In this series we are using the analogy of making a chocolate cake when it comes to formulating a Business Plan. In Step 2, we need to establish a strategy, which is a bit like thinking about the types of ingredients you are going to need.
(Establishing a Strategy is Step 2 of Formulating a Business Plan. If you haven't already please refer to our recipe for building bigger profits post)
Strategies often boil down to just a handful of few core “Strategic Themes”, they are really high level, but remind you quickly of what you and your business are about. For example, if we think of a bespoke builder - their strategic theme is going to be focused around satisfying and exceeding the clients expectations aka “customer intimacy”. Whereas a contract builder to a larger building franchise where floor plans are prescribed is going to focus on “operating efficiently” to ensure costs are maintained within the prescribed parameters and price set with that floor plan. Conversely if you were delivering prefabricated housing, which isn’t currently done so much in New Zealand, the theme may be more “technology driven”.
With a strategic theme in hand you can start to develop words and actions that fit around that theme. A good thing to remember is that at the core, the customer must always be considered in the strategy - failure to consider the needs of your customers is a recipe for long term failure. In some cases, those businesses that operate on a low cost, high volume model have focused so much on operational efficiency to eek out margin gains, that they have forgotten who their customer is. As you work through the rest of the steps we recommend you working through the framework around the customer satisifaction as well as your staff to ensure a balanced and sustainable business is created.
If we think back to baking our cake - the strategic theme, might be like the base ingredients for our cake such as flour, sugar, chocolate & lots of it!
SWOT? what's a SWOT, nope, no flies here.
In strategy speak a SWOT stands for Strengths, Weaknesses, Opportunities, Threats.
It’s a great planning tool for assessing the intended strategy. Basically, a piece of paper is split into 4 quadrants each labelled with one of the headings, put pen to paper and work through the exercise of determining your internal capabilities and deficiencies (Strengths and Weaknesses) as well as external possibilities (Opportunities & Threats)
With this information in hand you now have a list of positive elements you can use to your advantage (Strengths & Opportunities) whilst being mindful of the risks (Weaknesses & Threats). Not to mention that with your Weaknesses and Threats identified you can also develop plans around how to minimise the impact of these.
Goals or Objectives as they are sometimes called are the ingredients for a successful business.
Goals breakdown the high-level vision statements and strategic themes that you’ve recently developed into comprehendible destinations.
Goals can, and need to vary in length. Some may be 1 or 5 year goals, but in order to be focused on achieving these goals they need to be broken down into bite sized portions. Anywhere from weekly onwards, but our recommendation is to set them mostly as monthly or quarterly goals, this makes them reasonably sized chunks to work towards without getting too detailed as the detail will be fleshed out in the next section on Actions.
There is a real art to establishing goals that are the right focus to achieving strategy. We are proponents of a “balanced score card” this involves categorising goals into the following categories:
- Financial Goals
- Internal Business & Process
- Learning and Growth
What’s great about this approach is that it focuses on developing goals that inter-link. As an example a goal within learning and growth has an impact on the ability to achieve goals within internal business and process, which in turn filters through to customer and financial goals. By using this approach, well rounded goals can be developed that build a solid well-rounded business. We’ve seen many businesses that are too focused on financial goals, yes these are important, but are an outcome of developing strong staff, process and customer goals. Focusing just on financial goals leads to short term behaviour, which will ultimately see you lose staff and customers in the longer term.
If you want the goals that you establish to be effective then it’s a good idea to make sure your goals are SMART.
S – Specific
M – Measurable
A – Achievable
R – Relevant
T – Time bound.
Incorporating the attributes of SMART into each goal has a powerful effect on the likelihood of a goal being achieved.
At Evolve Accounting we specialise in facilitating the creation of business plans and all other aspects that go into business plan such as:
- Business Plan formulation
- Goal Setting
- Cake Making
- Establishing Key Performance Indicators
- Accountability to your goals
- Acting as a virtual chief financial officer to your business (VCFO)