A Strategy or a Goal? (Good Strategy / Bad Strategy)

A strategy is not a financial goal or a motivational slogan, it is a plan that has been developed to surmount a challenge, based on a considered choice, created from a thorough understanding of the environment you exist in.

What is the “rationale that says your business will be successful in the long term”  and “how will you exploit your competitive advantage”? 

 Your understanding of the environment that you exist in, to the point where you can attempt to predict the future, so you can see long term positions of strength will enable you to create effective strategy. Without undertaking this exercise you are operating without a key piece of “intel” you will stumble from one short term opportunity to another, missing out on long term profitable markets.

Wikipedia defines Strategy as:

A strategy is a plan of action designed to achieve a specific goal. Strategy is all about gaining (or being prepared to gain) a position of advantage over adversaries or best exploiting emerging possibilities. As there is always an element of uncertainty about the future, strategy is more about a set of options (“strategic choices”) than a fixed plan.

The problem with most entrepreneurs is their unwillingness to stop and analyse the market or the eco-system they exist in long enough to create multiple options to create an informed strategy.   A crucial step in creating good strategy is that you present multiple options and that you are forced to debate and create stronger arguments to support them.  To often we either go with the first option or just operate in committee mode and merge the options together. Powerful strategy often involves hurt – some one not getting their way and stopping pet projects.

Our impatience and desire to “just do it” – makes us jump directly to creating a plan, missing out on the great power of “true strategy”

There are two orders of power when looking at strategic planning.

  1.  Business Planning:- Operational Excellence: Gaining clarity in what you do and are good , deciding what to do and not.  BHAG (Big hairy audacious  goals), purpose, defining immediate goals and tactics to achieve those goals., basic competitor analysis.This business planning by itself does produce improved performance, but will not de risk the business in the long term.
  2. Strategic Market Analysis:  This higher order activity involves deeper understanding of what is going on in the market, where long term opportunities lie, maximising gains over industry trends and predicting trends.   Although this activity requires in depth market research and evaluation of multiple paths it will result in a simple statement.

In Richard Rumflet’s book  “Good Strategy Bad Strategy – the difference and why it matters” he makes a strong case for taking the time to do what I refer to as Strategic Market Analysis before business planning. He make brutal comments about what he calls bad strategy. He has brought a new clarity to me around business strategy or more importantly non strategy that will help me in my work. Below are few excerpts – learning’s from his book (available on kindle) …

  • Good strategy almost always looks this simple and obvious and does not take a thick deck of PowerPoint slides to explain. It does not pop out of some “strategic management” tool, matrix, chart, triangle, or fill-in-the-blanks scheme.
  • Unlike a stand-alone decision or a goal, a strategy is a coherent set of analyses, concepts, policies, arguments, and actions that respond to a high-stakes challenge.
  • The core of strategy work is always the same: discovering the critical factors in a situation and designing a way of coordinating and focusing actions to deal with those factors
  • If you fail to identify and analyze the obstacles and opportunities, you don’t have a strategy. Instead, you have a stretched goal, a budget, or a list of things you wish would happen.
  • The kernel of a strategy contains three elements: a diagnosis, a guiding policy, and coherent action that respond to a high-stake challenge.
  1. Diagnosing the specific structure of the challenge or change rather than simply naming performance goals.
  2. Choosing an overall guiding policy for dealing with the situation that builds on or creates some type of leverage or advantage.
  3. The design of a configuration of actions and resource allocations that implement the chosen guiding policy.
  • Good strategy is not just “what” you are trying to do. It is also “why” and “how” you are doing it. Combining all three elements mentioned above.

Even after working out what needs to be done “Good Strategy” is explicit in how you will do it.  Steve Jobs’s guiding policy  is legendary: (1) imagine a product that is “insanely great,” (2) assemble a small team of the very best engineers and designers in the world, (3) make the product visually stunning and easy to use, pouring innovation into the user interface, (4) tell the world how cool and trendy the product is with innovative advertising.

My observation is that we are all jumping over step one in Richard’s process or simply restricting it to a basic SWOT and competitor analysis.  Explore more on this topic in another post called  finding new strategic opportunities or come along to one of our business dominoes strategy workshops

Take the time and watch Richard’s three minute video.

At very least challenge your strategy : is it a slogan or a goal or does it have some decent market intelligence behind it?
And more importantly have you had it challenged?

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Foolproof: De-Risking New Ventures

Whether it’s a start-up or a product line extension, next to having the right team on board, validating your market prior to developing your product is the best way to increase the probability of your success.

Often I hear the cry “oh, this doesn’t apply to us”…. “We do disruptive technology like Steve Jobs… “our customers don’t know what they need till we show them”.

Truly successful disruptive technologists use research to back up and tune their visionary thoughts. They study their target audience’s behaviour to the point where they can create powerful product insights based on a combination of research and creativity to de-risk their investments. Without this behavioural research you are simply guessing.

It’s no wonder we have such a high failure rate with companies in this country when you hear facts like – “only 20% of companies approaching MOVAC for investment have completed market validation, which is a perquisite for us to invest” – Dion Mortensen

85% of those completing market validation will fundamentally change the functionality of their product, ultimately creating a product that will be more profitable and actually sell!

Jenny Douché has just released her latest book Fool Proof – How to find and test great business opportunities”.

“This easy to read book is full of great tips and guides, it should be compulsory reading for all new ventures and product managers”.

Jenny has included some insights from New Zealand entrepreneurs (Rode Drury’s Xero, Campbell Gower, Phil & Teds buggies, etc) and a few local investors who have experienced the fruitful outcome of performing market validation.

Foolproof is an easy light read, designed for entrepreneurs – 2 aeroplane trips should have it read with no bullshit or big theories. It will be one of those books that you will refer back to.

Unlike other books on this topic, Jenny actually gives you plenty of actionable content, rather than just theory, including lists of questions for all participants of market validation including: target end users, distributors, market influences and enablers. She covers both desk research and engaging with stakeholder groups, including how to talk when interviewing and surveying.

Too many entrepreneurs  fail to look at the wider macroeconomic factors that will influence their business both now and in the future. It’s amazing what insights you can gain from mapping and studying your market place’s value and supply chains along with current trends. (Note: value chain mapping is one of the key activities we do in Business Dominoes – strategy programme). By performing this type of research, you can save yourself the embarrassment of being blind sided down the track, or worst still investing in the world’s best mouse trap that no one will ever buy.

Just because what we have created is faster or better than the existing market alternative, it is not a right of passage to easy sales. As creators of new products, we easily forget the life of a consumer; where we are faced with better and newer products and services, yet we choose to ignore them and use what we consider easy, safe and predictable.

Clearly getting there is a balance between “no market validation” and “doing so much research you never do anything”. Either extreme is going to be a recipe for failure.

Some takeaways on Market Validation:

  1. Market validation before undertaking any major investment is an essential risk mitigation tactic
  2. If you are seeking investment, doing market research will put you ahead of the pack
  3. Do both desk and personal research – yes, talk to potential customers
  4. Map out your market place (value chain and trends), make sure you are not missing any opportunity or trend merging – a lot of this can be done by desk research and validated by contacting key industry commentators
  5. Engaging key stakeholders in the industry in market validation often builds loyal evangelists for you and your new business
  6. A quick prototype or sketch can help discussions
  7. Market validation is not a one-off exercise, it is a crucial part of improving your business and product over its life
  8. If you are developing disruptive technology then you need to be doubly sure of your target audience’s “pain” and more importantly motivation to change behaviour to adopt your new product. Do some behavioural research.
  9. Be warned if you have been in the industry or are a target user – you do not know enough.
  10. Doing market validation will often open your eyes to a better product than the one you have conceived by yourself.
  11. Buy Jenny’s book

I have already purchased 10 copies of the book and are handing them out to clients as compulsory reading.

Technician, Manager or Entrepreneur – E-Myth Revisited

Do you experience Exhilaration or Exhaustion daily?

What are you? Technician, Manager or Entrepreneur?

Too often people start businesses with great enthusiasm, then before you know it, the passion is gone and its just hard work.

Michael Gerber’s “The E-Myth Revisited” book makes the point that to be successful in business we need to be master juggler of three functions Technician, Manager and Entrepreneur.

  • Technicians – live in the present: Experts in doing stuff, craftsman at their trade. Their ethos is captured by the statement “you want it done right, do it yourself”.
  • Managerslive in the past: Pragmatic in nature, planning order, creating predictability
  • Entrepreneurs – live in the future:  They turn a trivial condition into exceptional opportunity, true visionaries and catalysts for change. They are focused on the bigger picture continually questioning the business and its place as opposed to operating it.

The E-myth refers to the Entrepreneurial Myth that businesses are started and lead by entrepreneurs, rather than the truth, most businesses fail because the founders are technicians. Their entrepreneurial traits only appearing for a small moment in time at inception, to be quickly replaced by the dominant behaviour of a technician.

The acts of a technician lead businesses, inevitably lead to what Gerber describes as “entrepreneurial seizure, that point when the business has enslaved the owner”.

 The classic sign or precursor to this “seizure” being when the technicians abdicate tasks they dislike or do not have skills in, rather than delegating. Typically this plays out as employing someone for a while to do all the stuff they dislike. Slowly they become disconnected from the business they started and after a while the new manager they employed gets pissed off and leaves them in the poo (poo being my technical word not Gerber’s).

 “Too many entrepreneurs start out with passion and drive, to only find themselves with a lousy job a few years later, working their butts off for little or no reward.”

 The e-Myth Revisited is a great read and is available on Kindle well worth an afternoon on your deck chair.

More wisdom from Gerber … “A mature business knows how it got to be where it is and what it must do to get where it wants to go”. Shifting from adolescence to maturity as a business usually coincides with a crisis or getting outside help, you choose.

 The fact that these technicians (craftsman) are not strategists or skilled in some basic business skills, is very evident in the NZ landscape.

 How do you balance the technician, manager and entrepreneur hats?

Coincidentally, or not, I have recently just re-enthused a couple of businesses owners, who had lost their way, just as Gerber describes in his book.

Fixing this type of dilemma takes two steps best done with outside help:

  1. The Awakening – some form of strategic review and tool kit, where you can see your business from the outside looking in.
  2. Getting Clarity around how to best take advantage of this new strategic view point with a new simple strategy and mode of operation that recaptures motivation, clear direction and business opportunity. Rather than doing lots of more technical stuff.

So for pragmatists – some tips:

  • Work on obsoleting yourself from your business – “if your business depends on you, you don’t own a business you own a job”
  • Be conscious of your natural tendencies or biases towards being a technician, manager or entrepreneur. Challenge yourself to perform the two roles you do not have a natural affinity for. When was the last time you revisited your strategy? Who are you being today?
  • Delegate don’t abdicate: Do not abdicate tasks that you should have accountability for e.g. finance just because you don’t like it or don’t understand it.  Can you lay your hands on an up to date (end of last month) P&L and balance sheet within the next 10 mins? If not you have abdicated.
  • Learn some more business skills to complement your skills so you can delegate with full knowledge and respect for specific technical skills specialists provide. E.g. basic finance is not hard to learn.

PS:  I am on the hunt for a final year student to come work part time at GMC AKL to help me “delegate” and grow GMC. Apply here

Oh and I would be remiss to not mention

Breaking the owner – employee attitude gap

How do you get employees to operate as though they own the business?

This is an ongoing dilemma for all business owners.

I have just finished an enlightening book on creating performing teams in this modern age by Paul Marciano – “Carrots and Sticks Don’t Work”

 This book should be compulsory reading for anyone who has staff.

It’s amazing what people managing people, claim to know about leadership – but seldom practice.
Paul has a way of bringing this point home with some simple questions in each of the early chapters, clearly illustrating this point.

When was the last time you said an individual “thank you” to your staff?

I cringe when I hear executives say “people our most important asset” yet there is no evidence in their actions.

Paul like others, I have recently reviewed take an axe to reward and recognition programmes (carrots and sticks), stating that these only stimulate short-term change and never influence culture.  He gives numerous  (20) examples of the harm these programmes can bring into companies. In many cases all that happens is a culture of entitlement is formed.

Paul separates motivation from engagement.  “Employees who are motivated will work hard when there is something in it for them, engaged employees work hard for the sake of the organization and because it gives them fulfillment”

Another differentiation between engagement and not: When I feel highly engaged with a project, I find myself thinking of it all the time-inside and outside work.; when I’m not engaged , I think about the project only when I am on the clock”

Engaged employees do things like: bring ideas to work, when did you last get an email in the weekend from an employee saying …”I’ve been thinking…”, or an employee informs you of problems solved, rather than bringing you dead bodies.

The interesting point he does make is that “it is all to do with the organization and manager and less to do with the employee”.

Motivation is what gets you started; habits are what keep you going.

Habits are persistent and resistant to change and do not go away because we are motivated.

Culture derives behavior and behavior reinforces culture

So given we accept carrots and sticks don’t work, what do we do about it. Paul’s model is based on an acronym RESPECT.

  • Recognition (& acknowledgement)
  • Empowerment (do your staff have the tools to succeed)
  • Supportive feedback
  • Partnering
  • Expectations
  • Considerations
  • Trust

Building on Pink’s Drive purpose, Paul emphasizes the importance of people understanding the context of their role in the organisation and knowing that their efforts make a difference to others and the business.

Some other quick notes I made give you a taste of Paul’s approach:

  • Giving effective Praise:  The winning formula Timing, specificity, proximity, enthusiasm.
  • Lack of training and advancement are the 2 leading reasons for staff turnover
  • “Your Job gives you authority, your behavior gives you respect”

This book is going on my top 10 list to recommend to owner managers who want break the employee – owner attitude gap.

Read more on Paul’s respect model on his web site:  http://www.paulmarciano.com/respect-model/

Paul was looking at coming to NZ in 2012, so keep an eye out for his name on the speaking circuit.

Pigs and Chickens – Business Model

Is your business a pig or a chicken?

Harold Star’s book “Chicken and Pigs – Business Models and Competitive Strategies” puts  businesses into 4 categories.

These models are referenced by transaction frequency and revenue contribution from each transaction.

My takeaways from this book are:

Business models are about customers not end users, often people get these stakeholders mixed up. Customers are the ones writing the cheques.

  •  Few companies know why their customers came to them and why they stay
  •  It takes different skills to attract customers and retaining them
  • Once established a business model is very difficult to change. This comes from the customer behaviours and required skills associated around maximizing operational efficiencies working each model.
  • Business models are predicated around decisions made by management around three model elements (strategic DNA) : Customer, Resources and Capabilities and Value Proposition.
  • Many companies operate multiple models,  as such they need to be conscious that each model requires different skills and behaviours

Through his book it he never actually mentions why he calls them such, perhaps obvious, but my take is:

Chickens: Lay eggs – lots of regular contributions
 Pigs: good for bacon and ham at the end, lots of reward once
 Black Widows: Mate and kill their prey, like big customers who consume your business leaving you  at risk with a small number of large customers
 Locusts:  lots of them and they move in packs, short life expectancy

Check out both Harold Web Site and his book for more detail on this pragmatic approach to classifying and developing strategies to manage your customer pools and business model.

The web site has plenty of great information. Click on each model to get more information.

Do you have proof that your product will sell?

Starting a new business or product line?
Have you validated your market yet?

Do you have enough facts to convince a complete non-emotional stranger that once you have built your product or service that people will buy it and you will make enough money to create a business?

We all too often fall into the common trap of thinking that we have come from the industry, so we do not need to do any validation that customers will actually want and more importantly buy our product.

Too many businesses, fail to complete this best risk mitigation technique available to them, before ploughing into developing their product. 60% of new products fail when launched, many taking the company out with it.  This failure rate can be eliminated with a simple 60 day market research programme, started before you invest your time and energy into developing your next product.

I have just read Rob Adams “If you build it they will come” book. This post is a small collection of some of the topics covered and thoughts I have had post reading it. This book is now going to be compulsory reading for my clients who are starting a new business, including those attending the new Activate – business growth programme I facilitate.

Rob details a simple process of first doing some basic market sizing work off publicly available information (secondary research) and then getting in front of customers to conduct a series of rounds of one on one interviews. Nothing in the book is rocket science – yet 90% of businesses I come across could save a lot of time, money and frustration by following his process.

Rob, recommends you allocate 10% of your product development budget towards market validation before you start developing it.

My recommendation is that you do 50 -100 interviews, including testing what your potential customers will want to pay for your product-service (ie the ASP – average sales price). Then work out how many you expect to sell each year.

Revenue per employee is a great benchmark metric for businesses, under $100K you do not have a viable business. Over $200,000-250,000 per employee then you are on the money.

Do the maths:  (X customers x Spend Y$) / (number of people in your business) if < $100,000 stop and get help quick.

If the thought of interviewing 100 potential clients to understand their needs daunts or scares you, then I would say give up now, these same people are going to be the people who once you have set up your business you are going to be selling to.

This simple market validation process ensures that you can create a “must have product” rather than a “nice to have”  that people will struggle to open their wallet for. I can guarantee as a result of these interviews you will change your product as a result. Don’t be like others who develop and release version 1 to find this out. Likewise you can establish the “minimum viable product” a concept of the least functionality you need to make your mark in the market.

Explore the bounds of your competitors including substitutes (work a round’s or doing nothing). This is particularly relevant when you are creating new disruptive products, in which case you need to work out what discretionary spend budget you are going to take the consumers money from.

So if you did not get a copy in Rob’s recent NZ tour, get yourself a copy. It will be going on my Top 5 must read books, kicking off Rob’s Early book “A good kick in the arse basic guide to entrepreneurs” only because this kick (market validation) is the most needed one for startups.

I love Rob Adams phrase “Business Pornography” – the fairy tale stories the press love propagating about businesses, that magically created the dream product, its running out the door and live is easy.

PS: This was my first kindle experience – loved the ability to highlight sections then export them to word doc.

PSS: for us visually oriented people, can we have some pictures-diagrams in your next book.

Straight Talking Strategy – Rockefeller Habits

“Mastering the Rockefeller Habits – What you must do to increase value of your growing firm” by Verne Harnish was referred to me by an entrepreneur who thought it was my style of book: pragmatic, full of useful tips and to the point. He was on the money, in fact I found the book addictive – I could not put it down. For me it went well beyond the promise of another one page business plan template to consider, its goes on my top 10 must read business books list.

What I liked was the way Verne brings business strategy and plans back to simple lists, questions and statement. Below I have given you a taste of what is in this great read.

The right things model – 3 basic decisions Executives need to make:

  1. Do we have the right people?
  2. Are we doing the right things
  3. Are we doing those three things right?

Base Strategy:

Let’s face it, business is basically the act of Getting, Keeping and Growing – Customers, Staff and Shareholders and we get better at this when we sell stuff, make or buy stuff and measure stuff.

Verne has simplified all business strategy into two dimensions best illustrated with the diagram below.

Often in business we can make things more complex than we need to. Verne’s one page business plan and measurement framework is well worth exploring.

Note: you can download a word version of Verne’s one page plan from www.gazelles.com.

For me it’s not necessarily the exact template as much as the principles behind concise “Succinct”  business plans and measurement models.

  1. A simple framework that documents your position
  2. Use of a common language to express the strategy
  3. Develop a habit of using the framework and a language to continually evaluate process. (Like the GMC guide to NO).

This one pager is a good mix of strategy, execution and measurement and complements the business model canvas and balanced score card approach I use.  My take is, you need to work with a model that works best for you, perhaps a hybrid of all of the above.

Verne also shares his philosophy on people and management – including effective use of meetings.

We have all heard people say they don’t need help; Verne says it all “if your staff do not have bottlenecks, then more than likely they aren’t doing anything at all”. As a manager always find out your teams top 3 -5 bottlenecks, remember that it’s your job to clear those.

On KPI’s he also follows the “keep your KPI list small” model, he sights one CEO who had three critical numbers engraved on watches that he handed out to his execs’

Having worked with a number of high growth companies I have come to realise that high growth companies operate with a different measure of time and pace. Verne confirmed this with the statement:

“If you’re growing at 20-100% per year – think of each quarter as if it were a year”

Oh and the link to “Rockefeller”…. well to be honest, you’ll need to read the book for this, for me it got lost in all the great gems I took from the book on how to help companies grow fast.