more about how we can help you.
