3 Reasons Why You Need a Business Strategy

Just say the words “strategy” or “planning,” and some business owners start to fidget. The mere thought of slowing down the process of doing business to think about it makes them nervous. These doers might doubt the relevance of a clearly stated business strategy. But they might also miss some powerful and useful capabilities that all strategies provide. 

There are many ways to describe the business strategy-building process. A standard list of steps includes:

  • Defining your company’s basic vision and objectives.
  • Describing how your company will achieve these objectives. This includes estimates of the methods, and resources that you’ll need. 
  • Describing the competitive landscape that you’ll operate in.
  • Building a business data model that helps you validate your business assumptions.

There are also many reasons why a strategy is an essential tool for any business, of any size, industry, or stage of business maturity. Here are three of them.

1. Strategies provide many types of guidance 

You need a robust business strategy because it’s a compass and valuable decision-making tool. 

Are your day-to-day tactics leading in the right direction? There’s nothing like a clearly defined strategy to keep you on target. By linking high-level goals directly to critical success factors, clearly defined operational methods and competitive roles, strategies provide many types of guidance.

For example, are you overwhelmed by the number of options you must choose from to manage your day-to-day operations? Choosing only the options that link your operations to long-term business goals simplifies decision making. Strategies can help you eliminate alternatives that won’t provide long-term value.

2. You’ll support your operations with powerful market information

By researching your business’ market, you’ll learn a lot about your competitive business environment, which is an essential part of a solid business strategy. To learn how companies in your market succeed, you’ll need to know:

  • How market leaders generate revenue.
  • What drives sales and defines value for customers: price, brand, or other criteria?
  • How companies win against their competitors. Does it matter if they take on a differentiator or cost leader role? 
  • How market leaders stimulate customer demand and earn, sustain, and grow profits.

Next, you’ll need to know the structure and dynamics of your market: 

  • Market participants. Who are its leaders, and what share of the market do leaders represent? 
  • Recent and past growth characteristics of your target market. What about future growth (projected market size and market growth rate)?

The point, of course, is that you’ll start or maintain your business with informed decision making and understanding based on evidence, not hope. And, if there are unexpected changes in your market, you’re more likely to know how to proceed quickly and effectively.

3. You can avoid the trap of false business assumptions

Achieving your desired goal—a stable, profitable business—requires that your understanding of and assumptions about your business are correct. The strategy-building process enables business owners to validate their understanding of their business environment before and after their business launch. 

As you progress through the standard steps of strategy building, you can test these assumptions during the data modeling step and later during standard operations. Here are some examples:

  • Do the estimated revenues and costs you expect hold up to a reality check? When you develop your business model, you put your business assumptions to the test by using authoritative, up-to-date market and financial information. If your assumptions don’t hold up, you’ll know before you fail in real life.
  • Should you add or move to a new target market? Check out the business model portion of your strategy and test your new market hypothesis with reliable, up-to-date information. You’ll quickly learn whether your idea holds water.

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