The vast majority of middle market and smaller businesses, even some with up to $20 million in sales, would say “I know who my customers are and what they want” or, “I know how to make a sale and manage my costs” so, “I don’t need a strategy.”
That’s what the owners of my local drug store said to themselves, and they were doing fine, until Rite Aid came to town. And my graphics designer/printer did great work on a broad range of print jobs, using a ton of specialized equipment he had invested in over the years. Then Vista Print, 99Designs and other low cost alternatives cut his legs out from under him. These are smaller, acutely focused businesses that serve to simplify and highlight strategy challenges, but similar examples can be drawn from larger middle market companies in industries like cable and wire manufacturing, text book publishing, or automobile parts producers.
The question of business strategy is different for much larger companies like Kodak, Pitney Bowes and IBM. They have multiple products, compete in many different markets, and have the financial capacity to sustain challenges and invest in a plan that redirects resources to re-energize profits or growth. And despite monumental changes in each of these three companies’ markets, secular changes that relegated super star products and services into “has been” remnants of the past, they continue to battle, constantly fighting to reinvent their businesses, some with more success than others.
By contrast, a middle market and smaller businesses have less flexibility, arguably limiting strategy choices. But that reduced flexibility makes good strategic decision making even more critical. My local drug store could have prepared for the risk of a Rite Aid opening down the street, refocusing on a high growth market like nutritional supplements. Instead they chose to take Rite Aid on, believing in their long standing customer relationships, and were eventually forced into liquidation. My printer could have proactively sold off his high cost specialized printing equipment, shifting focus to high margin design capabilities and outsourcing production to low cost printers. Instead he kept production in house, running a wide range of low margin jobs. He was eventually forced into change, initially cutting the large space he had acquired to house his equipment in half, then to a quarter, and eventually closed.
Challenges faced in business can be large, one time, secular shifts in supply or demand, such as those faced in these discrete small business examples. But market changes can also be far more subtle or cyclical, like evolving consumer preferences, energy and interest cost swings, or demographic trends. And whether the risk of change is secular or cyclical, sudden or subtle, the thought process and plan to deal with such changes is your strategy.
You may see a risk, and in response, plan to hunker down behind the strength of customer relationships, like the local drug store. Or you might hesitate to change, or admit that prior decisions were wrong, and rationalize not selling off that high overhead equipment based on a preconceived notion about how owning it adds to your market strength. Even though you are not taking overt action, just sticking to your guns, that is your strategy.
A “do nothing” strategy can be a valid approach, primarily when the challenges faced are cyclical. You might simply cut costs to weather the storm, then plan to rebuild when the market improves. But cutting cost can be dangerous, equating to cutting out your legs from under you. And market risks can be misread, thought to be short term pressures rather than significant and permanent change. A conservative and low cost “do nothing” or cost cutting strategy can be very risky in and of itself.
Larger companies constantly review and revise their strategy, employing a strategic planning process, and in many if not all cases, seeking out the opinions of experts from outside their business. They realize that their own planning process can be tainted by natural resistance to change, or be flawed by the many ways internal decision makers can get “invested” in prior choices, rationalizing strategic decisions to protect and perpetuate bad decisions made in the past. By involving third parties to develop and review information and facts, companies add an objective and trained resource to the team, gaining perspective that is not polluted by preconceived notions or defensive thinking.
The rationale for middle market and smaller businesses to consult with strategic thinkers from outside their business goes beyond those reasons used by larger companies. The owners and managers of smaller, middle market companies can be, and usually are, consumed by the day to day demands of the business, putting our fires, trying to close that next sale. They have little time to sit back and think about the bigger picture, or collect and analyze the information needed to make those decisions that will define their long term direction. Bringing a temporary, expert resource on board fills this gap and creates a focus on strategic, long term planning that is otherwise easily lost in the shuffle.
Middle market and smaller businesses have another common characteristic that makes strategic planning even more critical. They tend to be owned by individuals or families that are reliant on that business for not just current income, but also as a storehouse of the individual’s or family’s wealth. Quite commonly, the value of the business represents most if not all of that individual’s long term savings, intended to be tapped into for a child’s education costs, retirement income and many other personal financial needs. In these cases, the business strategy is essential to personal financial health, and personal needs can and do have an impact on defining an appropriate business strategy.
JCJCo provides strategic plan development, strategy review and ongoing financial management services to middle market and smaller businesses. We fill the role of your “outsourced CFO”, bringing institutional, corporate level expertise to the table at a cost that fits the size of your business. We also have a team of specialists in personal financial planning and estate matters on call, enabling us to address your business and personal planning and strategy challenges in tandem.
Call today for a free consultation, and to learn how JCJCo can provide the information, experience and insights you need to make good decisions, support the long term success of your business, and protect the financial health of you and your family.
