What It Is
A strategic plan maps out the upcoming months or years in the life of your business. A strategic plan should include an analysis of your business’ current situation, a vision for where you’d like to be within a set timeframe, and a detailed set of tactics that will help you get there.
Why It Matters
Much like a business plan, though traditionally embarked upon later in the life of the business, a strategic plan is helpful in articulating and communicating your goals, and staying on track when things don’t go perfectly. A strategic plan can also serve as a benchmark, allowing you to evaluate your progress toward your goals.
Draw a strategic map. Strategic mapping is a way of identifying your position relative to that of your competitors. You can select any two measures of performance – price, quality, number of units sold, level of customer service, innovation, etc. – and map your business along with each of your competitors on these two measures.
Strategic mapping can help identify niches in your industry. And when determining a strategic direction for your business– should we raise prices? advertise to a different market?– moving toward a potentially profitable niche can be a wise move.
Complete a Strengths-Weaknesses-Opportunities-Threats (SWOT) analysis. A SWOT analysis can be a useful tool to fleshing out your strategic thinking, because it requires you to consider not only your business’ individual position but also the larger forces that may govern your success or failure.
Strengths are areas in which your business has a particular advantage over your competitors. Maybe your location is a strength, or your association with a local non-profit. Maybe you know that personal relationships are what keep your business afloat while competitors struggle, or that one particular line of products is selling well. Maybe your longevity in the community is a strength, or your particularly knowledgeable sales staff, or a patent that you hold. When doing a SWOT analysis, it’s important that you identify strengths that give your business a specific competitive advantage, rather than simply list the things that you do well. And if there are things that you do well that aren’t currently translating into advantages for your business, you should consider how you can turn them into strengths.
Weaknesses are the opposite of strengths – they are areas in which your competition has the advantage over you. Lack of name recognition, lack of necessary resources, loss of profits, high or rising costs, etc. could all be weaknesses. Identifying weaknesses can be a humbling process, but being honest with yourself and your colleagues will better position you to improve and expand your business.
Opportunities are elements on the horizon that bode well for your business. They could be favorable economic trends, policy decisions, emerging customer needs, niches that your competitors have missed, or any other factor – external to your business – that you could use to your advantage.
Threats are also elements on the horizon, but these are elements that bode poorly for your business. Threats could be ways in which your competitors are impinging on your areas of advantage, negative economic or political trends, or other areas of vulnerability. Again, identifying threats can be a difficult process. However, figuring out what’s on the horizon – and how it is likely to affect your business – is a critical planning tool.
Try a Porter’s Five Forces analysis. The Five Forces analysis framework was created by Harvard Business School professor Michael Porter. If the SWOT analysis provides a way to evaluate your business, the Five Forces analysis provides a way to evaluate your industry. There are five components to the Five Forces analysis: Buyer Power, Supplier Power, Barriers to Entry, Threat of Substitutes, and Internal Rivalry.
How powerful are your buyers? Are there many of them, and are they well-organized (powerful)? Or are they dispersed and unrelated to one another (less powerful)? Can they easily substitute other products for the one you sell, and are the switching costs negligible (powerful)? Or are they dependent on your product and therefore less sensitive to changes in price (less powerful)?
How powerful are your suppliers, relative to your business? Do you depend heavily on what you buy from them, or can it be easily substituted elsewhere? Can you organize with others buyers in order to put pressure on your suppliers? Can they wholesale to your customers, bypassing you as a middleman? If your buyers or your suppliers are powerful relative to your business, your industry may have more intense rivalry.
Threat of Substitutes
If your products are easily substitutable, your industry is probably an intense place to be. If your prices increase, your customers may choose a different brand (from one brand of paper towel to the next, for example) – or a different product altogether (from paper towels to rags, for example). It matters less whether or not you as the business owner believe the products to be interchangeable – what matters is what your customers think, and how much access they have to perceived substitutes. If the switching costs are low, as with consumable goods, then the threat of substitutes may be high. And if your ability to change your prices is low, then you have less power.
Barriers to Entry
How hard is it for another firm to enter your industry? If there are high barriers to entry (large up-front capital costs, strong patent protection, or a steep learning curve), then you may be comfortably confident that your firm’s position is stable. However, if your industry is ever-changing with new and improved products and firms, you may need to be more vigilant in order to maintain your edge.
How aggressive is your industry? Do you have many competitors, who regularly engage in price-cutting wars in order to gain market share? Or do you exist in an industry that is growing rapidly, so everyone is increasing their sales without having to steal customers? How important is brand loyalty? Are there great economies of scale, so that each firm is trying hard to increase their volume? Understanding the internal rivalry of your industry is key to understanding how to make strategic decisions.