Clarity is the alchemy that divides businesses which fail from those which enjoy longevity. When businesses lose direction, or have none to begin with, it’s a sharp and relatively quick downwards spiral towards closure or acquisition.
A lack of clarity is something that can plague the smallest to the largest organisation. We are operating in a volatile, uncertain, complex, ambiguous (VUCA) world, and in facing these conditions, and dealing with our own internal turmoil, we can find ourselves lost – or at a loss – at times.
1. What business are you in?
This may seem to be the most mundane question to begin with, but in contrast to its simplicity, it sets the strategic direction for organisations.
Consider McDonalds, for example. Asked what business McDonalds is in, we would probably answer fast food. Ask McDonalds that question and the answer you’ll get is property.
Knowing this fact helps us understand that McDonalds will only purchase prime property, in high-traffic areas. Unless this raison de etre changes, you will not find McDonalds locating in Petrol Stations.
Understanding the very core of the business you operate gives a massive injection to knowing the strategic direction of the organisation.
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2. Is the market there?
Whilst the answer to question 1 is an internal, strategic question, question 2 requires engagement with sources outside your organisation or circle of friends.
It is imperative that you quantify the size of the market that you are aiming for, and understand as much about the market dynamic as possible, prior to market entry.
You have to consider the size of the market, how competitive the space is, and whether power is held asymmetrically by any of the players. Think long and hard about how you are going to win your piece of the pie, particularly if you are low on resources versus your competitors.
3. What problem do you solve?
Answering this question helps you understand the need your business addresses. Position your answer in the context of solving a problem that a consumer or business has.
Doing so shifts your focus from features to benefits. For example, if you are a motor manufacturer, saying that you get people from A to B might be true. However, if the only thing your car does is get you from A to B, then your competitor will also be bicycles.
There is far more to this picture than what may be immediately obvious, so it’s important to invest time really thinking through your answer to this question.
4. Who do you serve?
This question is intertwined with 3 above, but moves the question to a different level. This focus requires gaining clarity about the consumer who will buy your product or service. Or, if you’re in the B2B sector, which is the organisation your business would love to serve?
It is important to define this to the point that you can describe your client in terms of an actual person, or specific organisation, and have identified the traits that make them your ideal client. This client–centric approach allows you to gear your business and your marketing around your client’s specific needs and expectations.
5. How do you make money?
- How does your business intend to create income?
- Are you producing a product with a certain margin on at the time of sale? Are you offering a service of some kind?
- What pricing strategy are you going to pursue?
- What is the pricing currently on offer by your competitors
- How does your pricing compare versus the value you are – or intend to be – offering?
Pricing your offering at the correct point is one of the most crucial decisions you’ll make as an entrepreneur. Price too low and you leave too much on the table. Price too high and your demand dives. Pricing in the middle secures you the highest possible demand at the best possible price.
6. How much money do you make?
If you consider the cost structure that your business has, versus the revenues that you imagine you will achieve:
- How much money is left on the table at the end of each month, each quarter and each year?
- Is the residual income sufficient to reward you for the risks you are undertaking and the effort you are investing into the business?
- Is there enough cash flow to sustain growth and to fend off competitor interest, should it arise?
- Are your earnings sufficient to meet your longer term expectations, and those of your shareholders or investors?
If you are not comfortable with cash flow analysis, get some help from someone who is. If your business isn’t generating cash the business model won’t sustain.
7. How are you different from your competitors?
What separates you from your competitors? Why would a customer buy from you versus another industry player? When there is parity in the market, the lever to shift is price. Those lofty revenue ambitions that you set drain away as you relentlessly discount to win business.
Your differential needs to be clearly definable and must be something meaningful to your customers. It is absolutely pointless to excel at something that is meaningless to your customer.
There are certain things that you must do to play in the market, and then there are things you can do to win in the market. How do you win over your competitors? Unless you have a distinct and definable differential, expect to compete on price.
8. How do you delight your customers?
There is a vast difference between locking your customers into a contract for 24 months – so that they cannot leave you even if that would be their choice – to designing your offering to be so attractive to your customer that they choose to remain with you, despite competitor approach.
If you don’t believe this is possible, consider the millions of Apple fans and how unlikely it is that they will defect to other providers. Delighting customers means really understanding what they want, what they need and when and how to give it to them.
Remember that in marketing, everything counts, so this question must be answered in the context of all the marketing P’s – product, price, place, promotion, people, process and physical environment. With the digital age upon us, these can be expanded to include participation, prediction and personalisation.
9. What happens if …
A large part of your strategic planning approach must be to scenario plan. We are in a VUCA world, and as a result, things happen that we did not anticipate.
Any business can overcome the smaller humps and bumps. However, what if a ‘black-swan’ event occurs; an event that is very rare, but highly significant, to the extent that it is game-changing. Think in the context of how AirBnB disrupted the hotel industry and how Uber has changed the taxi industry.
- What if an AirBnB or Uber arrives in your industry?
- What if they take your largest customer?
- What if they undercut your pricing by some margin?
- What if they offer more value than you can afford?
Negative events should not be the only thing you consider in scenario planning.
- What happens if one of your competitors goes up for sale?
- What happens if one of your competitor’s largest distributors approaches you for business?
- What happens if the opportunity of a lifetime presents itself on your doorstep?
- How ready will you be able to leverage the opportunity to your advantage quickly?
10. What next?
This is a question that every entrepreneur must hold in their mind, because it dictates how the business is managed and run.
- Is the business being built for sale in 5 years?
- Are you actively looking to franchise at a future point?
- Are your plans to expand into Africa or other continents in the near future?
- Is the business being run as a cash cow with the intention of an exit within the next few years?
Each of these strategies has a very different and distinct way that the business must be managed. You must know therefore, with clarity, what your intended future holds.
Once these 10 questions have been asked and answered to your satisfaction, they will need to be asked and answered again in a repeating cycle. The process of gaining and maintaining clarity around your business is never-ending. The business environment is always changing. Similarly, you as an entrepreneur are not static in your needs. Clarity is business alchemy. And knowing the answers to these ten questions at all times during your entrepreneurial journey enables you to transform your business into gold.