Formulating a Strategy Before Starting Your Business
Q: How important is it to have a business strategy before starting the business?
A: Don't expect a strategy to guarantee success. Many companies spend a lot of time developing the wrong strategy. GoldPocket Interactive Inc.'s initial strategy was about running large-scale, "Who Wants to be a Millionaire?" type events across the Internet. It didn't happen. The revenue model was weak, and they couldn't make enough money.
Other companies punt strategy altogether and do wonderful things. FTP Software was founded to give the entrepreneurs a place to work for themselves. Their product strategy was simple: "Gee, one of us developed some public domain software as a college research project. Let's just sell enhancements to that." The company was wildly successful and headed for their IPO with six years of steadily growing profits, despite a total lack of business thinking.
So does this mean strategy is a waste of time? Not at all. Strategies don't guarantee success, and they often change as a company grows. But the big benefit to creating a strategy is understanding and exploring your assumptions about the business. With that preparation, you'll make better decisions when the strategy derails two hours before your first product launch.
So spend some time to think through several different kinds of strategy, including your:
Who do you want involved? What skill sets do you want to be present in the company? What values? What ambitions? Are there specific people you want on your team for their experience, contacts or knowledge? Are there industry thought-leaders who you want to win as advocates over time? Does the size of your workforce vary with sales or seasonally? How do you want to manage that? Will you rely on full-time work, contractors, temps and so on? These questions will help you understand the impact of how you hire, fire and pay people.
How you actually deliver your product or service may make a huge difference. JetBlue Airways is a profitable airline during the worst slump the airline industry. They did it by standardizing on a single kind of jet, optimizing turnaround time at the airport gate and choosing short hops between nonmajor airports as their preferred routes. The result: savings on training, airport fees, repair fees and more, giving JetBlue a huge operational advantage over its rivals.
Decide who you're serving, what need you're filling and how you'll reach them. Then test your assumptions as the business unfolds. Let's say you target small-business owners, selling them a phone system that's simple and easy to understand. The 200th time you hear, "We'd really prefer something more complicated and harder to use," you can explicitly revise your marketing to cope with the customer feedback.
Know who else in the market addresses the needs you've targeted. Ask, "If the customer weren't buying my product or service, whose would they buy instead?" The answer may surprise you. Scott Cook, co-founder of Intuit, keenly determined that the biggest competitor to the Quicken checkbook program wasn't another software package--it was pencil and pen, and the way Quicken competed was not by having a lot of features, but by being easier to use than a paper checkbook!
FTP showed that strategy isn't always necessary. But their Zen approach to business wasn't sustainable. Microsoft entered their arena, and within two years, FTP was gone. They hadn't taken the time to formulate a good competitive strategy, and the lack of forethought took its toll.
GoldPocket, meanwhile, had benefited from their strategic thinking. They knew what assumptions they were making about the market. They understood what their technology delivered and how it could fill marketplace needs. They reevaluated their options, closed down their game show, moved to Los Angeles and in 2003 were nominated for an Emmy for their interactive TV technology.
So give it a shot--pull together a strategy at the very start. The future may not cooperate with the course you lay out, but thinking it through will prepare you to deal with the chaos of the marketplace as the business unfolds.
Stever Robbins is the founder and President of LeadershipDecisionworks Inc., a national training and consulting firm that helps companies develop the leadership and organizational strategies to sustain growth and productivity over time. His web site is http://LeadershipDecisionworks.com.
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.