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Failing to Plan, or Planning to Fail?
Author: Richard Gooding
Released: 05-03-1998
Publication: Hartford Business Journal
While strategic planning is often thought of as something reserved solely for big businesses, it is equally applicable --- and even more critical --- for small businesses. Unlike bigger companies that can afford to make a strategic error, a mistake at a smaller company can put it right out of business.

For this reason, failing to plan is literally planning to fail. By going through the strategic planing process, entrepreneurs define, refine and fully communicate the product or service for themselves. They learn to match the strengths of their business to available opportunities, enabling them to determine how their company is going to generate revenues.

Before you embark on the strategic planning path, however, there are a number of "strategic planning traps" to watch out for. Identifying and managing these challenges upfront is critical in creating plans that position your company for long-term growth.

Not doing strategic planning

The biggest mistake entrepreneurs make is not doing strategic planning at all. Rather than looking at the long-range, big-picture, they focus on operation issues and day-to-day survival. They end up working harder not smarter.

Having a clear strategic direction --- where you want the business to be in three years --- will enable you to allocate your time and financial resources more effectively and efficiently. The right competitive strategy can make up for many tactical errors, but no amount of effort can compensate for the wrong strategy.

Creating a solid strategic plan need not be difficult --- if approached properly. First, you need to collect, screen and analyze data about the business environment. This means taking a strategic look at competitors, government, suppliers, customers, various interest groups and other factors that affect your business and its prospects. With respect to customers, retailers should determine who their customers are, why are they buying from them, and who are their best customers. You may discover that your customers aren't buying from you for the reason you thought and that the customers you thought were your best customers, are actually your worst customers.

After spending a day analyzing purchasing records, a nearly bankrupt owner of an optometry shop was in for a surprise. The owner sought my help steering away from serving customers covered by Medicare or Medicaid. Upon examination, it turned out they were two or three times more profitable than customers who were paying on their own. Armed with this discovery, the optometrist now regularly offers free eyeglass adjustments at nursing homes and advertises in publications aimed at seniors.

With respect to suppliers, there are several key questions retailers should look at. They need to determine what bargaining power they have over their suppliers and how might they increase that power. The power retailers have to negotiate price and conditions with suppliers will impact their profit margins. If you have only one source for a particular type of merchandise, that supplier will have more power over you then when you have multiple sources.

Retailers also need to examine their competitors --- assessing their strengths and weaknesses, and determining how they can position themselves with respect to the competition. Unless you are sure you can win, you do not want to go head-to-head with a competitor. The best strategy is find a unique niche that fits your strengths, but not those of your competitor.

Having analyzed the customers, suppliers, and competitors, the next step is to look the core business itself. Retailers must make sure to have a clear understanding of their strengths and weaknesses. The simplest way to do this is to interview your employees and customers, asking them what they believe are your company's strengths and weaknesses. It is important to survey a broad range of people and then look for the most frequently cited attributes. Generally, people's perceptions of strengths and weaknesses of an organization are fairly accurate and, in business perception, often count more than substance. The information you obtain is then used to develop a clear mission with supporting goals and objectives. Taking this step-by-step approach will enable you to acquire a thorough understanding of where you are and where you want to go ---- and will help you figure out the best way to get there.

Lack of commitment to a market or strategy

Entrepreneurs are often unwilling to commit fully to a market or strategy. Start-up entrepreneurs especially tend to measure they success by the volume of activity. As a result, they have difficulty turning away opportunities that come their way and end up taking any jobs that come along.

For example, a retailer of petroleum products in rural Arizona sold to state and local governments, and to Indian tribes as well. They bid on and secured a federal government fuel supply contract that would double their business in the next three years. The problem was that selling to the federal government was completely different than selling petroleum products to local and state government. As the owner put it, "The federal government wanted their fuel in 24 hours, but wouldn't' pay for it for 30-60 days. However, the suppliers wanted their money in ten days." This created an incredible cash flow problem that almost killed the company.

Sure, this hand-to-mouth survival approach may seem to diversify risk, but it also may undermine success. By spreading limited resources across a variety of opportunities, you may make it impossible for any to succeed. A commercial photo lab, for instance, had a picture perfect business. They sold to commercial photographers, ad agencies and trade shows across the United States. Then they decided to get into the courier business. The labs used couriers to deliver merchandise to customers and felt they could change a cost center into a profit center. In a short period of time, they learned that a courier business was fundamentally different from their core business, and went back to using outisde couriers.

Thinking strategically means making choices both about what you want to be and don't want to be. A company needs discipline to differentiate itself and create a competitive niche. The best approach: figure out the spot in the market where you can make the most money and then go for 80% of that niche.

Being overly optimistic

By their very nature, entrepreneurs have to be optimistic --- otherwise they would probably never start a business given the high rate of failure. But, putting on blinders to potential pitfalls or gaps in your company's strategy will not make them disappear. Being more realistic about your market, your company's capabilities, and your competition can only increase your chances for success.

It is important to realize that there is a difference between negative thinking and critical thinking. Critical thinking is purposeful, reasoned and directed at increasing the probability of a desirable outcome. Critical thinking takes an unbiased view of the situation. This means looking at both the pros and cons. People that are overly optimistic only see the pros, and naysayers only see the cons. Critical thinking attempts to balance the two to arrive at a more reasoned decision. In a retail context, this would mean looking at both the pros and the cons of the idea. For example, the petroleum retailer must not only pinpoint the pros of having a contract with the federal government (double the business), but must also look at the potential downsides of having a federal contract. Or, the commercial photo lab, must look at how it can make a profit through its own courier service, as well as the potential pitfalls that may arise from doing that.

So, the strategic planning process should seek to uncover possible risks and challenges, not simply highlight the benefits. Taking a seriously look at why a strategy might not work makes it possible for your company to take proactive, preventive action to avoid anticipated stumbling blocks. On the other hand, being overly optimistic about the wrong strategy can only make your venture fail --- faster and harder. So, the key is to be realistic in developing the strategy, and to be optimistic in implementing it.

But, how do you figure out if you are being to optimistic? The problem with optimism, is that people confuse it with correctness. They assume that if someone is optimistic about a strategy or opportunity, that it must be good. If there is any doubt or hesitancy, it must be a questionable idea. This belief can get you into trouble. When developing your strategy, you need to look at not only why it will work, what the pros are, but also why it might not work, what the cons are. By identifying the cons as well as the pros, you can develop a more realistic and effective strategy.

Not making the strategy concrete

It's not enough to come up with the ideas in your strategic planning sessions and then hope they will be put into place. The plan needs to be put in writing. The difference between having a plan and having a written plan is significant. In fact, according to a 1997 study by Andersen Consulting and MassMutual Life Insurance Co., there is a high correlation between the existence of a written strategic plan and higher sales and greater international sales.

Once the plan is written down, you need to make sure it does not gather dust on the bottom of the bookcase. People do not need to refer to the plan daily, but it should serve as an umbrella to guide day-to-day behavior. The only way it can do that is if it is translated into specific, measurable goals, objectives, and action plans. Once this is done, you need to communicate the plan fully to all employees and make sure they understand it and what is expected of them in reaching the goals. Lastly, to make sure the plan remains realistic and effective, it must be continually monitored, evaluated and updated. Changes in the business landscape can alter any business plan. Staying on top of what's going on internally and externally will help make sure you stay on the right course.

Not involving others in the planning process

Too often, entrepreneurs think they know everything they need to know about the business --- so why involve others in the planning process. Entrepreneurs also believe that because they are taking the risk, not the employee, why should the employee be involved in deciding what direction the company should take. However, involving others in the process makes the plan more strategic and better poised for success.

People have a variety of experiences and look at things in many different ways. Bringing multiple perspectives to the table is vital in uncovering potential challenges and pitfalls. Someone closer to the customer will have one insight; someone closer to the suppliers will have another, and so on. Bringing these viewpoints together --- discussing them and evaluating them --- will enable you to take a true "strategic" look at the situation, and to create a plan that will address all angles of growing the business.

In addition, by involving others in the process you gain their support. Employees like --- and need --- to feel that they can make a difference. Soliciting their input and ideas will make them a valuable part in creating the plan and implementing it. They will be energized to put forth their best effort to reach the stated goals and objectives.

Putting it all together

Starting a new business is hard enough. In fact, 80% of incorporated businesses fail within the first five years. But, you need not fall into this category. Taking a strategic, but not negative, look at your business will enable you to develop a plan that will position you for future growth --- a make you a survivor.

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