Three ‘sights’ of the right business strategy

The last 18 months have been incredibly challenging for SMEs. Facing uncertainty and disruptions on all fronts, many business owners I’ve spoken to say they feel more like firefighters than entrepreneurs; they barely have time to look up and out from the day-to-day grind.

 

By Patrick Verlaine
Co-head of Investments, Australian Business Growth Fund

With that in mind, I want to talk about the importance of a business strategy and the long-term benefits that come with being able to work ‘on’ a business, instead of just ‘in’ it.


 

A robust strategy is an essential ingredient to business success – especially through periods of upheaval. For instance, an annual survey by CPA Australia found that businesses that grew strongly in 2020 were much more likely to prioritise their business strategy compared to businesses that didn’t grow. Unfortunately, many businesses still often lapse into ad-hoc and reactionary decision-making.

A business strategy is a bit like an extra set of eyes – it allows you to see your business and the road ahead more clearly – or from a different perspective entirely.

In fact, a great strategy gives business leaders ‘sight’ in three ways…

Hindsight

Reflecting on what’s been done and looking at new opportunities (and threats) in context

Business leaders need to stay focused on their long-term goals, but this requires self-reflection and awareness on whether your current path is progressing you toward those goals. Setting (or revisiting) your strategy helps you zero in on what really matters to your business. It’s easy to become distracted by the minutiae of your daily, monthly, or even yearly targets – you may find you’ve steered off course chasing a small win that won’t deliver the level of growth you’re seeking.

For instance, I was evaluating an investment in a mining technology company that was, by many accounts, a very successful business. In fact, its technology was already being used by close to 70% of the existing market. What the leadership team couldn’t see, however, was that the business was spending significant time and resources trying to convince the remaining 30% of the market to acquire its technology over that of its competitor which had a similar use, albeit across different applications.

This business was so convinced that its technology was superior across all applications that it failed to listen to its customers and to acknowledge the benefits of its competitor’s technology.

With some reflection and advice, they realised there were legitimate reasons why the competitor appealed to a portion of the market. Instead of continuing to limit their focus on near-term success, they identified two longer-term approaches: either develop a product to compete head- to-head with their competitor for the remaining 30% of the market or enter into a joint venture with an organisation who operated in an adjacent industry and had developed similar technology to the competitor. They selected the later as this enabled them to enter the market faster and at a lower cost. This change in strategy was transformational for their business. It enabled them to be truly technology agnostic so customers could pick their preferred solution. This instantly changed market perception and their credibility as a strategic partner rather than a solution provider.

They say hindsight is 20/20. Taking a step back to reflect on how you’ve flourished – or faltered – in the past can help you contextualise new challenges and opportunities that arise along the way – so you never miss the chance for a step-change in growth.

Insight

Helping you see where your business or products are heading

Growing businesses should always be progressing their pipeline of new products, services and features. A strong strategy prompts you to leverage the right insights to evaluate where you stand and adjust your product plans accordingly.

Data is critical in enabling businesses to take decisive and impactful action but there are plenty of pitfalls as well. Data can be a distraction – especially if its unstructured or captured without clear goals in mind.

Similarly, many businesses are so focused on using data to ‘disrupt from with’ – they end up pursuing a dead end or making dramatic changes too quickly. While innovation is critical, abrupt change can alienate existing customers – especially in established businesses. Are you headed toward insight-driven innovation or a data-fueled distraction? Your customers are typically your best barometer on your evolution. Focus on using targeted data insights to respond to their needs and to bring them along the journey.

Foresight

Your strategy helps you keep an eye on the future

Pandemics aside, the most disruptive challenges to your business won’t happen overnight. Like a tectonic plate, there is constant change beneath the surface that slowly, but surely, builds toward a tumultuous shift. A strategy that looks at least three to five years ahead helps you keep an eye on how these trends are progressing, which in turn, gives you the chance to prepare.

The consequences resulting from macro trends such as climate change, decarbonisation, digitisation and an ageing population all have the potential to derail unprepared businesses. While you won’t have all the answers as to how you’ll navigate these trends, you won’t be able to respond effectively without a plan.

Strategic foresight is especially critical because parties looking to invest in the future of your business are already looking 5 to 10 years ahead. They won’t want to invest in a business that has its head in the sand.

Your one-page business strategy

Despite adding immense value to you and your business, your strategy doesn’t have to be complicated. It can fit on a single page.

At its simplest, an effective strategy typically covers your financial goals, your product goals and channels, as well as the implications of those goals on your organisational structure and capital needs.

I find it’s easiest to start with the end goal in mind. Ask yourself, ‘Where do I want my business to be in five years?’ Then, work backwards from your financial targets.

Identify your total addressable market, the market growth rate, your current market share and the slice you would need to reach to achieve your financial goal. This exercise allows you to sense check your goals as you might need to expand your target market or change your product plan to achieve them. Once they align, you can begin clarifying and challenging your assumptions and validate further with trusted advisors.

From there, your strategy builds with a logical cascade of assumptions. What product roadmap is required to achieve your target market share? This plan influences your product development, channel and potential acquisition strategies, which in turn, influences your organisational structure and the level of resources dedicated to each workstream.

Understanding which resources you’ll likely need to succeed dictates your predicted cash flow position and will get you thinking about how you’ll finance your growth plans.

Your strategy is not static – it’s strengthened by regular feedback and revisions. Part of what we do at ABGF is to provide strategic support to help business owners develop and execute on their strategy. As we only ever look to take a minority stake and provide patient capital, our model is uniquely designed to support businesses in achieving their long-term strategic goals.

If you’re a business owner who is seeking long-term, patient growth capital, I encourage you to contact us.

Can ABGF assist your business?

At the Australian Business Growth Fund™, we provide long-term growth capital to enable SMEs to scale without giving up control of their business. Start the conversation with us today.