Jim Sharpe, Senior Lecturer at Harvard Business School’s Entrepreneurial Management Unit, is a successful entrepreneur in his own right. He shares his thoughts on strategy.
1. How does setting strategy for a smaller, entrepreneurial business differ from larger firms?
Large firms have a much longer time horizon and a global outlook. Determining their funding needs, operational investments and resource allocation is supported by their strategic planning. Small- and medium-sized businesses are more operationally focused with less complex needs. Planning for growth with existing customers, developing product extensions, adding incremental capacity and finding more profitable opportunities keeps them busy.
2. In terms of timescales – how far ahead is reasonable? How important is it to have an exit strategy in mind?
An entrepreneur should probably be thinking no more than three years out. Having a good idea of the plan for the upcoming year along with what might be needed the year after and some thought about the year after that. More importantly, managers need to be ‘stress testing’ this relatively short-term outlook.
Will there be a recession? What if a major customer or vendor goes out of business or a couple of key employees leave? Planning for an exit can start when the owner is emotionally ready to leave the business; it generally takes a few years, so well within the planning horizon.
3. How does a business go about starting this process? Are there any tools particularly useful in strategy setting?
Look first at the business model: customers served, delivering/making the product or service, getting and serving customers, and ensuring that the economics for future growth comes first. Then an assessment of the changing environment within which the business works helps set the stage for a SWOT analysis. Doing this every couple of years is a good exercise.
4. How should you make sure you stay on track with a strategy – and when do you know when to change it?
Sooner rather than later; it is always easier to wait for a little more information or another attempt at ‘fixing’. Moving to change direction decisively, based on even limited information, is one of the characteristics that make entrepreneurs successful. Generally, when a significant ‘event’ happens to the business or when some major external changes occur, are good times to reflect on ‘where we are headed’.
5. What’s your solid gold business advice for an ambitious entrepreneur?
Pay attention to your customer and make it easy to do business with you. Charge enough for your product/service, then some – unprofitable businesses don’t survive.
More essential business strategy tips can be found in the Wealth Professional e-magazine here.
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