Creating an effective strategy is crucial for small business owners. A well-defined strategy helps focus efforts, overcome challenges, and achieve goals.
Whether you are starting a new business or fixing issues in an existing one, a strong strategy is key. This month’s theme focuses on strategy and time management for small businesses, offering practical tips and resources.
The following reflections are based on Richard Rumelt’s book “Good Strategy/Bad Strategy: The Difference and Why It Matters.”
Here are some key elements of a good strategy according to Rumelt:
Richard Rumelt illustrates a point about bad strategy by laying out the following example: Chad Logan, who acts as an illustrative character in the book, turns up to Rumelt for help with his media company’s strategy. Logan’s simple plan, dubbed the "20/20 strategy," aimed to increase revenue and profit by 20%. He listed what he referred to as “several key strategies” as Rumelt explains in the book:
“OUR KEY STRATEGIES
Rumelt pointed out that these were performance goals, not strategies. He advised Logan to focus on identifying the company’s core competencies, understanding competitors, and finding ways to improve sales, reduce costs, and enhance distribution channels. But Logan decided to hire your typical consultant who focused on inflating Logan's ego even more.
A good strategy identifies problems or obstacles and designs policies and action plans to address them. For Logan, achieving a 20% profit margin is a goal, not a strategy. A strategy would involve understanding the company's issues, whether increasing market share, profits, or improving processes, and outlining how to achieve that, such as attracting new customers, enhancing services, or leveraging new technology.
Whether you are starting a new business, freelancing, or running a small business, it’s crucial to think about your strategy. Identify the problems you face, the obstacles in your way, and develop a clear plan to build and grow your business.
Here are some key elements of a good strategy along with examples.
Let’s say you’re a freelancer, or a self-employed physiotherapist, painting teacher, artist, designer, etc. Let’s explore what some examples of a good strategy are based on Rumelt’s book.
Say you want to attract new clients. Having a concrete number in mind is a good key performance indicator, but it wouldn’t be a strategy, rather, a goal. So while having that goal is good to see whether or not you’re heading in the right direction, without a clear strategy you cannot evaluate whether or not what you’re doing is paying off.
Think of it like this: You want to get to a certain place, say a really popular ice cream truck that’s going viral on TikTok. That’s your goal. But you don’t have a map, directions, or know where that truck is. So you walk, and walk, and walk. You never get there. You’re lost. You haven’t gotten to your destination, but you also don’t know where you are, and you don’t even know whether you’re heading in the right direction.
Let’s say you are a hairdresser. Every new client shows up once and never comes back. What’s the problem here? It’s important to address the root cause. So instead of focusing only on attracting new clients, it’s important to address the main issue. Why are clients not coming back? Is it the service? Is it the way you treat your customer?
Suppose you are a self-employed personal trainer. You assume people want general fitness training. So you offer a particular set of services that no one is demanding. You may even change gyms or cities. Still no clients. What’s the issue? And what’s the strategy?
Now say you’re a freelance writer. You may offer a range of writing services. And so you position yourself as the go-to writer. Great. But there are many other writers out there. What would your strategy be to attract new clients? How do you stand out compared to other writers?
If you are a self-employed consultant, you might believe that simply being passionate will attract clients. Well, passion and motivation are indeed a cornerstone to getting the work done. But what’s your marketing strategy, and how will you implement it?
Say you’re a new virtual assistant, still learning the ropes of the work, but you want to be the best in your field. So you start taking on every new potential client. A month in, you’re burned out, swamped with work, and your clients start complaining. So what would be a better strategy in this case?
“The kernel of a strategy contains three elements: A diagnosis that defines or explains the nature of the challenge. A guiding policy for dealing with the challenge. A set of coherent actions that are designed to carry out the guiding policy.” – Richard P. Rumelt
A strategy is more like a diagnosis than a treatment. Diagnosis takes effort. You need to synthesise information, understand the problem, and then think of the proper action plan and regimen to solve the problem.
If you don’t take your time to diagnose a certain situation or analyse where you stand, you’ll start haphazardly taking action and hope the problem gets solved.
If you take your time to diagnose but don’t set a clear plan to solve the problem, nothing really happens.
That’s why, for Rumelt, a strategy is a three-step kernel which involves diagnosis, a guiding policy, and coherent actions.
John Kay writes in the Financial Times: “The message of Prof Rumelt’s book is that strategy is really just careful thinking about business problems. Checklists – SWOT (strengths, weaknesses/limitations, opportunities, threats), five forces or seven Ss – are popular because they are a starting point for people who are unaccustomed to structured thought. Good strategy begins with diagnosis. And diagnosis is analysis, not a description of symptoms. You don’t go to your doctor to be told you have a sore throat. You go to be told you have an infection and that an antibiotic will fix it. The doctor tries to discover “what is really going on here?” and the measure of his competence is his ability to do that.”
Developing a strong strategy is like creating a detailed map. It helps you understand where you are and how far away you are from your destination. It also forces you to think about all aspects of your business, which may seem tedious at first but will be invaluable when you're trying to run your business more smoothly, improve your services and products, or grow. By understanding and applying the key elements of a good strategy, you can tackle challenges effectively and steer your business toward achieving its goals. A clear strategy provides direction and ensures that all efforts are aligned.
Allow me to end with a meme that challenges everything I just said! Let’s get the conversation going.
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