Of the hundreds of thousands of businesses started each year, only a few get off the ground. Many are doomed to fail right from their spectacular launches. In many cases, business failure is attributed to a poor or badly-executed strategy.
Like many entrepreneurs, you may have started your business to seize a short-term opportunity without thinking about a long-term strategy, and there’s nothing wrong with that.
To be a successful entrepreneur, however, you have to quickly shift from a tactical to a strategic mindset to begin developing critical competencies and resources.
It’s important to avoid being so bogged down by short-term concerns that you forget to define and refine your long-term strategy.
In a young business, coming up with a sound strategy is more important than resolving hiring concerns. It is also more important than developing control systems, establishing reporting lines or defining the founder’s role.
Even weak leadership can be overcome by implementing a sound strategy. On the other hand, even sophisticated control systems and organisational structures cannot replace a poor strategy.
To ensure business success, entrepreneurs should put their strategy to the following four tests regulaly:
Is your strategy well-defined?
A good strategy must provide clear direction. Even if you have a business as a professional consultant, you will benefit from a strategy that clearly defines what you want to specialise in and how to do it.
Specialising in particular industries or types of transactions often results in access to higher potential deals. Independent consultants are able to charge higher fees when they’ve built a reputation in a specialty area.
To build a business that’s likely to have long-term success, entrepreneurs must have an explicit strategy. A good strategy integrates the entrepreneur’s vision, market needs, geographic reach and technological capabilities.
Such a strategy must provide a decision-making and policy-setting framework that will take the business from where it is to where you want it to be.
A good strategy includes your company’s goals and objectives, the type of products and services that you plan to offer, the customers you target to sell to and the markets that you serve to make profits in.
Start by formulating a concise strategy statement that employees, investors and customers can easily connect with.
For example, there’s a difference between stating that your business aims to “provide high-performance outdoor equipment” and simply stating that you’re in the “leisure and entertainment industry.” The first example defines your business, forming the basis for a well-defined strategy.
Can the strategy generate sufficient profits?
The goal of any business is to make profits. Your strategy must always be geared towards profitability and growth. If your strategy hasn’t resulted in satisfactory returns, you must ask yourself some tough questions: How, for instance, do your costs compare to your competitors’? Does your business have a competitive edge? If you have a competitive edge, do you charge a premium for it?
Does the premium charge justify any additional costs on your end? Can you move enough volumes at higher prices to cover fixed costs? Is the market large enough to sustain growth?
If you’re stuck in an unprofitable venture that isn’t growing, you must take radical action. You will have to either find a new industry or develop innovative economies of scale or scope in your existing field. For example, instead of a dine-in restaurant, you can set up a dark kitchen and deliver delicious meals to your customers at their convenience.
Is your strategy sustainable?
Even if you started your business to take advantage of a short-term opportunity, the time will come to figure out if your strategy can sustain your business in the long term. There are many entrepreneurs who start business ventures to ride the wave of new technology or a beneficial regulatory change.
Such entrepreneurs can prosper at the outset. But when the wave crests and market imbalances disappear, those who didn’t adequately prepare for the changes disappear as well. If you start a business as a wave rider, your strategy must anticipate market saturation, growing competition and the next wave. You must be prepared to shift to a more durable business strategy.
Alternatively, you can sell your high-growth business for a handsome price before the wave crests, in spite of dubious long-term prospects. Savvy entrepreneurs always know when to exit a business instead of pouring more money into it.
Do you have the resources to execute your strategy?
The most difficult question to ask yourself is whether you have the resources and capacity to execute your strategy. Having a great idea isn’t enough, you must be able to properly execute it. You must ensure that you (and your employees) have the skills required to implement your strategy.
In addition, do you have the amount of money it will take? If you self-funded your business at the beginning, you may have to think about finding investors or other more sustainable sources of capital to build your enterprise over the long term.