Scaling a company beyond early stage growth without a strong strategic plan is analogous to running beyond a very short distance blindfolded. A lot of time and resources will likely be lost to stumbling and course-correcting with no guarantee that the company is headed in the right direction.
If you are already a believer in focusing on business fundamentals, this might sound very obvious. If you doubt the criticality of strategic planning to a fast-growth company, this section might be especially critical. Planning can be the difference between sustainably growing as opposed to a stalling growth trajectory. It also dictates a company’s exit prospects and valuation. Over-spending to mask foundational gaps in order to drive short-term growth without getting the fundamentals right is a strategic decision with ethical implications.
Importance Of Strategic Planning
Strategic Planning is a lot more effective and impactful at small- to mid-sized companies than at larger companies for several reasons. Yet, many smaller companies do not engage in this exercise or do so without enough rigor. So, it is important to align on the benefits of having a strong strategic plan and highlight the organizational risks that can be mitigated by investing in a streamlined planning exercise.
Reason 1: Evolve strategy quickly
Strategy at small- and mid-sized companies have to be frequently reevaluated and redefined to stay ahead of evolving competitive landscape and customer needs. Staying stagnant strategically is a path to loosing market leadership. Strategic planning offers a cadence to ensure that this assessment takes place.
Reason 2: Redefine operational priorities
Operational effectiveness at small- and mid-sized companies have to be reassessed often. In-house skills necessary to execute on key initiatives have to mature over time and frontline responsibilities need to evolve very quickly as the market and the product matures. However, these decisions should not be made on an ad hoc basis; strategic planning provides a path to align these decisions with company strategy.
Reason 3: Eliminate hiring risks
Fast-growth, small- and mid-sized companies are often tempted to use linear scaling approaches to hire frontline resources (sales, engineering, etc.) and rinse-and-repeat tactics from other organizations to hire supervisors and executives. Such an approach risks one or more of the following: 1) over-staffing at senior levels, 2) misalignment between staffing and actual needs, and 3) misallocation of frontline roles to sub-par operations. Strategic planning provides a structured path to avoid these pitfalls.
Reason 4: Mature as an organization while scaling
Small- and mid-sized companies need to run major initiatives to mature as an organization and these initiatives need to align with corporate strategy. Strategic Planning ensures that all non-revenue generating, and non-product development efforts are channeled in this direction. Maturing as an organization in terms of Leadership Approach and Objective & Analytical Culture is absolutely paramount to ensure that growth can be sustained beyond just scaling in the short-term. Organizational maturity is also a prerequisite for strong exit valuation.
Reason 5: Optimize Exit Options
Vast majority of fast-growth companies have aspirations to exit via a strategic buyout, secondary buyout, or an Initial Public Offering. The strategy and operations of the company has to be tailored to the desired exit path. Viable exit options and associated expectations about the company’s maturity, product and service offerings, and commercial prowess change radically as a company grows.
Strategic Planning Myths
In addition to the compelling reasons listed above to invest in planning, a few common misconceptions are worth debunking.
Myth #1: Strategic planning has low return on investment
For a small- or mid-sized company, the breakeven for investing people and time on a strong strategic plan is very easy to achieve. A well-executed strategic plan pays off:
- By avoiding one poor senior-level hire
- By saving the organization from sub-optimally deploying even two or three frontline resources
- By redirecting even a small portion of the workforce to develop the right new product or target the right customer segment
- By saving on the significant amounts of disjointed efforts that go into preparing for and executing on every major board meeting, exit partner meeting, etc.
This list can be very long. The simple truth is that without an effective strategic plan, a company is likely to deploy its capital inefficiently. A business case to invest in planning is relatively straightforward.
Myth #2: Most important planning output is the financial plan
Most small- and mid-sized companies are privately held, and the relevance of quarterly financial targets and results is somewhat artificial. Too much focus on monthly and quarterly financial results can even have a poor effect on sustainable growth. Smaller companies must be focused on operational metrics.
The most important output is the alignment between strategy and operations – i.e. the path to achieve the strategy and how that path will be measured. Without such strong alignment, a financial plan is just an aspirational guess or an extrapolation of past performance – both are likely to either 1) miss revenue and / or expense goals, or 2) under-achieve the company’s real growth potential. Financial forecasts can be quickly derived from well-developed strategic planning deliverables.
Myth #3: Companies have functional strategies
“Strategy” is a confusingly overused term up and down an organization. In this context, it is critical to address the misuse to ensure that a company’s planning exercise does not suffer. A small- or mid-sized company that focuses on solving a specific market problem has ONE strategy.
It is important that strategic planning drives towards a cohesive company strategy without getting distracted by functional silos. It is absolutely critical to corral all functions to collaborate and work together on the company strategy. Functional teams splitting up and developing their own plans defeat the entire purpose of this exercise at a small- to mid-sized company.
In summary, strategic planning is an unavoidable, cadence-based practice to reassess a company’s path to win the market.