At the point of creation, a new business has a strategy. There will come a time when that model is not as attractive as it originally was. Competitors may have entered the space, or upped their game, customers might be more demanding, margins may start coming under pressure, and you as the business owner might be working 12 hour days.
That’s the time when you need to have a formal strategy workshop. You need to think through what you are doing, how you are doing it, why you are doing it and what are its benefits. That’s not going to happen when you’re moving at breakneck speed trying to keep your head above water.
If your business is to succeed in this volatile, uncertain, complex and ambiguous (VUCA) world, then it must understand exactly where it plays in the market that you have chosen, and most importantly, how it intends to succeed in this space.
The challenge that most business owners face is that there is so much pressure to put out fires that very little attention is granted to the spark of industry-defining ideas. If you want to stay in business long-term, making the time to reflect and think deeply about the direction and competitiveness of your business is nothing short of essential.
Every business operates within a far larger matrix. We are affected – positively and negatively – through external events over which we have little or no control. Currency fluctuations, Brexit, trade agreements, economics, the political environment, tax rates, legislation and a host of other influences that impact our business environment.
In a strategic planning workshop, at least a morning needs to be invested in understanding how these external factors impact the business. A PESTLEID analysis can be undertaken, and this follows the process of evaluating the Political, Economic, Social, Technological, Legal, Environmental, International and Demographic landscapes.
This process is not a conversation, but rather an in-depth analysis of each of the PESTLEID factors, each of which is broken down into detail. Each detailed factor is ranked in terms of probability and impact. High probability and high impact factors are firmly placed on the firm’s radar, and scenario planning is completed for these events. Low probability but high impact events are allocated to accountable individuals for observation, and might be scenario planned depending on their severity.
By the end of this process, each person in the room must have a sound idea as to the context in which the business is operating, and what external factors the business is likely to experience within the next year.
Through scenario planning, each individual will also understand what the best course of action will be for the organisation should any of the high-impact scenarios come to be, and will be equipped to play their role in taking those actions in order to minimise business disruption.
The only person who can tell you what your customers want and need is your customer. It is a fatal mistake to believe that anyone in your organisation is qualified to speak on behalf of your most valuable assets.
Key customers can be invited to join you for a portion of your strategy workshop, or you can survey your customers beforehand and present the information on the day.
In this conversation, you are unpacking what it is that your customers want from you. But a note of caution that is magnificently phrased by Henry Ford when he said: “If I’d asked my customers what they want, they would have told me a faster horse”.
Remember that your customers can and will generally only tell you what they want and need given the same operating conditions for both yourselves and themselves. And that’s OK, because it defines the foundational sandpit in which you are operating right now.
Customers can tell you how your service ranks in comparison to competitors, how competitive your pricing structures are, their satisfaction with your sales process, how well your product performs, their experience of your service, and any gaps that might be sitting in your blind spot. This gives you the ‘as is’ situation and is an invaluable starting point.
It is important not to become so fixated on your competitors that you lose sight of your own direction, but you certainly want to know what your competitors are up to, lest you get blindsided by their actions.
Ideally, you would arrive at the strategy session understanding the market shares of your various competitors. In addition, you would know the share of wallet that they attract, and compare this to the share of market. Variances between the two indicate a pricing strategy that may deserve closer inspection. If accessible, a study of the competitors’ financial statements is never wasted as this indicates industry growth rates, profit rates, margin rates and the like for comparative purposes.
Then, a subjective analysis can be completed, but this can be done during the workshop. Here, the focus is on the offering and the softer skills that your competitors bring to the table.
- How strong are their customer relationships?
- How well do they sell against your products?
- How are they achieving their growth?
- What do they do particularly well where your performance is sub-par?
- What do you do particularly well, that outshines them?
The more heads that think through these issues, the more objective the information becomes.
What you’d like to achieve at the end of this session is a list of things that your customers insist you have in your offer, ranked against your competitors. Then, you’ll have a list of ‘order winning’ value added offerings, also ranked against your competitors. You’ll be able to see where you are performing better, and worse, than your rivals.
This is the time to review what your organisation does particularly well, that when combined in the larger context and when compared with that of your competitors, can create a meaningful and valuable differential for your organisation.
What you are seeking here is something that your business does that your competitors cannot match. Often, these are the things that become ingrained in your culture. They are not a process, they are not a pricing point, but rather are embedded into the way you do business. Think Apple, think design and functionality. Think Ferrari, think performance and exclusivity. When I think of your company, what should the association be?
If there is nothing that your business does that can differentiate it, then this becomes the part of the strategy workshop where you decide what skills your organisation needs to develop or acquire in order for it to effectively compete.
There are a number of frameworks that are useful at this juncture, but all of them ask what your organisation can uniquely bring to the market, and how long you believe this uniqueness is achievable. If your competitors are able to replicate your uniqueness quickly, then your competitive advantage can be eroded before its paid for itself. Where little differentiation exists in a market, the common point upon which to compete becomes price. Margins erode in the effort to win business. Either differentiate, or be prepared to become a low-cost producer.
Creating a Unique Space
This is where strategy becomes as much art as it is skill. The real end-game of strategy is to create a space that completely disrupts your industry, and where your organisation sets the rules of the game. Playing by rules set by others means that you are always watching and waiting, instead of setting the pace and direction.
Thinking of a realistic opportunity takes incredible focus, deep thought, creativity and imagination. At times, new industries are created where the borders of current industries exist so this is a good place to look first.
What Happens After All is Said and Done?
The chosen strategy should be captured in an Executive Summary of no longer than 2 to 3 pages. Anything longer creates confusion and apathy by those who are expected to wade through reams of inputs in order to reach the implementation section.
The chosen strategy must be presented to and worked through in a workshop with those who will play any part in its implementation. Ideally, small teams will be tasked with the implementation of certain aspects of the whole picture.
Remember that the contents of that strategy must form the conversation point of the executives from that point forward. If all you talk about is profit, profit is what the business will chase. If you focus on strategic delivery in each of your conversations, the business will deliver. And, when you’re tired of talking about the strategy, you’ve likely only done 10% of the job needed, so keep talking strategy.
Organisational Design Disruptions Do Not Occur In A Vacuum: Future Business Models
What is the shape of the world in which models need to operate and how do they come together to build future value?
In today’s ever-changing world, organisations are using a disruptive business model design to build unique approaches to creating value and organisations that are ready for the future.
At all scales, from micro-enterprise to multinational, operating in multiple settings and contexts, rethinking business models has become one of definite ways of offering customers something truly better than what already exists.
To ensure sustainable business growth, businesses need to navigate modern economic development and societal issues and in so doing articulate what meaningful, inclusive and enduring value looks like. In the past, a linear approach to business model design may have sufficed – inputs enter a logical process that creates outputs of value.
Today, to truly deliver a value proposition that can flourish, an understanding of the way that complex adaptive systems come together to create both outputs and outcomes is required. ACCA identified12 characteristics that organisations are combining as they build new business models. The full model and characteristics can be read here.
The accountancy profession is well placed to support the growth of business models of the future that help build resilient, inclusive and prosperous societies, by leading in strategic roles. In order to be ready to make the most of these opportunities professional accountants will demand new skills. Financial acumen, technical knowledge and ethical judgement are attributes that the accountancy profession can uniquely bring to support business model innovation across the three spheres of value proposition, value creation and value capture.
But to navigate the contours of a changing economy, new mindsets are required. These include the ability to:
- think like a system
- understand how to capture and assess new sources of value
- build creative capabilities to think differently and problem solve
- adopt a long-term mindset.
Business models of the future: Systems, convergence and characteristics attempts to answer fundamental questions; why does business model innovation matter? What is the shape of the world in which models need to operate and how do they come together to build future value?
Developing A Business Model That Works
Use these six tips to create the financial section of a business plan that will get your company off the ground.
The following excerpt is from Scott Duffy’s book Breakthrough.
What’s the first step in figuring out how to execute your big idea? Creating a working model for your business.
We’ve all been brainwashed into thinking that the best way to do this is to sit behind our desks and write a long, detailed business plan. You know the kind: It starts with a fancy cover and your mission statement, then describes your team, market, product, competition, and so on.
Most entrepreneurs spend a lot of time and resources writing their plan. Too often, they get feedback from all the wrong people. Their friends and family want to support them, but they’re telling the entrepreneurs only what they want to hear — that they have come up with the next Google or Apple or Tesla (keep in mind, none of this feedback is coming from customers).
By the time the entrepreneur gets to the last section in the business plan — the financials — he’s totally sold on the idea. Sometimes the financial section is left unfinished or dropped entirely as the business is launched.
And why not? We’re passionate. We’re committed. We know we can’t fail. So what are we waiting for? Let’s go!
Here’s the problem: Most entrepreneurs change their business model six times when working through the financial section of their plans. While running the numbers, they identify key distinctions with regard to income and expenses. They gain a deeper understanding of what it will take to break even and how to achieve free cash flow. As a result, they come up with better-informed strategies for attaining their desired financial outcomes.
The most important part of the initial business planning process, and the one people most often neglect, is getting your numbers to tell a story that makes sense for you and your investors. If you start at the beginning of the plan only to learn that your assumptions about the business don’t add up once you reach the end, you’ve lost valuable time and money.
Regardless of whether you’re in startup or growth mode or moving to the next stage of your business, mistakes can be costly, so here’s what I recommend:
1. Start with the last page first
Once I have a basic understanding of what I’d like to build, the market, my target customers, the business opportunity, and the product, I dig right into the numbers and create a simple one-page spreadsheet that clearly identifies how the money flows. Basically, I write business plans backward. I’ve learned that once the numbers tell the story you want, the rest of the plan will write itself.
2. Don’t wait
Don’t make this process more difficult than it needs to be. Limit your model to one page. Create the simplest, most basic spreadsheet you can that identifies income, expenses, breakeven, cash flow, and the capital required to achieve your outcome. Use conservative assumptions, and don’t rely on best-case scenarios.
3. Get out of the office
You’ll learn more about your business by getting into the market than you ever will sitting behind a desk. At least 50 percent of your time should be outside the office gathering information that can be applied to your plan. That means contacting industry insiders to learn more about the market, talking to prospective customers about their needs, and testing your competition’s products and services.
4. Be careful who you listen to
When we have an idea we passionately believe in, we’re convincing. It’s easy for our family and friends to tell us we have a winner on our hands because they want to be supportive.
But when you’re modeling your business, the people whose feedback matters most are current and potential customers. Listen to what they have to say and apply what you learn to your model. Let their feedback, and not your enthusiasm, sway your projections.
5. Don’t throw out negative feedback
Sometimes it can be difficult to absorb negative feedback in a constructive frame of mind because we’re so close to our projects and have so much on the line. We start rejecting and deflecting feedback that isn’t in line with what we believe.
But honest, educated feedback is like gold — use it to open your mind and ask tough questions about your assumptions. You must be obsessively committed to asking what you can learn from this feedback and how you can apply it.
This is especially important for people entering new markets where they don’t have prior experience. Getting feedback from others who’ve lived in the space will add to your perspective. Sometimes you’ll learn that there are things you don’t know as a newcomer that would significantly impact your financial results.
In fact, this holds true throughout your business’s lifetime. The entrepreneurs I know who’ve built the most successful and thriving businesses are obsessed with getting constant feedback from the marketplace and adapting their businesses based on evolving market needs.
Related: Developing a Stable Business Model
6. Be open to what the numbers tell you
The worst thing you can do is try to manipulate a model to match your assumptions. You need to approach your financial model with a completely open mind.
Recognise that it will probably take longer than you initially thought to get to market, generate revenue, create profits, and accumulate the cash flow you need to operate and further invest in the business. By being open, you’ll be able to make distinctions, apply them to your business, and set yourself on a path to success.
You need to be clear on where you want to go and put a simple and adaptable plan in place to help you get there. The clearer your vision is upfront, the easier it will be to back a plan to help you get there. Being obsessed with customer feedback will enable you to tweak strategy in a way that evolves with the market and helps keep you on top of the competition.
This article was originally posted here on Entrepreneur.com.
4 Types Of Business Models To Suit Your Business Concept
There are four main types of business models, see which one suits your business concept.
Different types of business models suit different types of businesses. A business model is the way that a company sells products to its customers. It describes how a business creates, delivers, and captures value.
What type of business model should you adopt?
A business model defines how the enterprise delivers value to customers, gets them to pay for that value, and converts those payments to profit.
There are four basic types of business model that any for-profit business will fall into:
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