We’ve arrived at our last segment on getting the right start to 2019 planning. To quickly recap the keys from the previous two:
Make sure you do a thorough situation analysis. We like to use a variation of Porter’s Five Forces.
Get as many people in the company involved in that Situation Analysis as you can. Socializing the key issues confronting your company is a foundational step in getting everyone aligned around future direction. If people understand how the competitive environment is changing, they’ll be much more likely to get on board with new initiatives, even if it means changing the routines and work with which they’ve gotten comfortable.
Now, the real work begins – moving on to creating the plan itself. The most important aspect of your strategic plan is also the most misunderstood – defining the positioning and strategy for your business, product or service. Use this definition of strategy to guide you:
“How you focus your limited resources to create sustainable competitive advantage that results in profitable revenue.”
The most important part of that definition is “focus your limited resources.” That’s because your resources will always be constrained, no matter how big or small your business might be. On the other hand, the market is really big. So you can’t go after the entire market. You just don’t have the resources to do that. But if you choose a small segment of the market, addressing a very specific type of pain point, you can really move the needle. Coming out of the analysis you’ve done on your customers, the competition and the market, you can identify the intersection of those three things. And that is where your strategy lies.
However, it’s one thing to define the strategy that creates sustainable competitive advantage. Focusing your limited resources means making key decisions about how to invest money and people on specific activities. In that way, your income statement should communicate clearly what your strategy is. Once you determine the source of your competitive advantage, you have to completely organize your operation to deliver that advantage. To quote Michael Porter, if strategy is to have any meaning at all, it must link directly to your company’s financial performance.
A couple of examples:
Trader Joe’s: A small format chain competing with the major chains across the country, Kroger, Safeway etc. In that small footprint, they outsell more than 2:1 on a dollar per square foot basis with less than 10 percent of the SKU’s. They do that with a heavy reliance on store brands that are of far better quality that the typical big grocery store brand.
Dollar Shave Club: The business started in 2011 selling razor blades to men through subscription service, rather than compete with the vast physical distribution channels dominated by Gillette and Schick. They took advantage of the viral power of the internet to create broad awareness quickly, and the speed and convenience of the Postal Service to save men that trip to the drugstore. And sold to Unilever in 2016 for $1 billion.
You can see in both these examples how the two companies made critical decisions about how to win in the marketplace. Then, although much smaller than their competition, were able to create powerful competitive advantage by investing in people and processes that uniquely delivered that advantage to the very specific target audiences they were aiming for.
So, getting strategy right is a two-step process. You have to do the hard work of determining where your competitive advantage truly lies. Then you have to completely organize your company around delivering that advantage, which will be reflected in how your spend your investable cash.
Good luck with 2019!