Self Taught MBA: Strategic Planning, Part 2 – The ABCs of Strategic Planning
This morning I received a distressing phone call from a subcontractor, Randy. He owns a small basement company and called to ask if I had any contacts for work, having none since November. “I’m going down the tubes,” he confided. I thumbed through my mental rolodex, but on the heels of the worst year for new housing on record, I had no good leads to offer. I suggested Joe, “He’s only doing remodels,” Randy reminded me, and I suggested a few others, but he had already contacted each with no prospects for work. Randy used to build a foundation every three days, now he’s lucky to install one per month, and he was obviously suffering, emotionally as well as financially.
Randy needs a new direction, because chances are the new home market will not rebound anytime soon. Many contractors have been in Randy mode, waiting for things to improve. So I suggested basement repairs. Randy said he’d been looking into it, and knew about a competitor that had gone from basements to repair services about two years ago, “Now he’s got a six-month backlog now,” Randy told me, “but he doesn’t need my help.” Randy needs a new strategy, and our conversation turned into an impromptu strategic planning session. I suspect many builders have come to the end of their carrying capacity, and have to figure out an alternative to waiting for the economy to improve, which is like holding your breath. It’s time to do some serious strategic planning.
In the last blog, we touched very lightly on the standard business plan, which defines the steps for a new business. It covers standard topics including a description of products or services, the local market, the management team, and revenue and earnings projections. For most of us, this is a wasted effort. We’re not starting a new business, but, like Randy, in need of a new approach that leverages existing skills and resources in a market-appropriate direction.
There are two steps to this effort: the first is tactical-what are we going to do and how? The second, operational, which is a detailed and specific implementation plan including duties, dates, and milestones required to achieve the goals outlined in step one.
ABCs of Strategic Planning
To start, a strategic plan represents an internal plan; it’s not designed to sell your business idea or to obtain financing. You can forgo a lot of the pro-forma elements of a formal business plan, such as the product/service description, management structure, and financial history. But you will want to analyze the environment in which you’re doing business, the threats and opportunities. You’ll want to consider your company’s resources, financial and personal. You will identify actions needed to move toward your goals, assign tasks, set dates and milestones, and then a program to track your progress.
The strategic plan may have more bullet points than narrative, and represents both a map and a to-do list. You may start with a vision, what will the company look like this time next year? Or you could start with the present situation, known challenges and opportunities, and through the planning process develop a vision. This is a problem solving approach, which sometimes supersedes the inspired, visionary goals that make strategic planning compelling. Either way, it will lead to setting specific goals and then reverse-engineering a route to obtain them.
The basic “thought elements” of a plan include the following:
Mission: Who are we, and where are we going? Clearly define, or redefine the purpose of your business. This could be motivated by a change in the market, Randy’s case, or to refocus true business objective, such as earning $100,000 a year, vs. building 20 homes per year. Many of us confuse production goals with financial goals and this confusion can lead to meeting the stated goal, 20 homes a year, while falling short on earnings.
Values: These may be qualities we wish to achieve, for example, more time with family and friends. Values keep us from conflicting financial and personal goals. It avoids the confusion of thinking, I need $100,000 a year so I can spend more time with my family, therefore I will work 90 hours a week to make $100,000 a year.
Vision: What the company, and more importantly, our lives look like once the goals are achieved.
External analysis: A cold, realistic look at the economic and market conditions. If we set out to build new basements, but the new home market remains in neutral (or reverse), then maybe we’re aiming toward mission impossible and need to reconsider the original objectives. Going back to mission, values and vision, why are you in business in the first place? To build basements, or was it to provide your kids a college education?
Internal analysis: A warm, genuine look at our capacity and resources, which often exceeds our narrow self judgment. For example, Randy spoke with an old client, Joe, asking if he had new housing starts to bid the basement work. Joe said, “I only do remodeling now.” Randy felt disheartened, missing the opportunity at hand: He could approach this old client (resource) with the idea of adding basement waterproofing and repairs to his remodeling bill of fare. Maybe both would benefit, especially know the other basement repair contractor in town had a six month backlog. That’s reverse engineering a vision.
Milestones: Now that we have a direction, what are the major steps needed to achieve our goals, such as obtaining a required certification, a piece of equipment, or the partnership necessary to realize the vision. This is process of turning a vision into a goal, and then analyzing the steps needed to achieve it. With the milestones in place, we can begin to create a plan.
Action planning: Since goals are achieved over time, the product of strategic planning is usually a calendar of who will do what and when. This is the detailed, to-do list section of the plan with specific tasks and responsibilities: the nitty-gritty.
Budgeting: A co-consideration of the action plan, if money is needed to purchase equipment, form partnerships, or buy advertising.
Implementation and adjusting of plans: This last phase represents the ongoing monitoring and adjusting of your milestones and action plans. If you’re working with others, which I recommend, this will mean more meetings to report and hold individuals accountable for meeting milestone requirements. Plans don’t implement themselves.
This morning I spent three hours in a strategic planning meeting with a group of very creative individuals in a nonprofit organization I participate in. At the end of the session, we had decided on, and set a calendar for three concrete, actionable goals for 2012. I made a motion for, “No more new ideas until 2013,” nobody seconded this facetious motion, but everyone agreed. Once a course is set, give it time, follow up, and follow through. Next year, repeat the process, refine and redefine your goals as necessary. The strategic plan is a living plan and the process ongoing.
Read more articles from the Building Business blog.