The crux of a strategic plan is the firm articulation of how we solve the market problem using our unique strengths and how those strengths will be evolved to deliver our solution sustainably.
Strategic planning is often misunderstood and underutilized, leaving too much potential on the table. A company could choose the suboptimal option of going into 2022 with a revenue- and expense-focused financial plan and call it a strategic plan. The optimal option is to go in with a strategy-led plan that dovetails with operations.
Calling financial plans "strategic plans" often occurs when growth is tactical and not strategic. Last decade's tendency to depend on unprofitable growth tactics is already being accepted as unsustainable. Even Softbank's Vision Fund has thankfully thrown in the towel on its "money moat" approach, which was intended to set up their portfolio companies with plenty of cash to outspend and outlast competitors. But many of Softbank's investments had poor returns due to a lack of focus on fundamentals.
Every company can access the same tactical ideas and tools with a quick internet search. They can easily deploy these tactics with cash to spend, which every company seems to have. There are sprint bootcamps that churn out people with basic sales, marketing, coding, and data management certifications. Staffing outfits are easily accessible and every company buys their services. So, where does any company's advantage come from if everyone has cash to spend and access to all these tools and tactics?
Funding focused tactical growth is largely a war of attrition. It is winnable for one or two parties at best. Critically, it does not encourage companies to put on an investment effectiveness hat. The path of attrition is often chosen because the tangible value creation in the market is not high enough. For example, why do most consumers complain these days that ride-sharing prices have gone up so much? In fact, many of us are back to taking traditional taxis by just hailing them on an app. The reality is that most of the value creation from ride-sharing models came from unsustainable deep discounting. The ability to find and spend money has not been a unique strength for over a decade.
This brings us to our final 2022 strategic planning theme that applies to all companies: focus on sustainable solutions built on tangible and unique strengths. If we cannot objectively answer the question - what makes us special? - then strategic planning offers the time for soul searching. There are two overarching questions to answer through planning.
How will we solve the market problem with our unique strengths?
Market opportunities are great. But success or failure of most companies that can validate a solution to the market problem is not determined by market opportunity or size. In fact, there is nothing wrong with a simple and small market opportunity. Window washing in urban areas is still a business. It is a perfectly fine business model if it is sustainable for all stakeholders.
Our obsession with market opportunity comes from the extrinsic valuation we can generate. But as discussed in our first theme, if we are creating a strategic plan, we are focused on operating the business. For a business with $5M in revenue, talking about a $20B market size is not a good use of strategic planning mind share. The real success factor is the effectiveness of our solution to the problem and its alignment with the company's strengths. The path from $5M in revenue to $100M in revenue is a treacherous one.
Beyond basic funding needs, throwing an excessive amount of money does not buy a company's optimal solution that creates tangible value for customers. We must solve the problem in our own unique and sustainably executable way. A key guiding question to build a strategic plan must be:
What is our differentiating solution to the market problem that aligns with who we are as a company?
In the age-old analogy about how to help a person looking for fish, we could offer them fish, we could teach them how to fish, or we could create a mechanism for them to procure the fish from a third party. Similarly, every problem has a range of solutions and each company's solution must align with its strengths. A market problem could be addressed by employees of our company repetitively performing it for customers every time, could be solved for customers through technology, or could be remedied by teaching a more optimal execution approach to the customer. There is no correct solution to a market problem. A good solution aligns the market problem with what the company can actually deliver sustainably and profitably while creating customer value. To deliver our unique and aligned solution, we must also have a unique set of strengths that sets us apart.
What are the strengths necessary to solve the market problem?
The path to value creation must be built on a company's strengths. Our strategic plan must articulate that unique internal value chain that creates customer value and how we will build and improve that value chain. Don't assume that ideas used by competitors or similar players will work for us. They almost never do. Any company's strengths rest on two aspects: its people and its operations.
First, there is an oversubscription of certifications and bootcamps in our current ecosystem. Raising access levels to skills is important. But minimizing important skills as the knowledge that comes with a piece of paper or association with household brands is troublesome overconfidence and bias-filled approach. Practical experience and top-tier skills are not easy to find and will never go out of fashion. It is imperative that the organization's design understands and accounts for the depth of skills necessary to deliver on your unique value chain. A 2022 hiring plan must focus on skills that align with the unique organizational strengths necessary to deliver tangible and sustainable customer value, not just bodies in seats.
Second, there are many sources that give us advice on sales processes or marketing approaches and what good looks like to build offerings. There are many tools we can buy to track work and report data. These are all great reference points. But none of these represent a unique market problem or a unique group of people trying to solve it. Through strategic planning, it is important that a clear vision of operational design is available as a starting point. Through planning, every company must layout a path to evolve this operational design, which must be one of the primary investment channels. The punchline here is that this design and the evolutionary plan are unique to your company's strengths and not a carbon copy of popular ideas out there.
What are the necessary operational strengths around process, technology, skills, and data that must be built and expanded to deliver the company’s unique solution to the market problem?
It is important to refresh our framing of the solution to the market problem and the operational blueprint through strategic planning before focusing deeply on budget allocation around existing or new spending. What good will it do if all that spending doesn’t align with the optimal blueprint to create tangible customer value?
As simple as this sounds, every company must focus on what they are good at or can learn to be good at it. Let others handle the things we are not good at. Getting distracted by what everyone else is doing while not capitalizing on our own strengths is a fast track to irrelevance.
As you look forward to 2022, use the last few months of 2021 to build a plan based on an effective strategy, while considering the overarching themes we covered in our four-part series.