What are the benefits of strategic planning for entrepreneurs?
Your venture’s goals and strategy define the purpose and competitive advantage that will set it apart from others. Your goals help define your intent, and strategy is the plan of action that describes activities for dealing with the environment and for reaching your venture’s intended goals.
When combined, goals and strategies define the scope of operations and the relationship with employees, customers, competitors, and other stakeholders.
The term “strategy” is widely used in the business world today. It is one of those words that people define in one way and often use in another, without realizing the difference. It is derived from the ancient Greek word meaning “the art and science of the general deploying forces for battle.”
Understanding the Benefits of Strategic Planning For Entrepreneurs
Your strategy is a plan for interacting with the competitive environment to achieve your intended goals. Some think of goals and strategies as interchangeable. For purposes of our research, goals define where your venture wants to go, and strategy defines how your venture will get there. This formal process of setting goals and creating a strategy adds legitimacy, provides employee direction and motivation, helps form decision-making guidelines, and provides criteria for your performance. In essence, the process of strategy formulation sets the general directions in which your venture’s position will grow and develop—your goals and objectives represent the ends that you are seeking to attain.
Whereas the strategy is the means to these ends, strategic management is positioning and relating your venture to its environment in a way that will ensure its continued success and make it secure from surprises from competitors. This is competitive strategy, the search for a favorable competitive position in an industry, aiming to establish a profitable and sustainable position against the forces that determine industry competition.
Benefits of Strategic Planning for Entrepreneurs
Strategic planning is a logical, analytical process for choosing your venture’s future positions vis a vis the environment. The most common defect of entrepreneurs is myopia, a lack of long-range perspective in thinking or planning. In the sports world they say, “Luck is where preparation meets opportunity.” Lance Armstrong, a bicyclist with five consecutive Tour de France wins to his name, prepares by “thinking the race through” before he ever starts down the road. In the business world this preparation comes from strategic planning.
As Michael Porter writes, “The essence of formulating competitive strategy is relating a company to its environment; the best strategy for a given firm is ultimately a unique construction reflecting its particular circumstances.”
So look at new business venturing as a chess game. To be successful you must be able to anticipate several moves ahead in advance. Thinking about your strategy is like thinking about the scenarios of plans, for example, what to do if/when competitors come into your space. Strategic planning is the process of thinking about and creating these scenarios, and the business plan is the document that communicates the fact that you have figured it out. According to Henry Mintzberg, the key to successful strategic decision making is not just looking out into the future, but having a capacity and willingness to learn from experience.
A new venture has to start somewhere, with a collective understanding of what it is supposed to be doing and where it should be going, and strategic planning aids in this learning. But entrepreneurs cannot wait until the competition is engaged before planning. The inevitable confusion that accompanies any battle and that renders the clearest plans difficult to execute is called the “fog of war,” a term first coined by the nineteenth-century Prussian general Karl von Clausewitz (1780–1831).
Crafting Your Business Strategy
Strategic planning is the process through which you profitably match your internal resources with shifting market demands and based on an opportunity. In a must-read article for all entrepreneurs learning about strategic planning, “Crafting Strategy” in Harvard Business Review, Mintzberg states that a business strategy should be crafted because “craft evokes traditional skill, dedication, perfection through the mastery of detail.” His point is that “strategies can form as well as be formulated.”
There are two key components that need to be crafted together to logically spell out, as Drucker calls it, the business purpose. The first is a coherent encapsulation of your products and services, the markets and types of customers you serve, and the benefits they derive. The second component should identify the “key activities and how they will be carried out to realize the logic for competing.” It is this the tight integration of the reasons for competing and for organizing lays the foundation for your venture’s competitive advantage that becomes the basis of its superiority over rivals in serving a particular market or market segments.
Strategies are not set in stone. In fact, 84 percent of the CEOs leading fast-growth ventures said their business had changed target markets, even from the time when they launched. Although the business may change, the questions that drive strategic planning remain fixed.
Start thinking about the following key questions:
- Where are we now?
- Where do we want to be?
- How will we get there?
- Who must do what?
- And how are we doing?