CHAPTER 8
Developing Priorities
In a world where opportunity costs must constantly be taken into account, entrepreneurs walk a tightrope between making correct and effective decisions, which can either win or at times fail. A decision that worked for a situation may not work for the same situation again.
Why is that?
The simple answer is that the circumstances of a situation do not remain the same at all times. There will always be something different, such as political events or elections, volatile exchange rates, economic release of statistical data, and a host of other possible macroeconomic variables. There is a dire need to understand that each decision must be made on a sound foundation of knowledge, as pertaining to that specific time and place. Experienced entrepreneurs (and investors) know the value of the following essentials when approaching an issue (on which a decision must be made):
• Knowing the organizational structure of the company (involving directors, management, and key staff).
• Using latest financial models and ratios.
• Devising an effective advertising and marketing plan.
• Analyzing thoroughly the quality and price of product or services.
Vision, Mission, and Goals
The vision, mission, and goals should assist the entrepreneur to hone down the targets to be achieved into manageable sections.
Assume a corporate strategy for 5 years:
• The vision would be of a 5-year view.
• The mission would be of a 3-year view.
• The goals would be of a 1-year view.
It is a broad view of what must be achieved within those timelines in order to accomplish corporate and business strategies. However, these timelines can be flexible depending on how rapid the company grows, how quickly targets are met, and how profit has been achieved.
Setting Goals
Having your short- and long-term goals written down is a strong attribute of powerful entrepreneurs.
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Milestones |
These are critical stages in the development of the company. These objectives are broad but do assist in providing directors with direction to achieve priorities. |
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Short-term |
This tends to mean a 1-year plan to achieve more specific goals. These defined goals also help to highlight to investors how you are achieving your pro-forma income within the parameters set out in the short-term goals. |
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Long-term |
You can’t expect anyone (investors, directors, and staff) to believe you with a long-term strategy if you haven’t achieved the short-term goals. If you have achieved the short-term goals, however, keep the long-term strategy and goals realistic. |
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Exit strategy |
Funders all want to know how and when you plan to repay the funds invested in your company. They will ask you whether your company will generate enough cash flow to cover the debt, whether you intend to list on a stock exchange, and so on. Knowing what these questions may be should assist you to be better prepared to raise funds. |
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Family, business associates, and directors |
As a director and a shareholder, you will be spending a lot of time at work. It is prudent to make sure that people know and accept this. It is simply better to ask what they expect from you than trying to guess what will be acceptable or not. Take the time to find out what your business associates expect of you and communicate what you expect from them. |
Making a Profit
The growth of your business is dependent on profits while managing cash flow. Without profit, cash flows will fall, and without cash flow you cannot acquire the materials that you need to make a profit.
To increase profits, you can do the following:
• Increase the price of the products or services that you are selling. It is important not to increase your prices so high as to drive potential customers away to your cheaper competitors, but a small increase in price can lead your product or service being perceived as being more valuable.
• Decrease your costs.
Variable costs: These are the costs incurred in producing or buying the products.
Decreasing variable costs is possible if you can negotiate better deals with suppliers or implement logistics and technology to decrease the time it takes you to get your product to market.
Fixed costs: These are the costs incurred regardless of how much you sell, for instance, the cost of electricity needed to run your factories.
Fixed costs can be reduced in various ways but requires productivity and cost management expertise. You could make the wrong decision in your endeavor to save costs.
Competition
Know your competition. You can bet that they know you, your pricing strategies, quantities you are selling, and your target markets.
Complementary Products
Show that you have researched all companies that offer competitive or related products to yours. Define those who offer complementary services in the same industry or similar industries. Assess whether you should tackle competitors head on or negotiate possible joint ventures, strategic partnerships, buyouts, acquisitions, etc.
Assess at least three of your strongest major competitors. Research them in terms of market share, their directors’ years in business, experience, and skill. Then assess price strategy, products or services sold, and their advantages and disadvantages in the market, compared to your company and services.
As such, compare your strengths and weaknesses to your competition’s and consider factors like location, resources, reputation, services, and personnel. It is also vital that you demonstrate an expert understanding of what your industry is all about, from a historical account to future best-practice trends.
Here are some basic questions:
• Why are current market distribution channels the way they are?
• Can these channels be improved on?
• How did your competitors achieve their market share?
• What advertising, marketing, and promotional strategies did your competitors use effectively to achieve sales goals?
Establishing a Mission
The tone and meaning of your mission statement should explain why you started the business.
Therefore, a mission statement is a short summary of your business’ purpose, what its goals are, the kind of product or service that you aim to provide to primary customers and market, and where it intends to conduct such operations.
Analyze Your SWOT
These are your business strengths, weaknesses, opportunities, and threats. Be thorough to the point of being brutal, and your analysis should help you to draft a better strategy and a plan based on critical and unemotional points of reference.
Once you have completed this task, conduct a SWOT analysis on the industry and then assess how you fare relative to the rest of the industry.
Develop a Plan
SWOT helps you develop strategies to take advantage of your strengths in the marketplace, make changes to correct weaknesses, take the opportunities to expand into new markets, and draft strategies to tackle your threats.
Remember to distribute tasks among key managers, which helps to nullify an atmosphere of negativity.
A budget helps you to identify specific expenses that can be reduced and effectively helps you to make financially sound strategic decisions.
Make It a Living Document
Whether you have drafted a strategy, a list of goals, or a business plan, make it a living document accessible to your staff. Remember to make your plan look like a “to-do list,” which is delegated and communicated to directors and key staff.
Your plan should be challenging, achievable, and regularly reviewed.
Pull It Together
This aim here is to give you a systematic building block approach to successful entrepreneurship to place you in a position that ensures the following:
• That there is order instead of chaos in your thinking and implementation.
• That efficiency improves because of properly executed decisions.
• That opportunity for success is improved.
The preparation of a credible document, whether a proposal or a strategy, always requires time and input from relevant parties, management, and key staff. The steps from effective documentation to implementation are set out in the following schematic:
Rainmaker Observation: Remember that the goal is to prepare documents that are strategic in nature for first your business and second for investors, potential new partners, and directors. As such, any plan must be succinct and written in a knowledgeable, compelling, and effective manner.