Which Of The Following Statements Best Describes Free Cash Flow Secret of Strategy – Part 1

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Secret of Strategy – Part 1

A step-by-step guide to creating a growth strategy based on your current situation and future opportunities.

I bet you think you already have a strategy.

Well, you can, but strategy as a concept is like love: much used and little understood. Many businesses (and that includes small businesses, large corporations, non-profits, social organizations, governments, NGOs…the works) don’t even know what a strategy really is or how to get one.

Even if you actually have a strategy – is it the right one? Best? This is so important – says marketing guru Jay Abraham – and I agree – a superior strategy executed poorly will beat a poor strategy executed well, anytime.

It’s easy to say, “This is a big company thing. We know what we need—why should we do all the extra work.” While a bunch of “no strategy” marketing tactics can work well and deliver good results, are they leading your business in the best direction? You may be making money, but are you making the most money possible? Could another set of tactics that implement a better strategy produce far better results?

Which brings me to the point of this two-part article: how to formulate a strategy. In the next 1,500 words, I’ll present the first half of a basic system for identifying high-impact strategies in your business. (Just the first half? Yes. While I try to keep this as simple as possible, it still takes a bit of explaining, and editors and readers alike hate long articles!) So Part 2 will wrap up the outline, and in future articles, I’ll discuss each component system in more detail.

Let’s start with a working definition of strategy.

Strategy is the guiding principle on which a series of interconnected decisions on the selection and deployment of resources and tactics are based, the purpose of which is to realize the vision and achieve decisive goals in a competitive and changing environment.

This definition tells us several things:

  • The purpose of all strategic decisions is to achieve your vision and “decisive” or critical objectives.
  • Strategy is the selection of specific resources and tactics to achieve the desired result.
  • Strategy is not static; these are decisions in a series and they continuously develop over time.
  • The strategy is broad and comprehensive. With that in mind, here are 8 steps to formulating a strategy:
    1. Set your vision
    2. Collect environmental and competitive data
    3. Assess your organization’s strengths and weaknesses
    4. Choose your “grand strategy”
    5. Set decisive goals
    6. Rate and rank your “SWOTs”
    7. Compare your internal and external factors to identify strategic alternatives
    8. Choose specific strategies to implement

Of course, there is one last step: turn your strategy into tactics and a game plan and execute it. We won’t go into that in this article.

Step 1. Establish your vision.

People complicate the idea of ​​vision. A vision is simply a story that describes how you want things to be in the future. Some people can easily tell these stories – they know exactly where they want to be and what it will “look like”.

Others need help. The best approach is to answer a series of questions about what your organization does, who its clients or users are, what its impact is, how big it is, where it is, how it works, when all these things will happen, and so on. As a result of the answers to these questions, your vision will emerge.

Of course, you may already have a vision. If so, now is the time to make sure it’s relevant and powerful.

The test of a good vision is if it inspires; not just you and your management team, but all your stakeholders: your partners, employees, clients, investors, suppliers, lenders, your community, your government – and perhaps the general public. A great vision inspires and guides. Every action you take should advance your vision. If not, don’t do it.

Step 2. Gather environmental and competitive data.

To develop the best strategies, you need to understand the world outside your organization. Quantify and qualify, not just absolute values, but also trends. And what is important – to identify changes in the status quo. Key areas of focus include competitors, technology, market size and trends, the health of your client’s industry, macroeconomic trends, availability of key resources (people and materials), government regulations and other policy considerations, and changes in demographic and psychographic customer tastes.

Design relevant measures for each of these key external areas. For example, survey your competitors for revenue, profits and growth (or decline) in market share, changes in products and services, changes in marketing and sales strategy, changes in geographic distribution, strategic alliances and announcements of major customers.

Macroeconomic factors include the obvious such as interest rates and employment rates and trends, production and consumption statistics, along with more minute industry issues such as new home purchases – which affect a wide range of businesses or defense spending – which affect an entirely different set of sectors .

Step 3. Assess your organization’s strengths and weaknesses

Now is the time to shine a light on your organization. Examine each functional area for strengths and weaknesses. Identify the strengths that will help the company achieve its vision and the weaknesses that will hinder its goals.

The following is an initial list of focus areas:

  • Ability to acquire new potential clients (Marketing)
  • The possibility of acquiring new clients (sales)
  • Products and services, existing and those in research and development.
  • Finance or money, including cash flow, access to capital, revenue, profit, ROI
  • Leadership, including values ​​and vision alignment, defining goals
  • People, including skills list, staffing levels, employee loyalty, compensation

Other areas to examine include:

  • Client satisfaction
  • Services to clients
  • Logistics
  • Competitive positioning
  • A unique offer for the client
  • Management team
  • administration

Step 4: Choose your main strategies.

This “grand strategy” approach is based on industry/product revenue growth rates. It is specific to a business unit with one main industry and/or product. If your business is more complex, you can repeat the process for each focus sector.

First, consider your industry and the growth rate of the manufacturing sector. Is it increasing or decreasing?

Second, consider your competitive strength within that sector. For this analysis, competitive strength has two components, the size and trend of your market share and the financial strength of your organization; specifically, either cash flow from operations or access to capital.

To simplify: strong market share + strong finances = strong competitive position. Either strong market share or strong financials = average competitive position. Neither strong market share nor strong finances = weak competitive position.

This defines a matrix of two by three strategic choices from which you can choose your grand strategy.

The exact choice you make will be dictated by the specifics of your situation: sector strength and competitive strength, along with your stated vision and purpose. Choose from the list what best describes your company:

Strong sector, strong competitive position.

This means that you are in a growing market, that you have a leading position in the market and that you have cash to maneuver. Your strategic choices include:

  • Market strategy to increase demand and sales for existing products and services, in existing and new markets
  • A marketing strategy to increase market penetration for existing products and services and capture a larger share.
  • Improve or expand existing products and services; supplements, background, strategic joint ventures.
  • Gain control of distribution – bring outside sales inside. Take over sales from distributors.
  • Gain control over suppliers. Acquisition, merger or joint ventures with competitors
  • Develop strategic partnerships to increase distribution or obtain new products.
  • Develop related products and services for existing customer base – background strategies.

Strong sector, average competitive position

Here you are in a growing market, but you either have a leading position but limited cash – or vice versa. The exact choice available to you depends on your situation. You can:

  • Look for underserved niches: move into small, defined and profitable markets.
  • A marketing strategy to increase market penetration for existing products and services and capture a larger share.
  • Improve or expand existing products and services; supplements, background, strategic joint ventures
  • Strategic partnerships – searching for products/services for existing customers
  • Exploitation of assets through joint ventures and host-user relationships
  • Develop related products and services for existing customer base – background strategies.
  • Increased marketing penetration through distributors and third parties
  • Get more money: Raise capital through debt or equity

Strong sector, weak competitive position

You are in a strong sector, but have a relatively small market share and limited or no cash. Your choices include:

  • Look for underserved niches: move into small, defined and profitable markets.
  • A marketing strategy to increase market penetration for existing products and services and capture a larger share.
  • Strategic partnerships – searching for products/services for existing customers
  • Develop products and services for existing customer base – background strategies.
  • Sell ​​your client base to a competitor or associate; or reposition your existing products to attract new types of customers.
  • Sell ​​the product line and use the cash to reposition the remaining assets
  • Sell ​​the company

Weak sector, strong competitive position

In this case, you dominate a weak market and have the cash to leverage your position. You should:

  • Add related products and services to your existing customer base – background strategies.
  • Add unrelated products and services to your existing customer base – background strategies.
  • Add new products and services for a new customer base
  • Creating joint ventures in unrelated markets

Weak sector, average competitive position.

You are in a mediocre position in a weak market. Depending on your exact circumstances, you can pull out, use what cash you have left to buy an exit with new products, or try to sign up a strong partner. Choices include:

  1. Cut costs however you can.
  2. Add related products and services to your existing customer base – background strategies.
  3. Add new products and services for a new customer base
  4. Aim to dominate the smallest definition of your market using cheap/free strategies.
  5. Create strategic partnerships and joint ventures

Weak sector, weak competitive position

I am sorry to say that you are in a bad place. In one word – withdrawal! You can do this in the following way:

  1. Cut costs however you can.
  2. Sell ​​a product line
  3. Sell ​​the company

If you don’t want to liquidate, try expanding your marketing using cheap/free marketing strategies – but that can be a losing proposition.

Also, as above, try to create strategic partnerships and joint ventures, but it can be difficult to attract partners to a market with poor fundamentals. At this point you might say, “…sell the customers? Sell the company? No way. I’m holding on.” That’s just not a strategic point of view.

The strategy says that you can earn more by doing something else – so you better start thinking about it.

Generally, these choices are listed from most attractive to least attractive. The best choices for your organization will be based on your particular circumstances.

By now, you’ve formulated a vision, gathered and analyzed your external environment and organization, identified relevant strengths, weaknesses, opportunities and threats, and begun to focus on a grand strategy. That should keep you busy for a while.

In Secrets of Strategy, II. part, we will complete the process.

Remember – you don’t need a strategy. But owning one increases your chances of generating the most profit from your resources. After all, that’s the whole point of strategy. —

© Copyright 2004 Quantum Growth Coaching. All rights reserved

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