Three steps to a robust business strategy

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By Vaughan Evans

Face it.  You’re going to get grilled.  And rightly so.  These business angels or VCs you’re approaching are not talking to you alone.  They have dozens knocking on their door.  And before they dip their hands into their pockets they are going to give every business plan a thorough pummelling. Your top sales tool is a business plan.  But take care.  The vast majority of such plans end up in the bin, most of them deservedly so.  But sometimes the business plan of a sound business concept ends up in the same place.  That is sad – and unnecessary.

To avoid that fate, make sure that every word and every number on every page is geared towards the requirements of your backer. They’ll be looking for loads of things in your plan – your resources, management, operations, financials – the works.  But some aspects of your business plan can be fixed.  If your backer doesn’t rate the manager you plan to hire or the premises you plan to move to, you can find alternatives.

Not so with your business strategy. If that isn’t convincing, your backer will walk away.  Strategy is the foundation of your business plan.  It needs to be able to withstand heavy investor scrutiny.  It needs to be a robust business strategy.

Think of the BBC programme Dragons’ Den, in which an aspiring entrepreneur has just 15 minutes to convince a multi-millionaire to back his or her business. There is no time to go into detail, nor to delve into each aspect of the business. There is only a cursory discussion on sales, margins and investment to date. The dragon’s decision will be made on a gut perception of the pitcher’s business strategy. If the dragon perceives that the business strategy is robust, an offer will be made.

So what is strategy? Isn’t that the preserve of business school academics or overpaid consultants?  No.  Strategy is what you need to do to get your business from where it is today to where you want it to be in three to five years’ time. And it need not be that complex.  Sure, if you work in a company with many different businesses operating in many different sectors, regions and countries, strategy would be complex.  But if yours is an SME or a start-up, strategy need not be complex.

In my book Strategy Plain and Simple: 3 Steps to Building a Successful Strategy for Your Start-up or Growing Business, I set out three plain and simple steps in building a winning business strategy:

  • Understand your market
  • Gain a competitive advantage
  • Manage business risk

Let us look briefly at each in turn.

  1. Understand your market

For a business strategy to be successful without a thorough understanding of the market is possible: it is called luck. For those who don’t want to rely on that, time spent in researching all aspects of the market will be well spent. On the demand side, how big is your addressable market?  Is it growing? How fast? What is driving that growth? Will those drivers change? On the supply side, who are your competitors? Who are your indirect competitors? Are there too many of you? What barriers are there to more coming in? Balancing demand with supply, is market pricing going to rise or be squeezed in the next few years?

Knowing the market is different from knowing your business.  Your business is just one player and you need to know everything about the game you are playing in.  If you can’t answer questions on key market trends and issues, your backer will be unimpressed.

  1. Gain a competitive advantage

Step two in building a robust business strategy is to convince your backer that you have or will have a strong competitive position within that market. You have a competitive advantage that can last.  You have a product or service that is either highly differentiated from the other players or one that can be delivered at lower cost. Or, if you focus exclusively on one niche segment of your market, you have a product that is both differentiated and low cost.

How to differentiate, you may ask. Well that depends to an extent on the business, but your product may have a quality or features or functionality others don’t have, you may have a distinctive range of services, or a critical expertise in, say, R&D or marketing, or a special and defensible route to market. Whatever the differentiation, you need to convince your backer that it is both valid in the marketplace and defensible.

  1. Manage business risk

The third step is to look at your strategy objectively and anticipate your backer’s concerns.  What risks are likely to most weigh on their minds, be they market demand, competitive, strategic or operational? How can you mitigate those risks? Of those that cannot be mitigated, how can you demonstrate that they are of little significance and well outshone by the manifold opportunities waiting to be grasped by your business?

Do not, as so many business plans do, attempt to sweep risk under the carpet.  Your backer will find you out – and walk away.

This is business strategy in three plain and simple steps, whether for a start-up or for a more established SME.  Understand your market, gain a competitive advantage and manage the business risks. Develop your strategy, test it and subject it to rigorous cross-examination before approaching a backer.

Then wow them with your coherent, credible and convincing business strategy.

Vaughan Evans is an independent consultant specialising in strategy and business planning. His latest book Strategy Plain and Simple: 3 Steps to Building a Successful Strategy for Your Start-up or Growing Business (FT Publishing) is out now. For more information go to www.vaughanevansandpartners.com.