When talking about strategy it’s important to understand what the company Boards and the CEO are looking for. Both the Board and CEO are responsible for assessing and approving the strategic direction of the company. Understanding the 20 questions that the Board should ask about strategy is also good guidance for those creating the strategy. The 20 Questions are:
Question 1. How is strategy defined at this organization?
Answer 1. Formulating and articulating a strategy involves: 1. The determination of those long-term goals i.e. mission vision and values and objectives which reflect an organization’s sources of competitive advantage and which address important stakeholder needs; and 2. The identification of scope or domain of business activities within which those goals and objectives are to be achieved. .
Question 2. What are we ultimately trying to accomplish and where do we eventually want to get to?
Answer 2. The vision goal .
Question 3. What is our purpose or why do we exist?
Answer 3. The mission goals. Who are key stakeholders, and what specific needs do we try to satisfy better than our competitors for these key stakeholders.
Question 4. What are the internal ethical and cultural priorities that attract stakeholders to us?
Answer 4. The value goals.
Question 5. What are the specific measures and targets we use to judge our progress in achieving our macro level vision, mission and values goals?
Answer 5. The objectives.
Question 6. What specific business arenas have we chosen to operate in for the purposes of achieving our objectives?
Answer 6. The product market scope and domain sections. Who and where our customers are and what products and/or services we provide to them.
Question 7. Is this organization’s strategy shared by all directors and management?
Answer 7. Everyone needs to know the strategy because “if you don’t know where you’re going, you’re probably going to wind up somewhere else.” anonymous.
Question 8. What are the major business strategies making up the overall corporate strategy?
Answer 8. As a company diversifies there may be multiple business strategies at play. It is at this point that the corporate strategy becomes something separate and distinct from the individual business strategies.
Question 9. Do circumstances warrant the Board’s involvement in the organization’s operating plan?
Answer 9. The Board should generally not get involved with operating plans because this is what management is hired and paid to do. Three exceptions to this general rule are: A. When an organization is faced with a crisis and requires whatever benefit the Board’s collective wisdom has to offer; B. When very small companies are involved and the Board is been recruited specifically to advise at the operational level; or C. When there is agreement with senior management concerning the Board’s involvement in this area.
Question 10. Does the organization have the right strategy and, if not, what should it be?
Answer 10. As a first step in assessing an organization’s strategy, it is imperative that it be formally written down and communicated explicitly to all Board members to give them an adequate opportunity to reflect upon and ponder the choice of goals, objectives and product market scope embedded within it.
Question 11. Was a process followed by this organization to formulate the strategy contained in the strategic plan and does the plan’s documentation contain all of the proper information?
Answer 11. One of the initial ways in which Board members can determine the quality of an organization strategy is knowing whether it was developed through a systematic and rigorous assessment process or more through a gut feel and back of the envelope approach. That said it’s important to remember “it’s not the plan that is important, it’s the planning” by Dr. Graeme Edwards.
Question 12. Does this strategy have the right vision?
Answer 12. As a general rule, visions are concerned with achieving organizational greatness in one or more dimensions be it, market share, quality, revenues, profits or admiration,. One of the most famous vision statements ever created was that of General Electric under the leadership of CEO Jack Welch who stated the corporate vision was “to become the most competitive enterprise in the world by being number one or number two in every business in which we compete” .
Question 13. Does this strategy have the right mission?
Answer 13. The Mission statement is a written document that is intended to capture the organization’s unique and enduring purpose of practices. It is responsibility of the Board to ensure that the organization’s mission statement acknowledges the importance of multiple stakeholder groups to the organization’s long-term survival and a balance of competing interests is achieved. Mission statements must also be grounded in reality.
Question 14. Does this strategy have a proper statement of values?
Answer 14. For an organization it is important that the actions and behaviors of its employees can with stand the test of public scrutiny. Directors need to make sure that their organization strategy contains a statement of values which they consider important for the successful, harmonious and ethical running of their business operations.
Question 15. Does strategy contain objectives which are well formulated and well stated?
Answer 15. As a general rule objectives should be established for each of the goals contained within the mission, vision and values. Objectives should be specific to avoid ambiguity as to what the organization is trying to accomplish; measurable (to allow for the determination of the objectives achievement or not); acceptable (to ensure that the method for measuring progress against the mission, vision and values is perceived as fair); and timely (organizational objectives are best stated for a time period of 1 to 3 years and revised at the end of each year as new information becomes available) .
Question 16. Are the business arenas specified in the organization’s strategy the right ones?
Answer 16. An organization should strive to identify and focus its resources on those business arenas (existing or new) where (a) the potential market opportunity exists for the enterprise to achieve its stated goals and objectives, and (b) the organization has the internal resources, either on hand or quickly available, to pursue and capture the opportunity.
Question 17. Have the proper organizational units been selected, designated and aligned to reflect, reinforce and support the strategy?
Answer 17. The method by which organization executes its strategy is when it aligns its staff, structures, reward and control systems to focus on, support and reinforce the organization’s strategic goals and objectives. This is called strategic organizational alignment and directors must make sure that employees’ jobs are redefined or re-specified to take into account requirements of strategy.
Question 18. Have all the significant internal and external strategic risks been identified, quantified and addressed in the plan?
Answer 18. Directors must understand the risks associated with a particular strategy, their probability or likelihood of occurrence, and their potential impact on the organization. These risks should be spelled out in the strategic plan.
Question 19. Are appropriate mechanisms in place to provide the Board with timely feedback on the organization’s progress against its strategy, the underlying causes of any performance variance and any changes in the internal or external environments or risk factors which would cause the Board to consider altering the organization strategy?
Answer 19. Directors must monitor the organization’s progress against its strategic objectives and related risks factors. This must be done at each meeting of the full Board.
Question 20. Are the Board and its Directors constructively involved in the organization strategy?
Answer 20. The Board needs to openly and candidly discuss with the CEO and other members of senior management all elements of the strategic plan.
A special case of business strategy deals with startups. For high-tech startups the critical issues that have to be addressed by the business strategy are: 1. People in management and can they can get the job done. 2. A brilliant technology that can be commercialized. 3. A large, rapidly expanding market addressed by the new technology’s features. 4. Strategy for an unfair advantage that can be sustained. 5. An attractive price per share. When asked which is more important of the five, the resounding answer is “the right people” is number one. You want a team that has the experience and the track record to get the job done.
In the “Business Plan” figure a generic outline of the eight sections it should include is shown. As to what should be covered in each section the following is provided:
- Business opportunity, technology, product, market, management
- Proposed financing (Amount, Use of proceeds)
- Summary of five-year income statement and capital requirements
It should be brief, and it must be great. This is all about what most readers will ever scan, let alone read. It must catch their attention and answer their key questions. It should be a concise and clear description of the problem resolve, how you solve it, your business model, and the underlying magic to your product or service. It should be approximately 4 paragraphs in length. It has to entice people to read further. It should be treated as a comprehensive mini plan. Your unfair advantage for stand out clearly.
Consumer Need and Business Opportunity.
- Product and technology description
What is a startup going to build and how? Why would a customer want it? How well will it perform? Include your product and technology here. The Marketing strategy discussion starts in this section. Start building your unfair advantage in detail.
Business Strategy and Key Milestones.
- Include one page showing cumulative cash need and head count at each milestone
This chapter summarizes the startups strategy. It includes a one-page chart showing the sequential cumulative head count and cash flow at each significant milestone.
- Customer need
- Market segmentation
- Channels of distribution
- Sales strategy and plans
- Five-year sales forecast
- Competition and positioning
A great deal of time should be spent on this section. When the VC or other investor finishes reading it, he or she should be confident of how the startup will position its first products and why customers will value them relative to the competition.
- Engineering Plan
- Manufacturing Plan
- Facilities and Administration Plan
The section should contain enough detail to show how the startup will design and manufacturer its first products. VCs or other investors will grill founders on the realism of the schedule to get to the first customer shipment. Show total headcounts and facility requirements.
Management and Key Personnel.
- Incentive Compensation Program
- Detailed Resumes
- Staffing Plan and Headcount Projections
It should be short and as focused as possible. The emphasis should be on directly related experience, especially track records as managers. All irrelevant experience can be omitted.
- Five-Year Pro Forma Forecasts
- Income Statement
- Balance Sheet
- Cash Flow Statements
Use a simple spreadsheet model to project the startups financial success and need for capital. Include forecast by month or quarter for years one and two with annual summaries for years 3 to 5. Build in conservative assumptions. Details of revenue by product line, average selling prices, and so on, should be kept in backup files in case they are called for.
These are not often used. They contain photographs or copies of market research projections. Appendices should not be filled with bulky backup data.
Text totaling 30 to 50 pages is typical of what is written. Try to cut it to 12 pages for the presentation. The shorter the presentation the better, although short ones are hardest to write. A good slide deck has 10 slides, using 30 point font, containing the following 1. Title slide. 2. Problem. 3. Solution. 4. Business model. 5. Underlying magic. 6. Marketing and sales. 7. Competition. 8. Management team. 9. Financial projection and key metrics. 10. Current status, accomplishments to date, time line, and use of funds. Plan on getting through these 10 slides in 20 minutes.
When it comes to getting help for the startup always focus on the function you need, not the form it takes. For example, proper accounting does not mean retaining a big name firm (form) and then assuming the job will get done (function). What’s important is a function, not the form.
What can be seen from the above example is that when it comes to business strategy it’s important to be very specific with respect to the product’s or service’s differentiation. What really counts for success is the ability to provide a product or service that has a unique set of features that are very highly valued by the customer. Most business plans fail to research or articulate carefully enough how the new product or service is differentiated from others. From a value standpoint, customers need a “compelling reason to buy”, as stated by Doug Hall. “Compelling” is the operative word here.
To get a new business, or a new business line, started you have to start in a small niche, establish a beachhead, and move out from there. A beachhead in this context means a market that is small enough so that larger competitors are not already going after it, and big enough so that if you’re successful, you can reach critical mass and profitability with it. The “Differentiation Versus Value” figures show how this is best done. In the upper left quadrant are stupid companies. They are producing products or services that no one cares about, but are unique. In the upper right quadrant you find the area that you want your new product or service to occupy. It’s where consumers most appreciate you and margins are good because you can provide something unique that they strongly desire. The lower left quadrant is a corner that many .com losers occupy. They provided goods and services nobody cared about, and many companies were doing the same thing. In the lower right quadrant companies find that life is a continuous price war. Sure people want to buy when you make, but lots of other companies have similar offerings. You can be successful here but life is a grind and there’s no margin for error for a new entrant.