A Plan Can Help Small and Medium-Sized Businesses Fuel Growth

Key Takeaways:
  • A strategic plan serves as a clear roadmap, helping businesses set measurable goals, anticipate challenges and stay focused on long-term growth.
  • Successful strategic planning requires stepping outside daily operations to align vision with actionable steps, supported by realistic and well-researched objectives.
  • Tailoring a strategic plan to your company’s lifecycle ensures relevance and clarity, providing a practical framework for achieving your goals.

 

It’s best practice for all businesses to have a strategic plan, from self-employed professionals to Fortune 500 Companies. Strategic plans provide vision, direction, focus and help business owners align their goals with actionable steps. Without a strategic plan, businesses risk drifting without clear priorities, leading to missed opportunities.  

Additionally, strategic plans help businesses anticipate potential challenges and respond to competition in a proactive manner. By setting clear objectives and identifying competitive advantages (and disadvantages), the business can develop strategies to differentiate themselves from competitors and stand out in the market.  

The business owners and executives we’ve seen successfully develop and execute strategic plans were the ones willing to step outside of the normal “day-to-day” and dedicate the time to working on their company. The investment made in designing the plan, executing the plan and being held accountable to the plan, were just as, if not more important, than the actual plan itself. 

How Does a Strategic Plan Work? 

Simply put, a strategic plan is a roadmap to get you from Point A and Point B. We like to think of a strategic plan as if we were planning on a cross-country road trip. Before getting on the road, wouldn’t you want to take a look at a map? Of course. Yet it’s surprising how many companies attempt “to drive from LA to New York” without a map. 

The first thing to consider is what kind of trip you want to have. Is the goal to take the fastest, most direct route? Is the goal to meander and stop to catch a show in Vegas or hike in the Rockies? Or is the goal to drive to Kansas City as fast as possible, but stay with family for a few days? 

In other words, setting goals and objectives is the heart of a strategic plan.

In the business world, it looks like this: 

ABC Company is making $5 million in revenue and has EBITDA of $1 million. It has 25 employees and sells products into three customer groups. Its owner’s top goal is to grow. But growth is an amorphous goal until you quantify it with some numbers.  

Industry research – an essential aspect of strategic planning – shows other companies in ABC’s industry have typically achieved growth of 2x to 3x revenues over the past five years. But ABC’s owner wants to achieve growth of 5x revenues and add two more customer groups over the next five years. 

A key characteristic of a good strategic plan is the probability of success i.e. realistic. The ABC owner’s goal is aggressive, but is it realistic? A market analysis shows the owner’s goal may be realistic if ABC can acquire a competitor company in addition to achieving organic growth, and if the economy and interest rates are favorable. But those are big “ifs,” and ABC would have to be extraordinarily disciplined to adhere to the strategic plan’s roadmap. 

Quantitative & Qualitative 

Building a strategic plan requires both quantitative and qualitative thinking. Your goal may be quantitative – say you want your company to grow from $10 million in revenues to $15 million over the next three years before going out to market. That’s quantitative. You have quantified a goal. 

But a market analysis may show that the best-in-class companies in your sector (e.g. manufacturing industry) are selling products at gross margins of 40% to 50%. Yet your company is selling products at a gross margin of 30%. It is also a quantitative thought: 30% vs 40%-50%. But it is also a qualitative thought: why? Why are your company’s products selling at a lower gross margin than your competition? Are they buying raw materials cheaper? Does your workforce lack certain skills and training to manufacture complex, more profitable products? Do you need to invest in better equipment in an attempt to improve production efficiency? The numbers point to a qualitative question, and you need to look at what’s behind your gross margin and figure out how to improve it before you go to market. 

In essence, math can be easy. The numbers speak for themselves. But it’s the qualitative factors behind the numbers that reveal the challenges that will define much of a company’s strategic plan. 

Business Lifecycle 

An effective strategic plan should mirror where a company is in its business lifecycle. If your company is a startup, the strategic plan will look different than the plan for a mature business. For a startup, the goal may not be to become profitable within a year, but rather obtain additional rounds of funding, prove its concept and identify a growth track.  

Compare this plan to a company that is mature, profitable and has shareholders. They may not be looking for additional investments. But say the company has had a great year and has grabbed the attention of several private equity groups for a future acquisition. Its strategic plan might be one built around selling the company in two or three years and cashing out. What was once a mature company has now prepared a strategic plan around exit planning. 

No matter where a company is in its business lifecycle, the process of building a strategic plan is the same: you have a starting point, which is where you are today. You envision an end point. Your strategic plan is the roadmap that gets you from the starting point to the end point.

Characteristics of a Good Strategic Plan 

A good strategic plan rests on three important characteristics: 

  • Clarity: Even if someone doesn’t agree with your plan, can they read it and understand it? Does it make sense? If a business owner hears from key stakeholders that the strategic plan doesn’t make sense or can’t hit its goals, such criticism should be taken seriously. 
  • Relevance: Does the plan support the owner’s goal? A strategic plan should tie back to specific goals and timelines. If analysis and financial projections show the strategies and objectives in the plan, such as acquisitions or expansions of product lines, won’t be enough to help the company reach its goals, where does the problem lie? Are the strategies out of kilter or are the goals unrealistic? 
  • Reality: Perhaps the most important characteristic is whether the plan is realistic. You should be able to map goals, objectives, milestones and outcomes to the plan in a way that makes sense. If a company is valued at $8 million and its owner’s goal is to sell for $10 million, and industry projections support that growth, that’s a realistic goal. But if they’re valued at $8 million and they want to sell for $20 million within two years, that’s an unrealistic goal. 

Who is Involved in Building a Strategic Plan? 

Ultimately, a strategic plan will impact nearly everyone in a company. It needs to be finalized and approved by key stakeholders, including top management, investors and perhaps the company’s attorney and accountant. 

But the team that actually puts together the plan should be selected based on their skills and the relevance of their roles to the content of the plan. For instance, if the plan calls for a reorganization of the ownership group, an attorney will need to be involved, and most likely a tax advisor, as well. 

Some companies have the internal talent and skills to put together a comprehensive strategic plan. Others don’t and need to reach outside for expertise. Depending on the key goals and strategies laid out in the plan, input from an attorney, an accountant, a banker, a wealth advisor or a business consultant may be advantageous. 

In the end, your strategic plan needs to be short, sweet and to the point. But it needs to be supported by a lot of work behind it. When you understand where you are today and where you want to get to, that will dictate your scope and the professional team that will help build your strategic plan. 

If you would like to take the first steps toward creating a comprehensive strategic plan for your company, contact an Adams Brown advisor.