Strategy Creation for Growth
Identify strengths, leverage opportunities. Learn how proper strategy creation helps provide the framework for successful business (and personal) growth.
This post is part of 2 of a 4-part series. For part 1, click here.
Work like there is someone working 24 hours a day to take it all away from you, and play like it’s your last chance to play.
Last week you mastered your goal creation, and now it’s time to create your strategies. You know where you are and where you want to be; your next step is to find the methods needed to get you there. As we’ve mentioned before, goal creation and strategy go hand-in-hand, so you may find yourself modifying your goals based on available strategies and vice versa. Most of your strategy will be mapped out in the ideation phase of your business, which we cover in great detail in our Business Model Design Course.
One of the main elements of strategy that businesses tend to overlook is the idea of identifying new strengths that may help take on new opportunities. Oftentimes, they will instead try to fine tune existing activities, which may lead to organization efficiency, but not organizational effectiveness. This happens when businesses focus entirely on internal procedures and activities rather than assessing elements of their external environment. We like to refer to this as an “organizational silo”.
When starting a new business, this process may not be as transparent; however, it’s still as relevant as if you were in business for many years. This is especially true for online businesses because technology requires us to maintain a swivel on our heads in order to keep up with emerging patterns and trends. Here are a few suggestions that will help you maintain focus when developing your strategy:
- Make sure that strategies are in line with your goals. Use the “5 Why” test to see if your ideas are worth trying. For each idea, ask “why are we doing this?” and then follow with 4 subsequent “why’s”.
- Make sure strategies don’t conflict with other ones.
- When looking for growth in your business, ask yourself, “How do we position ourselves for the future?
Part of the strategizing process is also identifying tools that will help you reach your goals. We are in an amazing era, where technology has given us so many tools to help start and run our own businesses. Our Launch Blueprint 2.0 – Online Business Made Easy course will help you identify some of these tools and solidify your approach in making sure that your online business is both successful and cost-effective to run.
One of the most important parts of building a strategy for the profitability and growth of your business is to identify ways you intend to maximize the three main pillars: revenue, cash flow, and shareholder value. By continuously improving upon all three, you are enhancing your ability to grow your business and increasing its chance for success. Shareholder value doesn’t hold as much weight in the beginning stages of business development, so for now you should focus on maximizing the other two pillars. To do this, continually look for ways to strengthen your value proposition and meet the perceived needs of your target audience.
Revenue is likely the most obvious pillar of profitability and growth and is the core element of all ensuing financial equations. Put simply, without revenue, there will be no growth in your business. Taking it further, however, growth within revenue specifically is important to the overall growth and profitability of your business. A business that is not growing is dying, and revenue is no different. There are several ways to measure revenue growth; however, monthly (MoM), quarterly (QoQ), annual (YoY), and trailing 12-month are the most common.
One of the most overlooked elements in a successful business—online or otherwise—is cash flow. Let’s quickly look at the definition:
Cash flow is the movement of money into or out of a business and is usually measured during a specified, limited period of time.
In simpler terms, it’s the process of managing your expenses and revenue streams in a way that maximizes your growth potential.
Cash flow (rather than revenues) is usually a good indicator of a healthy business, because it demonstrates the ability to manage expenses while still earning a profit. More importantly, ‘free cash flow’ is the money left over after all of your expenses have been paid and available to reinvest into your business. Businesses grow when their revenues continually exceed their expenses. Businesses that do not grow usually go stagnant and oftentimes fail, hence the age-old saying, “if you’re not growing, you’re dying.” While the reasons behind this go beyond the scope of this material, it’s important to note that in our business climate, it’s crucial to maintain an edge against the competition.
“Growing” can be an ambiguous term for businesses, however, and can also leave founders dazed and confused when revenues aren’t climbing even though a lot of money is being spent on sales leads or branding. While both are important, there won’t be a brand or sale to speak of if the company can’t manage cash flows efficiently. This is not to say that short-term losses from can’t generate long-term results—in fact that’s how the lion’s share of businesses start. It’s important to know however, what it is you are trying to grow and why—which is why a metric-based approach can keep entrepreneurs focused on the prize. For online businesses, these metrics might include:
- Customer Acquisition Cost
- Customer Lifetime Value (CLV)
- Monthly Active Users (MAU)
- Churn Rate
- Monthly Recurring Revenue
- A/B Testing
- Per-Customer Metrics
- Keyword Metrics
- Conversion Rates
The Lean Startup author, Eric Ries, pioneered the recent momentum behind smart metrics and stresses what he refers to as “the three A’s”: Actionable, Accessible, and Auditable:
Actionable metrics: alert you to which actions need to be taken in order to reach your goals. For instance, if you are A/B testing two subject lines in an email campaign to see which one gets the highest open rate, you will immediately see which one is more effective. This, in turn, prompts you to take action based on the results of your test. In this case it would be to use the more effective subject line.
Accessible metrics: allow for data to be digestible by and available to any team member, whether they are in marketing, accounting, or any other area of your business. They should also be readily available and clear and concise enough for any employee to make a quick, informed decision.
Auditable metrics: imply that your reports are simple enough to be reproduced by anyone on your team, regardless of their role. Without complicated metrics and interpretations, your company is focusing on the core data that is driving your business.
Taking these principles further, “vanity metrics” are metrics that suggest positive trends; however, they provide little-to-no actual value and can lead you to make poor business decisions. Here are some example vanity metrics to be weary of:
- “Hits” to your Website
- Raw pageviews
- Registered users
Coming back full circle, using your free cash flows to invest in the optimization of the “smart” metrics can help your online business grow dramatically. Conversion rates are especially pivotal to the growth of your online business and improving them will have positive ripple effects throughout other areas of your metric-based approaches. Converting twice as many existing leads, for instance, is far less expensive than buying twice as many new leads—and dramatically more effective. It’s not only half the cost, but results in twice the leads.
Insufficient cash flow is usually the means to an end for many businesses and can be caused by several culprits: seasonal lows, unexpected expenses, and slow-paying customers. Luckily, most online businesses can forgo the latter with the use of instant transactions online.
Projecting cash flows can be a difficult task, especially if you don’t have previous periods to go off of. It takes a lot of skill to master the art of cash flows, but don’t let the nuances scare you away from starting your business, especially in the beginning stages. Luckily for you, the online business you will create will be a scaled down version and much easier to manage than a large-scale operation. Starting small will allow you to master the art of cash flows, so when you’re ready to scale your online business, you have the confidence and know-how to do it.
It’s important to know how you intend to execute on the growth of revenue and cash flow. One easy tool to help visualize your execution strategy is with the Ansoff Matrix, which has been effectively used by businesses since the late 1950’s It’s comprised of four growth alternatives:
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As you can see, the matrix sits atop two axis, Markets and Products. Each axis is divided into New and Existing, yielding four different areas of concentration: Existing Products in Existing Markets, Existing Products in New Markets, New Products in Existing Markets, and New Products in New Markets. These areas of concentration make up the four growth alternatives with varying levels of risk. The newer the product or market, the higher the risk will be.
Market Penetration can be described as a an organization’s strategy to grow in existing markets using existing products and is otherwise known as an attempt to grow market share. It’s the least risky of the strategies because it involves expanding on a known strategy.
This is also why you see the green coloring on the matrix. For instance, if your online business was using Facebook advertising to increase your exposure, you may start by testing a small market segment with a limited budget. Once you’ve optimized that channel using the small budget and found a positive return on investment, it may be wise to steadily increase your budget to reach more consumers. If $5 in advertising leads to $60 in sales, it would be safe to assume that $10 in advertising would lead to $120 in sales and so on. You may find that you’ve found an effective growth strategy with this pillar alone, and it’s one we recommend focusing on in the beginning stages of your online business’ growth.
Market Development is the act of taking an existing product and trying it in a new market. It could be that your eBook has capped growth in sales on your website and you want to leverage the power of selling on Amazon. Perhaps you have relied on search engine optimization and organic traffic to grow your business and you decide to try out Groupon or LivingSocial to expand your business. The idea is that you are exposing your existing product to a new type of consumer.
There may be some overlap between Market Penetration and Market Development given how certain media is consumed over the Internet, but they are viewed as mutually exclusive and the nuances aren’t always as subtle as a change in delivery method. One example might be if you had success selling to females in the 20-30 year-old range and decide that you want to try and capture another market altogether, such as elderly females.
Or perhaps you’ve optimized your sales in the US and want to expand to the rest of North America. You may find that capturing a different market doesn’t always provide the best return on your investment, so it’s important to know who your target market is and what the actual growth potential is. On the other hand, it might be an effective strategy to try and capture new markets if your initial market of choice isn’t providing the best return and you’re looking to improve your results. Market Development is more risky than Market Penetration, but not as risky as Diversification because only one element of the matrix is changing. In this case, your product isn’t changing—only your market is.
Product Development is the growth strategy whereby an organization tries to expand their product line and sell to existing markets. Like Market Development, Product Development risk falls between Market Penetration and Diversification since only one element of the matrix is changed. In this case, market doesn’t change, but products do.
For example, you have an online business where you sell personal training classes over the Internet and you decide that you want to sell more to your existing market with a new product. Selling an eBook would allow you to grow your business by providing additional products to a market that you have already identified as viable. In addition, you also have a certain level of trust within this market given that you have already sold a related product to them.
Diversification is the riskiest of growth strategies because you are creating a product for an entirely new and unproven market. It takes a great deal of business acumen and even luck to accurately predict the needs of an entirely new market. The details and sub-strategies behind diversification are beyond the scope of what we are going to cover, but it’s safe to say that new entrepreneurs should shy away from this strategy until they have a firm grasp on growing a successful business and are willing and able to take the risk involved.
It’s important to note that this set of strategies is not exclusive to existing companies. It’s also effective in helping new businesses decide what type of business they want to create. Given that the matrix also correlates with risk, it’s equally as effective in helping new entrepreneurs see how much risk is involved with each strategy.
If you want to learn more about strategy, check out our course, Launch Blueprint 2.0 – Online Business Made Easy. In next week’s post, we will learn how to execute on your goals and strategies. To learn more about Launch Blueprint 2.0 and to get free tips, exclusive offers, and more, sign up for our free newsletter below.