If you had to come up with a definition of strategy without looking it up, chances are you’d define it as something along the lines of the moves you need to make in order to win. Most entrepreneurs would probably agree with you.
While this definition is correct for military or sports strategy, it doesn’t get to the core of what business strategy is all about.
So, what is meant by a business strategy and how do you go about creating an effective one?
Strategy Means Standing Out From the Crowd
When it comes to business, strategy is all about setting yourself apart from the competition. As strategy guru Michael Porter says, this isn’t about being better at what you do. It’s about being different in what you do. Figuring out what makes your business unique is a key step in determining a strategy. But let’s back up for a moment and see how exactly you can do that.
Strategy Made Simple: 4 Steps for Creating a Business Strategy
As a business strategy consultant, I guide my clients through four essential steps to help them shape effective business strategies that will lead to growth.
Step 1: Define Your Target Customer
A mistake I often see business owners make is the failure to narrow in on a target customer profile. When a company doesn’t know who its ideal customer is, it will squander a lot of time and energy trying to provide products or services to someone who isn’t the target audience…not to mention having trouble differentiating itself.
So how do you determine who your target customer is? Creating customer avatars or profiles is vital. Think about which kind of customers you are most excited about working with, and which customers you can have the biggest impact with. Your ideal customer will also love working with you and will usually send more customers your way.
If you’re just starting with a new business, you’ll realize over time which kinds of customers you most enjoy. For example, one of my clients in the construction industry discovered that their target customer is one with projects of a certain size who prefers a deeper relationship and a collaborative approach to the design process.
Step 2: Understand Your Target Customer’s Problems and How You Solve Them
You need to understand your target customer’s needs and pain points so that you can understand which of them you can address, and how. You’d be surprised how often business owners forget this crucial step or make assumptions.
If you don’t understand someone’s problems, you can’t accomplish the next step in creating your strategy, which is to create a unique and valuable offering that solves their issues. In the case of my construction client, once they knew who their target customer was, they were able to understand the types of problems that customer has, such as the need for a trusted advisor with the technical expertise to be able to do great work with them.
Step 3: Develop a Unique and Valuable Offering
Once you understand your perfect customer’s problems, you need to differentiate yourself from your competitors with a unique and valuable offering. Positioning yourself in your market is about creating what W. Chan Kim and Renée Mauborgne refer to as ‘blue ocean space’.
The idea is not to compete with your competitors but to make them completely irrelevant. If you’re a growing shark in search of a good meal, you don’t want to be in an area crowded with other sharks in the middle of a feeding frenzy. You want to be somewhere in the blue ocean where you can capture whatever you want. In other words, how do you make yourself unique so that you’re not competing with others for the same dollar in the same language?
To develop a unique and valuable offering, you need to:
- Understand the reasons your customers buy
- Figure out how your competitors rank on those buying attributes
- Decide which key attributes you want to be awesome at and differentiate on
- Strengthen your differentiators to dominate your market
Remember, your business can’t be amazing at everything. If you are, you’re not being unique and strategic. If there are multiple reasons driving customers to buy your product or service, you need to pick the top 2 to 4 that you want to differentiate on and can truly be unbeatable on. You don’t want to pick something you’re a little better at than someone else – you need to be unique and valuable when it comes to your strategic advantage.
Step 4: Build Strategic Momentum With Your Flywheel
Once you have truly understood your strategy, it’s time to create momentum for growth by turning what Jim Collins refers to as the flywheel. When you turn a flywheel, it accelerates each time and gets easier to turn as it goes faster.
Imagine your business flywheel as the 4 to 6 steps that, when followed, drive momentum and speed things up for your business. Depending on what your business is, this is usually an activity for your second or third year since it takes time to figure out what works. Once you have a flywheel that is spinning, it’s important to reassess every once in a while, to strengthen parts of it that could be better.
A Winning Business Strategy Is Simple and Adaptable
All too often, companies build unnecessarily complex strategies that are destined to fail. When creating your strategy, it should be simple enough that everyone understands it, and, more importantly, understands their part in it.
If you can’t explain your strategy in a single sentence, it’s probably not clear enough and people are less likely to buy in. Like Albert Einstein said, ‘if you can’t explain it simply, you don’t understand it well enough.’
Another important thing to keep in mind when developing your business strategy is that it should never be set in stone. It takes time to measure whether you’re getting it right (which is why we don’t typically reach the flywheel exercise until at least year 2), and often you need to adapt to a rapidly changing world.
Looking for help with jumping off the hamster wheel and working towards a successful flywheel to grow your business? Contact me to learn how I can help.