Small business strategic planning is a cut down version of the strategic planning techniques used by big businesses to help improve competitiveness.
It’s that last word that is the key.
Strategic planning is about helping you to improve the way you win profitable business from customers instead it going to your competitors.
It’s Even More Important For Small Businesses To Compete Effectively
Big businesses can sometimes succeed through sheer brute force marketing. TV advertising is expensive but constant exposure to an advertisement can move you through the Attention Interest Desire process which may lead to a buying Action.
Small businesses don’t have the resources to waste so it’s even more important that they:
- Only fight competitive battles they stand a good chance of winning.
- Know how to apply the strengths of the business against the weaknesses of competitors
Small businesses get the same benefits from strategic planning as big businesses.
The Small Business Strategic Planning Process
Small businesses can benefit from the same five steps of strategic planning
The strategic planning process is based on five steps:
- Strategic analysis – using some famous strategic planning models
- Finding new strategic insights identifying opportunities and threats. Finding new ways to compete more effectively.
- Developing a strategic action plan
- Taking effective action
- Comparing the results with expectations and feeding that back into the strategic learning process since it will either confirm previous analysis or encourage you to find out why things didn’t work as expected.
To this extent, effective strategic planning is the same in a small business as it is in a big business.
Small Business Strategic Planning Is Simpler And More Limited In Scope
Where small business strategic planning differs from that done in big businesses is that it is usually smaller and simpler in scope.
First, there aren’t the resources to do the full strategic analysis work.
Secondly there isn’t the need to do it all based on the particular circumstances of the business. That’s why I take clients through a business health check that I call a Strategic Snapshot.
The Scope Of The Business
First, small businesses often benefit from concentrating on a narrow geographical area.
As a business expands outwards, it gets more complicated, brings into consideration many more customers, potentially with different needs and more competitors.
Second, a small business often works in a tightly defined niche market which again helps to limit strategic issues as well as providing focus and a stronger sense of identify for the business.
The Four Types Of Competition
Economists identify four different types of competition which also impact on the extent of strategic planning needed for a small business:
- Perfect competition – this is where many small firms provide identical products. Businesses can’t make a big profit because the market is self-regulating but through sales and profit performance, it sends a very clear signal to the management of the business.
- Monopolistic competition – this is where many small businesses sell differentiated products and therefore have some freedom from destructive competitive forces which reduce profitability.
- Oligopolistic competition – this is where there are only a few sellers of a product which may be a commodity or differentiated but the actions of one competitor directly impact on the other competitors in the market.
- Monopoly – there is only one supplier the customer can buy from.
The strategic planning priorities differ:
- In perfect competition, there is little to gain from strategic planning because no advantage can be sustained. While perfect competition is a theoretical rather than practical concept, it’s bad news if the market heads in this direction.
- In monopolistic competition, the priority is establishing and maintaining differentiation so that the business keeps its own private market space although it will also be concerned with the future prospects of the specialist market.
- In oligopolistic competition, the focus is on competitors, how you can gain an advantage and how they will react plus what your competitors are trying to do and how you should react.
- In a monopoly, the focus would be on threats to the monopoly coming from outside the market.
Your situation will depend partly on how you define your market and the barriers between market segments – when you go to buy a new car do you look at everything, a tightly defined price range or a particular category of vehicle?
It also depends on your share of the market. Having a 60% share of the market means you need to monitoring the prospects of the market because your business is so dominant, it will rise and fall with it. Having 0.1% of the market makes you much less dependent on what the overall market does or what other small share competitors do.
Practical Implications of Small Business Strategic Planning
Strategic planning for a small business should be designed around the particular needs of the business.
While I have a differentiation strategy process, it is customised to the business situation.
I want to understand the key success factors and key factors of difference that apply in the market and think about how those are likely to change through the environmental pressures revealed by techniques like PEST analysis.
Consciously or unconsciously we’ll prepare a SWOT analysis to focus on the important things.
The focus of the small business strategic planning work then turns to what will be changed to improve the competitiveness of the business.