How do you know you aren’t working harder and harder to do better and better at something you shouldn’t be doing at all?
Part of the answer is to make sure you know where you’re going. The other part is to make sure you're making good progress getting there.
Charting a business voyage
Contrary to popular opinion, Christopher Columbus—an entrepreneur in every respect—had a very good idea of where he was headed and didn't fear falling off the edge of the earth at all. Earlier sailors hinted at a route to the Orient, and mariners and landlubbers alike had known the world was round for over 1700 years before his historic voyage.
But in a sea of business uncertainty, how do you figure out where you want to go and how to get there? The answer is to have a plan and track your progress.
Strategic planning isn't just for large businesses. You don't need a plans division or a formal document that could double as an anchor. In just a few hours you can create a useful working document that will set you on course.
In a fast moving line of business, such as smart phone app development, a five-year plan doesn't make sense; nobody knows what the iPhone 10 will be able to do. The value is in the thought process and in the strategy you develop.
1. Know why you're going
Knowing the purpose of your business sounds easy enough, but under the surface you’ll find a variety of alternatives.
Do you want to build a nice little mom-and-pop business that allows you to pay yourself, say, $150,000 a year after taxes? That’s a common and noble objective that requires one kind of strategy.
But maybe you’ve already been doing that for 20 years and have decided it’s time to cash out so you can pay more attention to your hobby, go into politics or sail to the South Pacific. That requires an entirely different course.
Do you have a bright idea for a web-based business that you hope will go viral and let you sell out in five years for megabucks? A strategy designed to produce rapid growth obviously has to be different from one designed to produce a steady income stream.
2. Know where you're going
To make sure Mom & Pop Inc. is successful, you might want to focus on controlling costs, and set a goal to cap your fixed costs at, say, 30 percent of sales.
If the goal is to sell your company, three years of profitable growth and consistent or increasing margins should guide your efforts.
The web business will be easy to copy, so you’ll need to get in quick, buy market share if you have to, and demonstrate potential even if you never make a profit.
3. Plan your course
Once you know where you're going, you have to plan how you're going to get there.
A SWOT analysis (strengths, weaknesses, opportunities, threats) is a great way to take a look at your own sitation, along with that of your competitors and your industry.
When you’re sailing, if you’re thinking about what’s happening right now, you’re already in trouble, even if nothing bad is going on. You need to be thinking about what’s going to happen next, and a SWOT analysis can help you do that. The result of your efforts will be a list of objectives to help you reach your goals.
Mom & Pop Inc. might have an objective to reduce real estate costs or perhaps find a way to reduce shipping costs on the products they order for resale.
But if you’re trying to sell your business you might add an objective to also maximize gross profit by making sure to keep your prices as high as possible. Every extra dollar you generate will be worth $3 to $5 when you sell. And raising prices won’t hurt sales as much as you might think. In fact, you might actually make more money—and work less.
If you’re developing bleeding edge software, an objective might be to have a prototype working for display at an important trade show.
4. Watch where you’re going
If you don’t track your progress through good times and bad you won’t know if you’re meeting your objectives and goals designed to achieve your company’s purpose.
Tracking your progress alerts you to changes in market currents or economic winds that can blow you off course. Telltale signs offer an early warning that it’s time to do something. Over and over business people—like sailors—either decide to wait and see if things get better (they inevitably will change, but not necessarily for the better), or they're paralyzed into indecision.
To sum up, a strategic plan will help you navigate the rough waters of change if you do the following.
- Take the time to understand where you’re trying to go.
- Chart a course to get you there.
- Track your progress against your plan.
- And take action when you’re off course.