Starting a business with no clear strategy is like driving a car with no intended destination. Not only will you be unaware of reaching a goal, but you won’t even have any goals to begin with!
Most people jump into pet projects with too much optimism and insufficient strategy. Part of this is psychological–if you don’t plan, you could blame the circumstances when you inevitably fail. Such a costly tactic, however, is impractical for those who want to leave a lasting legacy in the industry. To succeed in business, you need to think about the long term in the short run.
What is Business Strategy?
Simply put, business strategy is deciding how to spend your resources properly. When entrepreneurs neglect business strategy, they labor under the illusion that their time, money, energy, enthusiasm, employees, and partners are limitless. Because of this unrealistic mindset, they stretch themselves too thin by taking unnecessary risks, making outlandish promises to investors and customers, or covering ground beyond the scope of their abilities.
Therefore, an essential requirement to owning an excellent business is to have a sober mindset. You can’t do everything. This scarcity means that you should be prudent and meticulous regarding your finances and non-tangible assets like motivation and health. Otherwise, you’re guaranteed to crash and burn.
The Three Stages to Formulating a Business Strategy
Once you adopt the proper mindset, it’s time to formulate your business strategy, which comes in three stages:
Stage One: What Product or Service Are You Selling?
This question sounds easy, but it’s complicated. Remember that resources are scarce, so you must focus all your effort and energy on one product or service. You will know when you’ve failed this step when you seem to be juggling a million things at once–cluttered thoughts and actions mean that you have neglected to clarify your niche and are wasting valuable assets.
A vision or mission statement comes in handy. The mission or vision statement is a short sentence that clarifies the overall direction of your company. Make sure that this statement is at most one or two sentences–the shorter, the better. Extended mission or vision statements are telltale signs that the company has no idea what it’s providing. Statements littered with positive-sounding but ultimately meaningless buzzwords such as “proactive,” “forward-thinking,” or “sustainable” also need to be avoided since all they do is provide a superficial sheen of success with no natural substance underneath.
Stage Two: What Product or Service Are You Not Selling?
This step seems redundant, especially after you’ve already clarified your business model, but it’s equally important to describe what your business is not about.
A fatal flaw of new entrepreneurs is to become overly enthusiastic, especially after encountering success in the early stages. The temptation to include more features in their products or services becomes too hard to resist. They try to justify expanding the scope of their enterprise by telling themselves that these innovations will please their customers and rake in more profits. What ends up happening is that they overestimate their gains, and the existing quality of their business suffers because they try to expand too fast and too far.
Quality improvement is always the right direction, but this must be done carefully through slow, calculated steps after a significant budget surplus has been amassed, and even then, there must be caution. Much like fighting on multiple fronts is a surefire way to lose a war, taking on too many improvements is a surefire way to bankruptcy.
Decide what your business will exclude and stick to it to counter this temptation. When things are going well, do not let your guard down and become delusional about your prospects of success.
The adage stays true: if it ain’t broke, don’t fix it.
Stage Three: How Will You Separate Yourself from the Competition?
Finally, this last step is the most crucial planning process. It’s easy to start a business until you realize that dozens, if not hundreds, of other people in your neighborhood are engaged in the same activity.
Unfortunately, when it comes to entrepreneurship, not everyone gets a medal–some business owners have to go bankrupt so that others can thrive. The only concern an entrepreneur should have is to separate himself from the former and ensure that he is among the latter. It’s not a moral dilemma. It’s simply a principle of economics. Otherwise, no one would be able to profit because of the diluted customer base.
There are many ways to stand out, but one of the best methods is to look for customer testimonials. The widespread use of social media has made this more accessible. People will post their experiences, both positive and negative, in extreme detail online. This public forum should be considered free and accurate market research. By paying attention to customers’ rants, you can pinpoint a product or service’s exact defects and spend resources to fix them. Likewise, paying attention to their praises can identify the precise strengths of your wares, which means you should focus on maintaining or improving these advantages.
Plan Before You Fail
45% of businesses are known to fail within the first five years of opening, which means that your long-term success as an entrepreneur is practically down to a coin toss. How can you make sure that the odds land in your favor? You can follow the three essential business strategy stages outlined above. It might seem boring to plan and conceptualize rather than jump in and get started, but once the necessary groundwork has been established, the rest of the way is smooth sailing.
Don’t think that your resources are unlimited. They’re not, and every last drop has to count towards your success.