What is Business Strategy?
What is business strategyā€”and how do successful companies use it to win?
In this video, Steve breaks down the core elements of strategic thinking and shares the blueprint he uses to help businesses grow and lead their markets. Whether you're building something new or leveling up an existing business, youā€™ll gain practical insights to drive focus, alignment, and long-term success.
TRANSCRIPT:
If you're building a business and you don't have a formal strategy process in place, or maybe you have a strategy, but it's not yielding your desired results, you're in the right place because I'm going to explain the three fundamentals of strategy that have helped me in my businesses. And as I've turned around and built organizations of all different sizes across multiple industries. So let's go ahead and jump in by talking about what is strategy.
But in order to understand what strategy is, we should really begin by talking about what strategy is not. So when I go into an organization, first, I ask them for two things. Number one, their strategy and number two, their financial report card, which includes their income statement, their balance sheet, their statement of cash flows.
So I can understand how the organization is performing from an operational and a financial perspective. Now, when I look at a company's strategy, and then I compare it to their financial performance, I can tell you there is a high correlation between organizations that have a good strategy in place. And more importantly, not just the document itself, but the overall process that they follow to drive meaningful results and their financial performance.
That's the critical piece here. Now, along the way, I've seen what works and what doesn't work for starters. I'm going to write M V B mission, vision, and values, mission and vision and values is really important for an organization.
And it could be a foundation for a company, but it is not strategy. It's not comprehensive enough. And it doesn't include the important choices that a company has to make regarding where it will compete, how it will compete, and ultimately how it will win more on that here in just a minute, but mission and vision and values.
It's a great starting point, but it is not strategy. Next. What I see is SWOT.
This was a framework that was created back. I think in 1969, it stands for strengths, weaknesses, opportunities, and threats. When I'm working with organizations, oftentimes they tell me of stories of their last strategy retreat, where they get together as an executive team and they put up pieces of paper on the wall and they list out their strengths, their weaknesses, their opportunities, and threats.
Everybody gets excited about the opportunities and what lies ahead, but that is not strategy. Once again, it's not a comprehensive approach. So SWOT is not strategy.
Next we have okay. Ours goals or a list of initiatives. I'll just abbreviate there, creating a laundry list of things you're going to do for the year is not a strategy.
I was talking to an executive years ago, and he was telling me how his organization rented out an auditorium at the local college. And the result of this two day retreat was a laundry list of 80 initiatives. I kid you not 80 initiatives.
And I thought to myself, wow, that's quite a list, but how does everybody know what's most important? I mean, if you have 80 things you're going to pursue in the year, how do you tie everything together into one cohesive strategy? So, okay. Ours goals and initiatives are not strategy. The next thing that I see is the budget, the old budgeting process.
Typically what I see is that organizations start creating their annual budget in the third or fourth quarter of the year. And usually it starts with the top where leaders set aggressive goals, these big financial goals, and then they cram it down the throats of everybody down below them. And they believe that because they have a budget, that's very detailed.
It has all the line items and it shows this miraculous revenue growth in this big bottom line, that that will be the strategy as if the if you just create it will manifest the results. So a budget by itself is not a strategy. And the last thing, most importantly, a strategic plan strap plan is not a strategy.
There's a major difference between a plan and a strategy. A strategy is a set of interrelated choices that you make regarding where you'll compete, how you'll compete, and ultimately how you will win. On the other hand, a strategic plan is how you will execute that strategy.
I don't know where it got messed up along the way, but somebody took planning and strategy and they combine them together into this term strategic plan. But just remember they're distinct activities. And I'm going to explain that here in more detail.
So these are five things that I see oftentimes in organizations. And it's just important to understand that these elements do not make up a good strategy. Instead, let's talk about what is strategy, which brings us to fundamental number one strategy is a set of interrelated choices.
Let me explain here. This is the model that I put in place for organizations. I'm going to draw it out here and then I will explain each piece.
All right. I'll erase this in the middle. This is what the strategy framework looks like.
This is a part of an overall blueprint that I help organizations to create. Now, here's the good news. I'm not here to sell you anything.
I'm not going to sell you a course or a mentorship program. The good news is you can go to Colitvar.com. I'll put the link in the description and you can take this free course, how to build a million dollars strategy blueprint. There's no gimmicks.
There's no high pressure sales call. That's going to be coming your way. Instead, it's just there for free because I want to help you to achieve $1 million in annual profit.
Or if you've already reached that milestone, congratulations, by the way, I want to help you to get to the next level. And when you know how the strategy blueprint works, then you'll be able to follow a methodical path to driving better results. So within my strategy blueprint, this is where the model comes alive at the top here.
We have strategic problem. Every single organization is struggling with some type of strategic problem. In other words, there's one obstacle that stands in the way of the organization success.
I'm not talking about operational issues that come up in the day-to-day of running a business. Instead, I'm talking about a major strategic problem. Maybe you're dealing with pricing pressure from your customers.
Maybe you're losing customers. Maybe you're having a hard time attracting and retaining talent, whatever your strategic issue is. It's important to identify it and start with it first, because this is going to set the stage for the choices that we're about to explore.
Now I keep saying that strategy is a set of interrelated choices. And let me explain in the first box, we have shared aspiration, and I'm going to abbreviate here. And I know my handwriting can be terrible.
My kids tell me all the time, but bear with me in the first box here, though, we have shared aspiration, and this comes down to deciding what does winning look like for your company, for your vendors, for your customers, for your investors, for your stakeholders, for everybody involved. That's why I like to use the word shared because you have to bring both internal and external stakeholders into your strategy process. Otherwise you're going to have a very selfish strategy.
And if you don't consider all stakeholders, you'll have a difficult time scaling your business and making it resilient into the future. So that's the first choice, your shared aspiration. What does winning look like? Next, we move over to here.
And in the next quadrant, we have market focus and position. This is where you decide where your organization will compete. This is a very important choice that's based on your ideal customer profile, the channels in which you will reach them, the geographies in which you'll position yourself, the products and services you'll offer in a variety of other choices that will lead to a positional advantage.
Next, moving on, we have competitive behavior. So in the previous box, we're deciding where to compete. In the next box, we are deciding how to compete.
So competitive behavior will help you to decide whether you're to pursue a differentiation strategy, a cost leadership strategy, or a focus strategy, or some combination thereof. Now, it's very difficult to pursue a differentiation strategy and a cost leadership strategy at the same time. You could do it, but it's very difficult, like I said, to pull off.
Oftentimes organizations will be straddling. They'll have one foot over in differentiation, and then they'll have the other foot in cost leadership. Instead, by pursuing a focus strategy, you can niche down by pursuing a very specific segment.
And in that segment, you could decide to differentiate, or you could decide to pursue cost leadership. But this is where competitive behavior comes into place. You're deciding how you will compete based on the market focus and position you choose to pursue.
The last box here, we have resources and returns. And this is where you make choices about what resources your organization will need in order to successfully execute the strategy. And alongside this, you'll need to determine what will the returns look like, and is the upside worth all the effort? In other words, is the juice worth the squeeze? These are the four choices you will make regarding your strategy, which leads us in to fundamental number two strategy is not about achieving higher profits.
If you put in place a strategy that is profit focused, then you may fall into the trap of pursuing short-term gains at the expense of the long-term viability of your organization. I've been there before. I've made this mistake over and over again.
And trust me, even though it may seem alluring, it doesn't work out very well in the end. Instead, a good strategy will result in profits, but it should not be the focus of the strategy to pursue profits. There's an important distinction there.
Instead, a strategy does four things. Like I said, this is fundamental number two, number one, a strategy helps you to overcome your strategic problem, because if you don't overcome this obstacle, your organization may be at risk. So that's what you're doing here.
When you're making these four choices, you're deciding how to overcome your strategic problem. Point number two, a strategy helps you to build competitive advantages, specifically positional advantages, asset advantages, and capability advantages. Not just for the sake of building competitive advantages, but instead creating advantages that will allow you to create more value for your customers while also capturing value as a company.
Point number three, a strategy helps you to enhance the customer experience. Are you wondering why this strategy is in the middle and why it's blank? It's because your strategy should be built with the customer at the center. I was working with an organization the other week.
And during my initial visit, I listened to them explain their strategies for each of their divisions. And in the process, I realized that there was one element that was missing. It was a huge element.
It was the customer. And too often we get wrapped up in the strategy process of dreaming big and thinking about all the possibilities that exist out there for our organizations, but we forget about the customer. So we can't forget about the customer.
The customer has to be in the center. And that's my point. Number three is that our strategies will help us to enhance the customer experience.
And point number four, through an interrelated set of choices, we will drive better innovation at the company level, but also within our products and services. So let me say that all again and bring it back together. Fundamental number two is that strategy helps us to overcome our strategic problem to build competitive advantages, to enhance the customer experience and to foster greater innovation.
Fundamental number three strategy plus finance equals value creation. If you listen to my podcast or you consume my other content, you know, I'm a huge advocate for financial literacy combined with strategic acumen, because when you can put these two things together, like I said, you can drive tremendous value for your organization. So let me explain how value is created.
There are three ways to create value. Number one, through price premiums. Now it's not enough to just go in your business and raise your prices by 10 or 20 or 30%, unless your pricing is grossly undervalued.
But for most of us, in order to capture price premiums, we have to increase the perceived value of our products and services. Remember when value exceeds price, customers buy. When price exceeds value, customers don't buy.
Most organizations who fall into this trap where pricing is higher than value, they just lower their price because it's easier to just discount your products and services to generate more demand. However, that has a massive impact on your bottom line. So you don't want to go down that path.
Instead, we can increase the perceived value by having a solid strategy. Remember by defining our shared aspiration, by choosing our market focus and position, our competitive behavior, and ultimately the resources and returns, which makes this cohesive strategy. And if we go execute that, we'll drive greater value through higher quality, through a better customer experience, through a stronger brand amongst other initiatives.
So that's point number one is through price premiums, we can capture greater value because we're going to increase our margins, which ultimately trickles down to free cashflow. More on that here in just a minute. Number two, organizations can create and capture value through cost and capital efficiencies.
This may start with reinventing your operating model by adopting technology, by achieving economies of scale, by securing unique resources, or whatever it may be to lower your cost and achieve capital efficiencies. But if you can do it less than your competitors, then once again, you'll pick up more margin, which ultimately flows down to free cashflow. And the third way to create value is through strategic growth.
And I put the word strategic in front of growth because it's easy to grow a business. You can discounts, you can do a lot of crazy initiatives to grow your company, but you can also grow your business out of business very quickly. Instead, strategic growth involves pursuing the right drivers that will lead to building a profitable and enduring company.
When you combine your strategy, which involves, remember these interrelated set of choices with these financial drivers, you'll be able to maximize greater value within your organization. That's why I'm so passionate about strategy because it makes all the difference in the world as it pertains to business. As a recap, strategy is not SWOT.
It's not a budget. It's not mission, vision, and values. Instead, it's a set of interrelated choices that we make in order to create and capture value.
Fundamental number two, remember strategy is all about helping us to overcome our strategic problem, to build competitive advantages, to enhance the customer experience, and to foster greater innovation. And fundamental number three, strategy plus finance creates tremendous value. Now, before we sign off, if you like this video and you got value out of it, be sure to subscribe.
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Be sure to check out that free course at Coltivar.com called the Million Dollar Strategy Blueprint. And I hope you have a terrific week.
