Written by: Dr. Shahram Maralani, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
Strategic planning is defined as an organization's process of defining its strategy or direction, and making decisions on allocating its resources to attain strategic goals. More frequently small businesses fail in business strategy. But why do small businesses ignore strategic planning? Is it so that the formal structure doesn't apply to the real world. Or are they having a plan simply for plans sake? That makes you wonder, is strategic management irrelevant for small businesses? That's is what we will explore in this article.
The Fundamentally Wrong Assumption
There is a fundamentally wrong assumption when it comes to the strategic planning for small businesses. Given inherent characteristics of small businesses, they are usually in short of resources. To run a profitable business, entrepreneurs and managers of small businesses need to be careful and vigilant about their cost base. That is why they try to minimize and question the necessity of every single equipment, person, and process. As a result, some believe among the reasons why small businesses fail, there is something about not having the resources or capacity to execute whatever the outcome of the strategic planning is. That is why good companies go bad. Even if they are convinced of the relevance of strategic planning to them, they end up with a plan which is usually too costly to execute. That is why, assuming the outcome of a traditional strategic planning process can be useful for small businesses, is fundamentally wrong.
The Wrong Conclusion from Above
If the traditional strategic planning is not suitable for small businesses, then should small businesses stick to their way of working and do not prepare strategic plans? What is the solution?
There is noone questioning why planning is essential for small businesses. There can be a relatively short period of high sales and profit for any business due to specific market conditions, despite the quality of their plans. But sustainable success in business is dependent on proper planning. From understanding and proper positioning in the value chains and provision of resources, to creation of right customer channels and profitable revenue streams are all necessary to maintain foresight on the competitiveness and sustainability of business over longer periods. Hence, the question is not wether planning is necessary for small businesses, but more on the type and approach to such planning.
Why Strategic Planning for Small Businesses Fail
There are tens of causes of business failure. There are some which are more specific causes of small business failure, and among those are some reasons why strategic planning fails. Here we look into the top 10 reason why small businesses fail despite having strategic plans. Why the strategic planning does not support their sustainable success, or even not succeed at all upon its execution.
Business Strategy Concept and Methodologies
The first reason why strategic planning for small businesses fail, sits in the concept of strategic planning and the related methodologies themselves! Strategic planning generally involves setting strategic goals, determining actions to achieve the goals, setting a timeline, and mobilizing resources to execute the actions. A strategy describes how the ends (goals) will be achieved by the means (resources) in a given span of time. Often, Strategic Planning is long term and organizational action steps are established from two to five years in the future (wikipedia).
This in itself is a problem. Real entrepreneurship is about jumping from a cliff and building the plane as you are falling. The real entrepreneurs do not spend much time on the drawing board. They do not write multiple pages explaining their goals. Usually a small business is established by them due to their passion or spotting an opportunity without time for much preparation. Resources are built over time and adjustments are done until they succeeded. Much like building the plane while in free fall. Too much planning comes from risk averse corporate culture. That is nothing like the fabrics of successful entrepreneurs.
This is one of the main answers to what are some problems with traditional business plans. They simply plan too much, are sophisticated and time consuming, and do not take the realities of small businesses into account. Small businesses need a special way of strategic and business planing to succeed.
Trying to Fix a Problem Which Does Not Exist
If the performance of a small business is good, what is the necessity of strategizing? Imagine small businesses in a city which is famous for its universities. Local and international students create a significant part of the customer base for these businesses. The value proposition of these businesses sits in what they sell (or provide). Their sales channels are direct to students and staff of the universities as well as online sales of relevant services to them. Their customer relationships are simple to maintain. The main recipe for their sustainability in a normal economy is relatively low cost base and their affordability for the students. Traditional strategic planning for such businesses may not be so useful or bring them any additional results. A specific approach is necessary to ensure planning process in small business address real business issues and are not done for the sake of having a plan.
Lacking Right Leadership Skills
Having the wrong people in leadership positions is a problem for companies of any size. The challenge with small businesses is that the alternatives to those are limited or non-existing. Even if strategy designed for a small business stays unsophisticated and agile and prescribes the right methodologies in dealing with the right problems, lack of leadership traits and skills can result in failure due to unsuccessful execution.
The first risk in this regard is not having the right people involved in the strategic planning process itself. Having limited leadership resources can result in the entrepreneur, owner, or general manager designing a plan by themselves. This approach at best results in a written version of their own thoughts. That for sure does not give them anything new. The business should be able to grow beyond limitations of their individual capacity.
The second risk is having no accountability or follow through the execution of the plans. Not having the necessary leadership muscles, small businesses may end up having a plan, but no one to execute it. As a result, the accountability sits with the owner, entrepreneurs, or general manager, diluting the whole intention from a strategic plan to mobilize resources for business success.
The third risk is about lack of clear objectives. Small businesses can find it difficult to define clear objectives other than what they do at the moment. Strategy is about alternatives and choices. Small businesses may have limited leadership capacity to come up with multiple alternatives and a methodology to make the best choices. As a result, these businesses need a specific way of strategic planning fit for their size and capacity.
Failing to Allocate Resources
Being strained on resources is not limited to their leadership capacity. Small businesses are usually also in short of various resources in general. Strategy without execution is hallucination. Creating a strategic plan with unrealistic goals or lack of focus and resources is going to only cost money and time from small businesses not giving them any new edge in their competitive landscape. Failing to allocate resources can also results in writing the plan and putting it on the shelf, or partial commitment. Each of these are by themselves enough to fail a strategy. Small businesses need a specific way in creating their strategic plans to address these limitations.
Insufficient Market Intelligence
Market intelligence is the key trait of successful entrepreneurs. Without following any sophisticated and cumbersome process, they have great eyes and ears and feel the beats of the market. Transitioning from their subconscious based entrepreneurship to more logical and process based strategic planning brings them a challenge as the speed and taste of this new way of working may not match with how they have created their success in the first place.
Even the best business strategy is going to be obsolete upon its completion. Why? Because of the market: It's going to change on day one. That is why small businesses need to keep their sense for the market movement sharp next to using more deductive and sophisticated business planning methods. Not understanding the environment or focusing on results, ignoring marketplace reality, facts, and assumptions are among the reasons why strategic planning for small companies fails as the amount of market intelligence brought by these planning processes does usually not add much to or enhance entrepreneurs own sense about the market. Small businesses need a different approach to strategic planning to bring them sufficient market intelligence.
Confusion about the way forward
Unwillingness or inability to change is not limited to larger enterprises. Success of small businesses until today, can in itself be a reason for why entrepreneurs and business leaders do not succeed in designing and executing successful business strategies. As a result, the outcome of any planning process gets into competition with the fabrics of the current business and its success drivers, hence creating confusion for them.
Another reason why small businesses may not succeed in strategic planning is use of wrong types of strategies. There are various types of business strategies such as cost-base business strategy, differentiation strategy, or focus (niche) strategy. Having limited experience and resource for strategic planning can result in confusion about the choice of these strategies for small businesses. There should be a clear understanding of various strategies and a specific process of choosing from among those for smaller businesses.
Lack of understanding about own strengths and weaknesses
Success for many small businesses is unconscious! They may succeed (or fail) without realizing the detailed logic and reasoning behind why they did. That is why both successes as well as failures for small and especially new businesses come as surprise, both in their good but also gloomy times. Small businesses usually have lack of understanding about their own strengths and weaknesses as well as the external opportunities and threats around them. A proper SWOT analysis can help them create a better understanding. But such analysis are not just about filling a blank sheet of paper as they demand experience in this regards. Specific strategic planning methods for small businesses can save them from not understanding the competition, unrealistic plans, and demotivation from bad strategic planning.
Poor Marketing
There is no doubt that new businesses need marketing to get themselves known to their potential customers. But the challenge is to convince the more established small businesses on the necessity of great marketing as part of their business strategy. A proper strategic plan, one assumes to be relevant and to promise enhancement or at least protection of the existing business. It is hence natural to assume that such plans do prescribe new ways of approaching the market and the customers through enhanced or modified value proposition, resource provision or customer channels. Poor marketing can prevent such enhancements be visible to the market and customers preventing the realization of envisioned strategic objectives. Successful companies that failed due to poor marketing are many, and small businesses are not an exception. Proper strategic planning for small businesses needs special attention and approach to marketing.
Missing the Cost Structure and Revenue Streams
If a strategy does not result in additional revenue streams or in improving cost per unit of sales, it is not a strategy, It is a business novel. Inflation is a fact, and increase in the cost of operation is a consequence. Even if a business can in rare occasions survive without growing, the cost of its operation per unit of sales needs to constantly come down, to stay competitive. And as such a reduction in cost per unit of sales can not continue for ever, growing existing revenue streams, or creating new ones become inevitable. That is why, any business strategy should result in increased and additional revenue streams or reduced cost structure. This is even more important for small businesses. They need special approach to their strategic planning to prevent spending resources to build a plan which is not addressing these two areas.
Not Revisiting the Plan
The world and the markets are in continuous motion. Even in calmer times, there is a continuous change in the market and its dynamics. The change is more significant in times of economic crisis or during periods of significant economic growth. As a result any business plan needs to be dynamic, and any entrepreneur needs to stay flexible. One of the main reasons why strategic planning fails in small businesses is the fact that they can not afford to keep their plans relevant due to shortage in leadership capacity. As a result, their well-thought-through and designed plan becomes less relevant or even irrelevant during its intended period. Small businesses need a special way to keep their strategic planning updated to ensure its relevance.
How to Develop Business Strategy for Small Businesses
Companies that fail due to poor strategy are many. In fact, there are many more new businesses that fail than the ones that succeed. This ratio is less dramatic for more established businesses. But as your have seen in this article, traditional strategic planning is not a solution. There is no doubt in the importance of a good plan. There is also no question about the importance of strategic planning as such planning is about an organization's process of defining its strategy or direction, and making decisions on allocating its resources to attain strategic goals. Studying famous failed companies, looking into why companies fail in general, considering the traits, characteristics and the limitations of small businesses, I have designed a model to help small businesses benefit from the logical and deductive business management approach of larger enterprises and the corporate world, without sinking into deep and sophisticated strategic planning studies which do not give them results.
The "8A Accelerated Business System" is a model designed to be intuitive, agile and nimble, while giving entrepreneurs and their small businesses the necessary tools to tackle their business challenges by designing relevant and unsophisticated business strategies and plans. This model covers all the eight areas of business life cycle from ideation, design, and creation of a new business or a new business line, product, or service, to design of growth strategies, automation of business processes and tasks, identification of business enhancement opportunities, and even the continuous monitoring and safeguarding of their businesses. The "8A Accelerated Business System" is a solution for small businesses who do want to differentiate themselves from their competitors, by applying more modern approaches in developing and managing their business, while not spending their valuable and limited resources on unnecessary paper exercises.
If you are interested in learning more about the "8A Accelerated Business System", do not hesitate to contact me on LinkedIn or on my website.
Follow me on Facebook, Instagram, LinkedIn, and visit my website for more info!
Dr. Shahram Maralani, Executive Contributor Brainz Magazine
Shahram G. Maralani is a Corporate Leader with more than twenty-five years of experience in a wide range of disciplines and across multiple industries and geographies. He is also an Author, a Business Mentor, and a Professional Speaker. Shahram is currently senior vice president and chief digital officer in Nemko Group A/S. In addition, he helps entrepreneurs to establish and develop Online Businesses. He is author of the book “Build an online business in 24 hours”.
