In our next series of startup guide, we are going to look at How to Craft the Best Strategy for Your Startup. Any business, be it a startup or an established one, needs to have an operational strategy to survive. Any startup that is not built on a solid strategy is doomed to fail. Today’s companies are mostly digital and their strategies are framed around the concept of innovation. Even if a business innovates, it still needs to have strategic planning in place to ensure it can perform better over its competitors.
What is Strategy?
The strategy has been studied for years by academicians and business leaders yet there is no definitive answer to what strategy is. There is not a universally accepted definition that suits all when it comes to defining what strategy is.
For instance, some people belong to the school of thought that one must analyze the present, anticipate some changes in their industry and then from there, plan how to succeed in future – that forms the basis of their strategy.
On the other hand, others believe that the future is so difficult to predict, and thus prefer to work on evolving their strategies with time.
Even with conflicting sides of arguments, we can settle down to a simple definition for strategy; A strategy is a plan of action that is designed to achieve a specific goal. Any strategy aims to gain a position of advantage over adversaries or competitors.
Any effective strategy will have at least five components; Plan, Play, Pattern, Position and Perspective. Don’t worry for now – we shall expound on all these components later in this guide.
Why do Businesses Need Strategy
Strategic planning is one of the most important aspects of any company aiming for success. A strategic plan will allow a company to function properly, will support sustainable growth and a long-lasting one.
The main aim for crafting a strategic plan is to point the direction a company should follow and ensure it is in course to achieving its vision and mission.
Here are three key reasons why strategic planning is a must for any business that wants to stand the test of success.
As a startup begins to grow or change over time, it is important to know the path to follow to achieve all the goals ahead. Without knowledge of the direction a company needs to follow, it will be impossible for stakeholders and employees to pull resources towards achieving such goals.
The concept of having a well-defined direction is more important than crafting roadmaps. This is because the strategic plan should be flexible and changes over time depending on market demands, but the direction of a company remains the same.
With the recent trends in employee loyalty shift from one company to another, it may be difficult to predict the length of stay of an employee in a certain role in a company. When an employee leaves abruptly without a clear plan, it brings into effect the issues of continuity.
To prevent losing your valuable human resources, it is important for a company to have a clearly defined plan so that employees that plan on where they see themselves in the next couple of years. This means regardless of how many people join or leave the company, there will always be a clear understanding of where the company is headed.
When a company lacks a strategic plan, it puts a lot to task for managers and individuals in a department to set the agenda and communicate the same to their departments. A major drawback to doing so is that different parts of a company will operate independently from one another and this may cause a lot of confusion. Having a clearly defined strategy makes communication easy and seamless between different factions of an organization.
Understanding the Strategic Management Process
The strategic management process consists of about three to four steps as this depends on different stages and interpretations of one organization to another. However, the most important issue is the approach, which pretty much the same includes related actions. Here is a brief description of the steps.
Strategic Objective and Analysis
This is the first step in defining the vision, mission and the value statement of any organization. It is normally done in combination with an external analysis of the business environment (PESTEL) as well as internal analysis (SWOT). An organization’s statement may evolve when information is discovered which has the ability to impact a company’s operations.
The information that is obtained from PESTEL and SWOT is analyzed and used to set clear and realistic goals and objectives that are based on the actual strengths and weaknesses of a company. The most important aspect here is to identify if the company needs to find additional resources and the means of finding these resources. This stage involves formulating targeted plans to achieve all the goals.
It can sometimes be referred to as strategic execution. It is a stage when planning stops and actions begins. At this stage, every stakeholder involved in affairs of the organization understands their assignments, responsibilities and duties. It is the work of management to provide additional employee training to ensure all tasks are aligned. Success for this stage is depended on employees being equipped with the right resources to implement the plans.
Strategic Evaluation and Control
Because of the changing nature of external and internal conditions, this stage can be very important. It is important to carry out performance measurement to determine if key milestones are being met as earlier planned. It is very important to re-examine the goals and measurement criteria. When it becomes clear that the strategy is not working according to earlier set plans, it is important to re-formulate it.
Additional Reading: 7 Minute Long: How to Launch the Best Startup That Will Not Fail
Levels of Strategy Formulation
In implanting strategic management, there are different types of approaches or strategies chosen for different levels of management. Just as we have different management levels, from the least; operational to the highest; corporate, same applies to strategies – they change from one level to another. Let’s have a keen look to understand the above better;
Competitive Level Strategy
Competitive strategy is the first one in any strategic management. Basically, it refers to a plan that combines all the clouts of external situations. It combines with integrative concerns of an organization. The main aim of competitive strategy is to gain a competitive advantage in a market place over competitors.
Competitive strategies are crafted by businesses looking to offer something unique to the market. Crafting a competitive strategy is depended on grounding a sustainable competitive advantage. There are different types of competitive strategies such as low-cost strategy, differentiated strategy, focus strategy; that we have further elaborated in this guide.
The purpose of competitive strategy is to include all tactics that lay down all elements that can create a competitive advantage. The core objective of competitive strategy is to win customer’s hearts by satisfying their needs as well as out-competing competitors and winning over the markets they command.
Corporate Level Strategy
Corporate strategy is the second of strategies in strategic management. Such a strategy is important in defining a company’s overall corporate approach. Corporate strategy defines the long term objectives that affect all the elements in a business. A well adopted corporate strategy can help a firm propel it to become the ultimate market leader.
A business strategy is the third-in-line of strategic management and it is formulated at the business level. It is popularly known as the business unit strategy. It is a strategy that emphasizes building up of the company’s competitive position in terms of product and services.
A good business strategy covers all the tactics and activities to outdo competitors. Is consists plan of actions and proper utilization of company resources. It is formulated in line with the corporate strategy. Its main focus is on innovation, product development, integration, diversification, market development and the like.
Functional Level Strategy
The functional strategy is the fourth in line to strategic management. It refers to approaches that point out a particular functional area of an organization. It is crafted in order to achieve some specific objectives of a business unit and aims at maximizing resource productivity.
Some key examples of functional strategies include marketing strategy, production strategy, financial strategy, human resource strategy among others.
Operational Level Strategy
Finally, the operational strategy is the fifth of the different types of strategies in strategic management. It arises from the operating units of an organization. A company may develop an operational strategy say for its sales zones. An operational strategy is crafted from field level and its main objective is to achieve a certain unit objective.
Porter’s Competitive Strategies
Of all the strategies we have looked at for different levels of management, of importance is looking at competitive models that define the overall strategy for an organization. The way most organizations develop their strategies is based on competition.
The celebrated professor Michael Porter is recognized for his work on coming up with different types of competitive strategies that describes what companies can do to achieve competitive advantages. This can be achieved most through either differentiation or cost. Additionally, his work also identifies different ways of targeting a market, either by focusing on market segmentation or appealing to the overall broad market.
The above approach results into four key competitive strategies as discussed below;
Cost Leadership Strategy
The cost leadership strategy aims at targeting a broad market and offering the lowest possible price. With this strategy, there are two main options. First, you can work on keeping costs as low as possible or in option two, ensuring you have a larger market share with average prices.
In both cases, the main aim is to keep company costs as low as possible. It has to be noted that organizations that apply this strategy successfully usually have a massive investment capital at their disposal and have a very streamlined and efficient logistics. They also have low cost when it comes to materials and labour.
The differentiation strategy aims at targeting a broad market (high demand) but their products or services have unique features. This strategy aims at making products as exclusive as possible, making them more attractive as compared to other products within the same margin as offered by competitors.
To succeed with this strategy, a startup needs to invest in superior research and development, innovation and have the ability to deliver very high-quality products. It is also important to have effective marketing to ensure that the market understands the unique features offered by the product.
Additionally, it is important to be flexible and to adapt quickly to changing market else you risk competition taking a toll on you. Such organizations are focused on operating globally and have a very creative approach.
Cost Focus Strategy
The cost focus strategy is based on targeting a niche market by creating a little competition of the focused market and offering the lowest possible price. With this strategy, you choose to target a niche market where you have a clear understanding of its market and the dynamics involved as well as having a good understanding of all wishes of consumers.
Differentiation Focus Strategy
With differentiation focus strategy, you target a niche market which has a little competition and ensures your products or services have unique features. This strategy involves having strong brand loyalty among your customers.
It is very important to ensure your products remain unique and of high value to your customers. You also need to have a good understanding of competition as well as the threats they pose to you. Additionally, understand your strengths to give you a competitive advantage and work on your weaknesses.
Apart from the four strategies we have discussed, there is a newly emerging strategy known as an integrated strategy. Today’s market is highly competitive and customers expect superior products and services as well as the best value for their money.
This has forced some companies to respond by offering an integrated strategy. An integrated strategy is stuck in the middle and strives to provide more value than what is offered by an average competitor as well as putting cost low.
Examples of companies offering integrated strategies are in the automobile, a good example being Kia Motors. Kia aims at keeping the cost down by using different components of its low-cost models, but also adds other features as found in luxury brands.
Modern Positioning Strategies
The advent of technology has created many new companies that are adopting the use of technology to outdo market giants who have been operating for centuries. There are new positioning strategies that are evolving every day and it’s important to wind up this guide by looking at them. They are three to be specific, and include the following;
In this strategy, a firm produces a subset of the entire industry’s products or services but chooses not to segment itself by the customer. Instead, it segments itself through the choice of its offerings. It is a focused approach that can allow a company to scale through specialization. It aims at allocating resources to specific areas that enable the firm to accelerate innovation and drive better services.
The converse of a value-based positioning is needs-based positioning that targets segments of customers and fulfils all their needs. This strategy aims at building excellence through understanding a customer and capturing the full value-chain by offering tailored services which enhances repeat businesses.
The access-based approach aims at targeting customers that have similar needs but face disparate access route to good products or services. This access can be defined by customer geography or by customer scale. This means a firm requires different delivery methods in order to serve its customers efficiently.
Modern Examples of Competitive Strategies
Today’s companies are mostly digital and their strategies are framed around the concept of innovation. Even if a business innovates, it still needs to have strategic planning in place to ensure it can perform better over its competitors. A good case study is NVidia (producer of graphic processing units) that uses variety-based positioning to deliver on its vast chip market.
Another example we can look at is Pinterest which capitalized the use of needs-based positioning. Most of the social companies have upped their game to capture customer needs and produce products and services that are in line with what customers want. The attention of these companies is now heavily targeted on messaging and interaction.
Pinterest continues to bring value to specific types of users online who make use of the platform to discover and buy new products. For access-based positioning, one company that is standing out is Xoom. The company uses its infrastructure and gives customers different choices to use the platform and transfer content.
Right now, we are in an amazing era of innovation and startups are doing what they can to bring value to customers by giving them products and services that appeal to their taste and needs. If you are keen to avoid startup failure, you must eliminate the mentality of building a product or service and expecting customers to come.
You must undertake keen market research to understand the needs of your customers and offer products and services that are in line with their needs and taste. There are many competitive strategies one can use and making a decision on the best one might not be easy. However, how hard it can be, a decision must be reached to stand a chance of becoming a market leader in your field.
A company will have a competitive advantage if it has some type of edge over its rivals in attracting customers and coping with competitive forces. There are many routes to achieving competitive advantage but they all come down to giving buyers what is perceived to be a superior product at the best price as compared to what a competitor is offering.
Superior value may mean a good product at a lower price while a superior product may mean having a product that is worth paying for more. Best value is normally an attractive combination of price, features, service, quality and well as convenience. Today’s customers are tech-savvy and prefer to have products or services delivered at the places of convenience, within the shortest time possible. This is the main reason behind the emergence and dominance of eCommerce, where customers are shopping online and having products delivered at there doorsteps.
Summing it up
We have covered pretty much the important strategies every startup must craft in order to stand the test of time and outdo its competitors. Of important is to understand the five steps involves in the formulation of a strategy from Strategic Objective and Analysis, Strategic Formulation, Strategic Implementation and Strategic Evaluation and Control.
After understanding the process involved in the formulation of strategies, next it to look at the strategic levels of management. Every level needs to have its strategy, be it competitive level, corporate level, business level, functional level or operational level. Startups need to craft different strategies that cover on all these levels.
Lastly, it is important to have a compelling competitive strategy as its success or failure trickles down to almost all other levels of an organization. That is the reason we took time writing this article to discuss Porter’s generic competitive strategies, as this forms the foundation for crafting strategies defining success or failure of any company. We have equipped you with resourceful information you need to craft a winning strategy. The ball is in your court, now work out a new strategy or rework on what you have, should your current strategy need reevaluation.
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