Research by Antonios Tsalikis
Do you know that most businesses fail, particularly in the first three years? According to the Office of National Statistics, the UK five-year survival rate for businesses established between 2014 and still active as of 2018 was 42.5%. Geographically, the highest five-year survival rate is in the South West, at 45.9%, and the lowest is in London, at 39.2%. London has had the lowest five-year survival rate since 2014. By industry, the highest proportion of surviving businesses is 22%, and they are in professional services, scientific and technical industries. As of January 2021(in the third wave of the COVID-19 Pandemic), 70% of UK businesses are reported to be currently trading, 26% say turnover has decreased by more than 20%, compared to previous years while 39% have (with more resilient strategies) remained unaffected.
Figure 1: Survival rates of businesses between 2014 and 2018
In defining strategy, Peter Drucker like many other economists in the late ’50s and early ‘60s focused on competition and price. Michael Porter agreed but expanded on this with his five forces framework. Johnson and Scholes on the other hand state that the three levels of strategy that determine the direction of an organisation and define its success are, corporate strategy (think mission, vision, and values), the business strategy (tactical policies deployed to compete), and functional strategy (operations people, processes, and systems). When successfully coordinated, these all contribute to an organisation's overall business strategy.
At CFBL Consulting, we believe that business strategy is a transformative, sustainable, and agile process that consists of a series of steps a business must take in establishing its unique selling point and retaining a competitive advantage whilst considering internal and external factors in its environment. In summary, business strategy is the course of action and sets of decisions that will assist businesses in achieving their growth objectives. Specifically, it is a summary of how a business will achieve its goals, exceed customer expectations, and sustain competitive advantage for the long-term. At CFBL, we use our expertise and experience of the industry to deliver strategy across seven strategic, functional, and operational dimensions.
To accomplish goals and achieve success, businesses need to adopt the right business strategy. Business leaders looking to successfully start-up or scale-up a business or launch a new business, service or enter a new market must adopt strategic thinking. A business strategy is a plan of action that businesses will use to successfully achieve their business goals in a competitive environment, industry, or region. For example, businesses looking to export to the EU, America, the Middle East or Africa, post-BREXIT will need to adopt a carefully thought-out strategy. We have identified three factors that businesses should know about a business strategy.
3 Things You Must Know About Business Strategy
1. Understand Why Your Business Needs to Have A Business Plan
A sustainable business strategy and plan is no longer optional it is crucial for every business. All top businesses have annual and medium to long-term strategic business plans but more needs to be done to develop and implement them to be sustainable, flexible, and forward-looking, the pandemic had reinforced the urgency and need for this. Strong leadership is vital for setting clear goals and creating plans that adequately inform a business and its key stakeholders such as employees, funders, investors, partners, and local communities. A business plan helps stakeholders understand what goals a business needs to achieve and how these will impact them. Communicating this clearly enables employee buy-in by allowing them to see the golden thread and stay focused on meeting company targets.
There are many dimensions to a business plan, one size certainly does not fit all. For example, the details (or lack of) a strategic approach to customer relationship management in a business plan, could mean the business finding it hard to maintain customer loyalty. From our experience, companies that do not have specific policies to retain existing customers, or a business development plan for attracting the right type of new customers who are a strategic fit, tend to be more vulnerable to competitor risks. Creating a marketing and customer loyalty plan and ensuring continued business growth are a few of the many reasons why businesses fail to succeed, these aspects need to be incorporated in the business plan.
2. Understand that you need a Business Strategy for Growth, Expansion or to Scale-up
Business growth or expansion is a goal that cannot be successfully achieved without a robust business strategy. A business plan to scale up a business will consist of goals, financial report, and recommendations to achieve these, that are specified in detail. These will help executives and managers explore opportunities, select the best options, manage risks inside or outside their current competitive environment and help facilitate business growth and expansion, this requires strong leadership. A stakeholder or customer management strategy delivered via appropriate communication channels is a necessity for growth. Digital marketing systems may facilitate the implementation and follow-up of actions. These need to be tactically executed to ensure that they are achieving the desired purpose. Above all, regular contact creates a human touch that allows your clients to know that your business genuinely cares about the community, their success and that you have their interests at heart. On the other hand, when not carefully managed, potential risks include a brand or reputational risks which can be devastating.
Other risks include overexpansion which could lead to cash flow risks. This is one factor that will almost certainly result in the failure of a business. Robust financial management controls and proactive monitoring is one way to avoid or mitigate this risk. A well-implemented strategic plan will include detailed recommendations in the business plan, road map and risk registers to ensure that management has the right systems, processes, and controls in place, to assess emerging risks and manage them robustly.
3. Understand the Risk of Not Having a Robust Business Plan
Another reason that underscores how fundamental a business plan is for long-term growth and success is its ability to facilitate efficient resource planning and allocation. Time, as well as the availability of skilled resources employed or required by your business, are often limiting factors; therefore, a robust business plan enables a business to attract the right expertise to match the operational needs of the business. A business plan allows management to establish an effective system for monitoring performance, motivating staff, and increasing productivity to minimise people risks. When resources are not managed efficiently, the business is likely to lose both revenue and customers in the long run.
To develop a robust plan, businesses need a stakeholder management plan for internal stakeholders such as staff and external stakeholders such as investors. For example, to responsible investors, performance in terms of a business environment, social and corporate governance ESG targets will be a priority. A balanced scorecard, incorporating ESG can be used to monitor and evaluate both quantitative and qualitative indicators. There must be a clear plan, setting out how the business will successfully obtain funding for operating, investment activities, innovation, research, and development e.g., by reinvesting retained earnings, borrowing or grant, funding. Not embedding controls and actively managing risks will lead to significant errors that will jeopardise the future of the business. Without putting these steps in place, it is only a matter of time before the business fails, but by incorporating these factors into planning and decision-making businesses large and small (enabled by scalable) technology are more likely to thrive and succeed sustainably in the long-term.
“Businesses need a clear sustainable strategy for growth and to be aware of the risks of not having a robust agile business plan.”
Our Top 5 Tips for A Solid Business Strategy
1. Define your Company Vision Define your company vision in a concise paragraph. Develop this statement and make it publicly available to both employees, customers, and stakeholders such as accountants, funders, and partners. This statement should answer the key questions about what drives your business. Your mission statement outlines where your business is heading and the goals, which are the objectives and accomplishments that your business aims to achieve. 2. Know your Business, Strengths and Limits Knowing your business is crucial. An effective way to understand and evaluate your company is by undertaking a detailed SWOT analysis. This is an analysis of your business strengths, weaknesses, opportunities, and the threats it might face. By evaluating where your business is at present, management can make more informed forecasts on how it can grow. In addition to a SWOT analysis, management can undertake a PESTEL analysis. Together, these will help identify internal and external threats and risks, and to evaluate potential opportunities, and to better understand the business weaknesses that need to be improved. A SWOT analysis is simple to undertake and can be easily understood by employees or potential partners. This is a valuable tool that helps to identify and highlight the internal and external issues and opportunities in the environment that a business operates in. 3. Set conservative but SMART goals When drafting a business strategy, the questions that you need to answer are, what issues is your business currently facing? Which of these issues do you want to resolve? What is your objective for this strategy? What does success look like? If you do not know these, it will be difficult for your business and team to support your plan. Therefore, set SMART (Specific, Measurable, Assignable, Relevant, Time based) goals. To achieve this, identify how you will measure the success of your goals. Every business has its own unique set of challenges therefore success is variable and relative. Also, ensure you identify who is responsible for achieving each aspect of these goals. Be conservative and realistic with your estimates. High targets often result in failures and disappointment among the managing team. 4. Develop a Winning Marketing and Sales Strategy
Develop a marketing strategy or plan for your business. Identify the following: your ideal target market, your existing customer segment, how to increase customer loyalty, attract more clients, differentiate your products or services from that of the competitor, brainstorm growth strategies for expansion. Identify the appropriate advertising and promotion channels for your services, these may be search engines, social media, print, television, YouTube, or word of mouth or others, because for some clients none of these will work. 5. Seek Out New Technology and Innovative Solutions Technology is everywhere. Adopting innovative solutions for products, services, for operational purposes or project management could transform your business and make it more efficient and productive. There are a plethora of cloud-based and scalable tools available for every business. Technology is vital to ensure that data that is collected, controlled, analysed or processed by your business is done so securely and in accordance with privacy and GDPR rules. This provides assurance that your business is a trustworthy partner that takes active steps to protect the businesses and clients it works with from technological risks such as cyberattacks.