Introduction
Most small business owners consider strategy a complicated process only for large organisations. The reality is that business strategy applies to any business regardless of size and complexity.
Setting a strategy is the most important thing you can do to achieve success for your small business. Let's have a look at what it entails.
What is a small business strategy?
A business strategy is as straightforward as setting a plan of how, when and where to sell your products or services at a profit. How complex your strategy is will be determined by your business type and the market you operate in. Your plan should act as a roadmap leading to long-term business success. Let's unpack this in more detail.
Business strategy roadmap
Setting a plan of how, when and where to sell your products or services is the foundation of a strategy. If you are a small business owner, chances are you have given this much thought already. But sometimes, a little more detail is required for your strategy to sell your products or services in the most effective way (the how), at the right time (the when), and to the right target market (the where).
1. Formulating a Vision and Mission
Setting a vision and mission is the first step in your business strategy roadmap. Start by asking a simple question: Where do you see your business in the future? That's your vision - achieving the ultimate purpose for your business. It describes what your business will be in the future.
The mission describes how you are going to fulfil your vision. Start by asking this question: What is the purpose of your small business? If you have a purpose, you have something to work towards. And if you have something to work towards, you can fulfil your vision.
2. Setting Objectives
Where the mission and vision set the overall map for business success, the objectives pave the roads to follow. Objectives are specific goals and targets to achieve the mission and vision (primary objectives) and to execute your strategy (secondary objectives). Your objectives should be SMART:
Specific - Should be clear and easy to understand.
Measurable - Should be able to monitor the progress.
Attainable - Should be achievable.
Relevant - Should be appropriate for achieving the mission and vision and executing the strategy.
Timely- Should have a deadline.
3. Performing an Internal Analysis
Before paving the roads (setting secondary objectives) on your strategy roadmap, you need a strategy to pursue. And before you can choose a strategy to achieve your mission and vision, you need to evaluate your business (an internal analysis).
Internal analysis helps to identify what your business is capable of. In other words, what skills, assets, and recourses do you have at your disposal to turn your products and services into a profit? It will help you to determine your business's strengths and weaknesses.
Areas to focus on when performing an internal analysis of your small business:
Physical and operational resources (Premises, warehouse, machinery)
Human resources (Workforce, skills, management, culture)
Financial resources (Cash available, bank facilities)
Organisational resources (Systems, methods, networks)
4. Performing an External Analysis
Now that you have determined your capabilities and resources, you need to know your external environment. Knowing what is happening in the outside world is essential to decide on a strategy. It will help you to identify threats and opportunities for your business.
Areas to focus on when performing an external analysis for your small business:
Assessment of the competition (Current competitors, new entrants)
Analysing your industry (Markets, supply chain, substitute products)
Evaluation of the general macro-environment (Economic, political, social, technological, stakeholders)
5. Evaluate Position
After performing the internal and external analysis, you have all the information available to determine your current position. In other words, can my business formulate the correct strategy to make a profit? A SWOT analysis will help to summarise your findings.
Strengths - Internal analysis (Things you are doing well)
Weaknesses - Internal analysis (Things you are doing poorly)
Opportunities - External analysis (Things to exploit)
Threats - External analysis (Things to avoid)
6. Choosing a Strategy
After formulating your business strategy roadmap, it's time to develop a strategy to follow and connect the dots of how, when, and where to sell. The method you choose will depend on your unique circumstances.
Methods to consider when developing and selecting a strategy:
Cost leadership strategy - Being the lowest-cost producer.
Differentiation strategy - Your product or service is different so that you can charge a premium.
Focus strategy - Targeting a specific market segment or niche.
Broad scope strategy - Targeting the whole market.
Market penetration strategy - Using existing products within existing markets.
Market development strategy - Using existing products with new markets.
Product development strategy - Developing new products for existing markets.
Diversification strategy - Developing new products for new markets. The risky option.
Conclusion
There is no single correct or incorrect method to choose. You can also select more than one method as long as it helps you to increase sales and profit. Your strategy should fit into the roadmap that you have been working on. After choosing a strategy, you can draft your secondary objectives for executing your strategy.