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The Core Components of Business Strategy

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In nearly every engagement where my goal is to craft strategy, I arrive at a point where my collaborators or clients and I need to create a narrative of the good thinking the emerged during the many processes we linked together and begin writing a master document, sometimes call a Strategic Plan. This article covers the foundational elements of the process, discusses strategic context, outlines the possible components of strategy, reviews some the important decisions that need to be made along the way, and concludes with a discussion of the difficult transition from strategy crafting to implementation.

Foundational Elements

There is a wide variety of strategic planning documents, some are short while others lengthy, some are mostly text while others feature graphics and pictures, and some are directive while others philosophical. Yet with all of the variation some commonalities shine through. The foundational elements arise from questions and considerations derived during the strategy crafting process. This section covers the early considerations and strategic context important to developing a useful strategic plan.

More often than not, those seeking to develop a strategic plan envision a single, lengthy tome that reads like a book and provides all of the collective actions necessary to achieve greatness over a defined period of time. This sort of master operating manual for the future is the hope that entices both planners and executives. Many hold on to their dream of creating such a document. In reality, these kinds of strategic plans are doomed to being marooned on bookshelves for a number of predictable reasons. While they may be grand documents shortly after being written, they exist in a changing world and lose relevance with each passing quarter and year. Vague visions lack the detail to be actionable. Individual strategies move at their own pace and become out of synch. Resource estimates made at the point of planning quickly show their error during implementation. Staff and leaders move in and out of positions and lack the knowledge of what they are doing and why. As my colleague Don Norris likes to say, “these kinds of plans quickly turn to fairy dust” and become forgotten.

My foundational principle is to consider a strategic plan not as a single grand document but as a system of living documents of many different types developed for a variety of purposes. Here is a listing of some of the possible elements in the system of documents that become a strategic plan:

  • Purpose and Assumptions – the beginning assumptions of the planning process that include things like foundations upon which strategy is based, part of current plans that should be tested moving forward, recognized conditions or commitments that are believed to be unchangeable, known future states that must be accommodated in emerging plans and actions, and beliefs about what is possible in the future. This document should answer the question, why planning now?
  • Strategy – this is the heart of the strategic plan and includes components such as mission, vision, values, strategies, goals, actions, outcomes, the planning horizon, and the strategic context. I explain each of the these elements more fully in the sections that follow. For many, this is what comes to mind when a strategic plan is mentioned.
  • Imagery – I like to challenge organizations to choose to create a single page graphic or image that represents the entire strategic plan. While I sometimes experience resistance to over-simplifying, I have found that in the end, this single page image becomes the most used and referenced document in the time that follows the planning period. Executives can quickly review their strategy with their employees, boards, customers, and publics.
  • Implementation or action – many planners and leaders know that actions need to accompany strategy or little to nothing gets done. Given that, you would be surprised at how many strategic plans do not include sufficient detail on implementation to fully execute strategy. Beyond the specific actions required to achieve each strategy of a plan, implementation depends on how the actions are sequenced, the length of time allowed for any one action to be accomplished, who will complete the action and ensure it gets done, and what outcomes should be observed once the action is complete.
  • Financial or funding – an even more overlooked element of a strategic plan is an honest estimation of the resources required, both human and financial. So many plans exist as organized dreams with no practical connection the realities of the complexities of resourcing implementation. New strategies are often layered on all existing operations asking individuals to go from 100% to 125% of workload. Equally disastrous is a strategic plan that creates unfunded mandates. A more sound approach is to include an integrated, aligned financial and resource strategy that accompanies vision and goals.
  • Communication – plans can be developed in any number of ways, some written by a small but wise group, others through broad participation and input. With the latter approach, communication is part of the process from the beginning. With the former, the success of the effort is highly dependent on how the plan is communicated and accepted by those that are tasked with implementation and action. I like to suggest that communication plan accompanies the strategy, action, and resource elements in a system of documents.
  • Units, division, or specialty areas – many individuals in organization ask how does this affect me or my department during the planning process. Strategy can exist at such an abstract organization or ecosystem level that there is no way for individuals to understand what to do. Implementation and action plans help this, but the best strategic plans ensure vertical alignment. This is the connection from top to bottom in the organization. Some strategic plans require aligned sub-plans from each of the organization’s units, divisions, or speciality areas.

For each of these elements, I like to answer each a number of questions that helps determine if we need a document or if the issue may be addressed in another way or in another document. What is the name of this document? Names are important when working with a system of documents. Further considerations are how they hang together and how they are sequenced. Who is the audience? Not every part of the strategic plan is acceptable or necessary for every audience. In many plans for example, implementation details need only be viewed by employees and managers, while important strategic statements like vision and values need to be shared very broadly. Also, some documents may need to have multiple versions for multiple audiences. What outcome does it drive? Each document in the system should exist for a reason and beyond that it should drive some kind of outcome or impact. What are the contents? This goes without saying, but we need to be thoughtful about the length and contents of each document. Short and concise is better than the alternative. And finally, how does the system of documents hang together. This has gotten much easier now with hyperlinked online material than it was in the days of bound paper.

I often use the following graphic in a strategic planning session I call the drafting workshop where I work with the plan writing team to begin to organize their thinking about the system of documents that might emerge from the planning process. Sometimes I will construct and complete a grid containing each of the questions as rows and the documents as columns to better understand the system of documents the make up a strategic plan.

All of these considerations cannot be fully addressed at the onset of a strategic planning engagement, However, without a full vetting of the possibilities, we often end with misunderstood expectations, or even worse, a failed planning process. However, with a honest dialog about the system of documents that should result from the planning process, potential is created, and the organization is better positioned for success in the process.

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About the Author

This article was written by Robert Brodnick , a strategy consultant who bring the best of thought-leadership and practice-leadership to help organizations spark thought and ideas, design and achieve their future vision, and navigate change as they focus, strengthen, and transcend current limitations.

 

Entrepreneurship

Top 10 KPIs for your Tech Startup

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Key Performance Indicators (KPIs) are data points that measure your company’s performance. They help you answer specific business questions such as:

  • Is the business financially viable?
  • What is working well and what needs to be improved?
  • What is driving customers to purchase your products?
  • How can the company improve its profitability?

Let’s look at 10 KPIs that are useful to track for ecommerce, marketplace and SaaS based businesses.

Monthly Active Users (MAU): This demonstrates how many users visit your platform, website or service every month and are “active”. That could mean they engage with the blog, click on the pricing page or interact with the contact form. This is done by the number of users that visit your platform in a certain time period (albeit monthly in this case). For an ecommerce company like Drover, a peer to peer marketplace for leasing cars to drivers, seeing the MAU increasing means it is attracting new users to the platform.

Conversion Rate (CR): According to BigCommerce, even if you are doing everything right –  you’d only expect to make a sale only 2% of the time. Clearly there are ecommerce companies that exceed that, however. Conversion rate can be calculated easily, as per the below:

Conversion Rate: # of sales / # of visitors

Provider to Consumer Ratio: This is important when tracking the growth of a marketplace business. This is defined as the number of customers a single provider on the supply side of the marketplace can serve. This varies radically across different marketplace businesses, according to Phil hu: AirBnB 70:1, Uber 50:1 and eBay 5:1.

Average Order Value (AoV): AoV is crucial to determine how much revenue you can generate over time. This describes the average size of an order on your platform. Naturally, the higher the average order size the better.

Customer Acquisition Cost (CAC): This is a single most important metric that runs across most business models. The amount it costs to acquire a new customer. Ideally, your CAC should be zero – that is every new customer is referred by another potential customer or customer base grows organically. However, that is rarely possible. To bring new customers onto the platform, you’ll have to spend some money. It is really important to track this over time, and see by how much you’re able to decrease it.

Customer Lifetime Value (CLV): This represents the total amount of revenue that you expect to get from each customer. To calculate the CLV, it depends on how long the customer is retained on the platform, how many repeat purchases does the customer make and what is the average order size. To get a general idea, CLV can be calculated based on the average order value multiplied by the average number of repeat purchases per customer.

Churn Rate: This metric measures the number of customers your platform loses over a given period of time (daily/monthly/annually). Churn rate is critical for SaaS based businesses, where customers pay subscription recurring payments. If the churn rate is high, clearly it means the customer base is unhappy.

Monthly Revenue Rate (MRR): MRR describes the predictable revenue stream of your platform. To calculate MRR, you need to understand the total number of customers per month, and know how much revenue does each customer creates, as per the below:

MRR = Amount of revenue per customer * Total # of customers

Contribution Margin (CM): Contribution margin is the margin that is left after you deduct all variable costs of producing the product or service from the total revenues. A common mistake entrepreneurs make is lumping fixed costs of building a product or service and variable costs together and deduct that from the revenue to understand profit. However, fixed costs remain permanent in the business, no matter how many products or service you produce, it is the variable costs (such marketing spend) that you can change in your business. Some of the most common ways to use the CM is to understand which products or services to continue building and which ones to kill or how to price the products or services.

Net Promoter Score (NPS): This is a great metric to understand if customers are likely to refer you to other users such that your platform can grow organically. To calculate NPS you must ask a specific question:

How likely is it that you would recommend [brand] to a friend of colleague?

And ask the user to answer with a number between 0-10. You can read more information about tracking NPS in this guide here.

Customers that give you a 6 or below are Detractors, a score of 7 or 8 are called Passives, and a 9 or 10 are Promoters.

To calculate your Net Promoter Score, detract the percentage of Detractors from the percentage of Promoters. It is that simple. So, if 50% of respondents were Promoters and 10% were Detractors, your Net Promoter is a score of 40.

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About the Author

This article was written by  of the  Path Forward. The Path Forward was developed by Forward Partners, a VC platform that invests in the best ideas and brilliant people. Forward Partners devised The Path Forward to help their founders validate their ideas, build a product, achieve traction, hire a team and raise follow on funding all in the space of 12 months. The Path Forward is a fantastic startup framework for you to utilise as an early stage founder or operator. The framework clearly defines startup creation as being comprised of three steps. The first step of this framework involves understanding customer’s needs.

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Entrepreneurship

Myths & Facts about Entrepreneurship

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Today, there is a pervasive and nearly deafening mantra insisting that you quit your job and become an entrepreneur. The collective says you should do it today because every day you wait brings you closer to a life of poverty and regret.

A central theme in the entrepreneurial world is challenging the status quo and questioning conventional wisdom in search of new and better ways of doing things. If you’re just going to follow the pack, you may as well just get a real job and call it a day.

Entrepreneurship can be incredibly rewarding. Starting your own business may be the best decision you ever make. But it’s not for everyone. There’s a lot to consider before you take the plunge and a lot of myths to expose, starting with these.

Let’s take a glance at some of the Myths of entrepreneurship:

1. You’ll be Happier

Entrepreneurship can be incredibly rewarding. Starting your own business may be the best decision you ever make. But it’s not for everyone. There’s a lot to consider before you take the plunge and a lot of myths to expose, starting with these.

2. You’ll have more freedom, control and work-life balance

If you’re on your own, chances are you’re going to find yourself wearing all sorts of hats and working 24×7 for a very long time. Work will become your life. There’s nothing wrong with that, but not everyone feels more freedom and control that way.

3.You’ll be more fulfilled

Do we know what just about everyone loves to do? Great work that accomplishes goals they can be proud of. One can do that working for a big company, a small company, or their own company. Fulfillment has nothing to do with business ownership. If one wants to manage, lead, or run a business, it’s better off learning the ropes in a good company before starting your own.

4.There are no jobs; technology and outsourcing killed them all

It is shockingly untrue. If technology destroyed jobs, then which one will you call the most lucrative and fastest-growing industry on the face of the earth.That’s right: technology. If you can’t find a job, chances are you lack in-demand skills or education, in which case, yes, you might want to consider starting a small business which does not require much of exclusive skill sets in particular.

5.Entrepreneurs Live a Glamorous Lifestyle

That’s again untrue. Most entrepreneurs do not live a glamorous lifestyle; if they do, their investors should cringe. Entrepreneurs are notoriously frugal, hard working and opportunity-obsessed with little time for outside activities. These qualities are not hallmarks of the glamorous life.

Now,Let’s look at some of the facts of entrepreneurship.

  1. Most successful entrepreneurs succeed by exceptional execution of ordinary ideas: See Jiffy Lube, Starbucks and Charles Schwab.
  2. Most successful entrepreneurs concentrate on minimizing risk rather than taking huge risk at the time of starting their companies.
  3. Successful entrepreneurs use their innovative passion in many ways, such as buying companies, creating new ventures within larger companies and re-strategising nonprofits.
  4. More than 80 percent of new ventures are boot-strapped from personal savings, credit cards, second mortgages and the like. The median start-up capital is about $10,000. Waste Management began with a single truck; Sam Walton started with $5,000. So, in short access capital is not required to startup.
  5. Being first to execute well and delight customers is not at all important for success. A lot of startups have entered quite late in a particular startup industry and have done well.

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About the Author

This article was written by Utkarsh Sharma.

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