8 Phases of Strategic Thinking for Small Business Founders

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We recently hosted Strategy and Scale 2022 with a bang.

In my opinion, it was a powerful event with some of the top Singapore entrepreneurs exchanging brilliant perspectives converging on the topic of strategy and how to win in their marketplace.

Strategy is very often misunderstood. In my opinion, the average person will think that strategy is about execution and what to do. Strategy isn’t about execution. It is all about the way you think, make decisions about your business, and advance toward your mission and goals. I had a conversation with Alvin recently, and it dawned on us that decision-making skills for small business founders are truly crucial. Without knowing how to think, the process of building a sustainable business becomes really difficult. That’s why in SS22, I introduced concepts and frameworks helpful to the structure of strategic thinking.

An influential thinker surrounding this topic is Michael Porter. If you have not heard of him, he’s literally the OG of strategy. Considering that he is an original thinker surrounding this topic, especially with the Five Forces Model, Value Chain analysis and more, you might think that his approach might work very well in these times. However, much of what he says may still be applicable in larger, standardized types of businesses such as manufacturing.

Beyond Porter, there are other thinkers who have greatly influenced the world of strategy and thinking, including Roger L. Martin, former Dean of the Rottman School of Business, and W. Chan Kim and Renée Mauborgne, all of whom I shall introduce later.

Phase 1: What Strategic Game Are You Playing?

This is a strategic question. Roger L. Martin has an intruiging way of helping shape decision-making utilizing the Strategy Cascade. His framework enables you to begin to think about vision. He calls it aspiration, which in my mind is so much less academic and far more refreshing as a conversation starter. Martin also suggests thinking about a winning aspiration, not just any aspiration. I think this is an important differentiating factor.

So let’s look at the difference between them. In my opinion, a winning aspiration is the strategic thinking mindset around which you plan your business. It also gives you an idea of what it means to have the end state of winning. The reason being that if you are constantly thinking of aspirations but not its end state, you might end up getting totally distracted. After all, ideas and aspirations are a dime a dozen.

In that sense, defining the end state (i.e. to win) for the aspiration is paramount. You must be able to consider what your desired win truly is. I think many entrepreneurs do want to win but they do not necessarily have strong strategic thinking skills to be able to create a powerful win. Don’t just play the game. Decide that you indeed want to win, then your strategy becomes paramount.

Because we’re constantly providing strategy consulting for small and medium business founders, our own strategic skills help them to move the needle in their business, we frequently come across those who simply want to aim for revenue targets. I still remember one discovery call that we were on. The prospect was talking about how he believed that he could generate $10 million in revenue within one and a half years. Given his area of work (interior design) and his current revenue approach (middleman approach, looking for subcontractors and architects), I was skeptical that he would be able to have a pipeline of booked customers to arrive at that number. Yet, there was no clear strategic thinking process behind this number, and was just a nice new idea.

The trouble with a monetary aspiration is that you can do it in a million and one ways, often leading to a lot of distraction. If you conduct a strategic planning meeting only to talk about numbers like revenue, there’s a lot missing in your overall business operational and people management areas. After all, business objectives like revenue must be bridged or caused by people and processes. The strategic question that should be asked is whether the business model is viable. You will only be able to execute a strategy that is worthy of your business model.

I mean, if I am selling mobile phones in a mall, it doesn’t matter how many shops I have, there’s little space to maneuver and achieve scale with such a business model. The business model determines the potential of the strategy that you can execute. Think of it like a chess game. If the board is 8×8, I have more options with my chess pieces. If the board is only 4×4, I can’t even put pieces that I own on the board in the first place!

Roger L. Martin’s Strategy Cascade

The second thing about Martin’s approach to his Strategy Cascade is the playing field. For many people, they are stuck in thinking about the type of playing field that they should be in. For example, it becomes painfully clear that if you are a digital marketing agency trying to sell ads, you are going to be in a red ocean. I take the concept of the Red Ocean from Chan Kim and Renee Mauborgne, the authors of Blue Ocean Strategy. When you don’t successfully differentiate your business by understanding what position you are taking, you are very likely to end up with much lower margins and a poor customer experience.

I’ve worked with a number of digital agency leaders, and also find that while they might be technically sound in the actual work that they do, such as media buying and generating of creatives, they still have a long way to go to strengthen their strategic thinking muscles as advisors and partners.

If they had worked out their business model well enough, they would know that in the Red Ocean marketplace like this, anyone who has touched their Facebook business account could be a potential competitor. What’s the real difference that you make to the customer? But for some people, their strategic thinking journey stops short at just charging less. This is obviously a dangerous way to run a business. It basically means you have no other better idea to win over the customer other than dropping your price. Which, of course, anyone even with half a brain to do.

Phase 2: Environment Scanning

Herein lies the secret sauce: knowing where to play so that you can study the internal and external business environment. For me, this totally screams SWOT analysis! How many times have you done your SWOT analysis over the last few years? Surely, the environment has changed and your customer messaging has to change with it. By ignoring what’s happening in the environment, you are imagining the route to take and driving through it regardless of whether or not the environment favors you. Hence, if you continue this way, your beautiful BMW might end up at the bottom of a swamp!

So let’s take a step back. The reason why we covered strategic thinking skills as a topic in our Mastermind was because we know that it was a singular defining success factor for almost every business. When business owners become good at thinking about strategy, they end up having a more systemic way of thinking, thereby enabling them to make good decisions.

The reason why many entrepreneurs are unable to make good decisions is because they think that whatever they have in their heads it’s good enough. Yet, they don’t leverage masterminds. They don’t leverage teams. They don’t hire coaches. And when their blind spots get the better of them, they turn into a victim of circumstance! This is probably, in my most humble opinion, the main reason why 90% of businesses fail within the first three years of their existence.

So up to this point, we have covered strategic thinking in its first two phases: (1) defining our aspiration, and then (2) knowing the field to play in, and devising a way to win in this playing field.

Phase 3: Clarity of Strategic Priorities

In order to proceed to phase 3, you will need to take a look at all this information you have gathered in phase 1 and 2. Have a discussion about it if you are in a team or with a co-founder, and then start to get clarity about what is important about the playing field that you’re in. This basically forces you to come up with a hypothesis about the top three or four strategic priorities in your business.

Strategic priorities are defined when you understand your environment. For instance, if you know that you are in a highly competitive industry, such as financial advisory, everyone else will likely be a carbon copy of the other. There’s hardly any differentiation. In that case, making a differentiated move in your business will help shift your attention to what the market wants, which field you’re playing in, and then match your strength to the market opportunities that are being presented to you.

As a business example, a financial advisor who is deemphasizing one-on-one prospecting and differentiates by organizing sports activities such as golf, or social activities such as wine appreciation, would end up in a more specific and targeted social context that enables the sale to take place. Of course, how this differentiation can take place must be defined by what you’re good at, given the opportunities in the market space. My disclaimer: this is just a simple example, therefore it would warrant deeper investigation in terms of the actual opportunities or threats that exist within your market space.

A useful tool at this juncture would be to pull out the strategy canvas (also highlighted in Blue Ocean Strategy) and apply the four actions. These are: eliminate, reduce, raise, and create. Each of these four actions can be applied to competitive elements within your industry.

Example of a Strategy Canvas for the Airline Industry (red = industry; blue = blue ocean)

For example, if the industry provides a high quality of customer service, at a very high price, you might end up offering self-service at a much lower price as part of a reduce strategy. This allows you to remove pressures from trying to follow the market leaders.

Subsequently, you might realize that the industry does not offer a community. In this case, you could create a community that becomes a new customer base and competitive factor, and establish capabilities around ‘community’. What this means is that since the industry does not do it, you can utilize this gap to your advantage. It might even become a competitive advantage.

If you notice that your industry goes through a very elaborate registration process, and this costs quite a fair bit of time and effort, you might consider eliminating it. This could potentially be done by democratizing the registration process, utilizing technology, and perhaps some aspects of AI.

If your industry is not creating events surrounding topics of interest for the community, but rather only technical papers have been released, it could present an opportunity for you to raise the bar and include social gatherings and events that go beyond just technical events.

Phase 4: Capacity Building

The next phase as dictated by Martin’s model, is to identify the capabilities that your business actually needs. Now, we actually covered this in a 61 page PDF report that you can use to your advantage. These are what we call the Super Scaling Rules for Hiring World-class Teams. I ordered you to get a copy and follow its suggested steps so that you can think more effectively about how you can leverage your teams and their capabilities. Once you’re able to lead your team strongly, you will have far less issues down the line.

I must mention quickly that capacity comes from development. But capacity also can be purchased, which is the reason why you either hire somebody who is experienced, or purchase some kind of machinery or technology that can help you to augment capacity.

If you understand this, then building capacity is a never-ending process that you need to get right. One issue is whether or not capabilities are actually being effectively used. Sometimes, founders end up getting capabilities that do not lead to any significant results. As a founder, you need to reduce the wastage. It doesn’t make sense to keep on developing people and burning tens of thousands of dollars only to end up with their ineffectiveness when they aren’t generating some form of ROI.

Phase 5: Capacity Rationalization

This next phase encompasses the rationalization of your capacity. What do I mean by that? I mean to check how much business you can handle at any one point of time. It may warrant some estimating, but you probably can manage to calculate it. For example, at Super Scaling, I’m pretty confident that a single Principal Consulting Team would be able to manage and handle up to 50 key clients. This includes managing the client portfolio, crafting recommendations, tracking recommendations, updating trackables, updating the client, keeping tabs and ensuring there is a regular update.

So, to do this, consider what you already have that helps you get the job done. You might have some enabling technology. You might have some smart people. How exactly are you using them? To be able to see how your people are being activated, ask yourself what kind of contribution they make to the customer.

In Kaplan and Norton’s landmark book called the Balanced Scorecard, they also suggest that your vision and mission must be clear enough in order for a business to effectively contribute according to four perspectives. These perspectives are the (i) financial perspective, (ii) the customer relationship perspective, (iii) the process perspective, and (iv) the enabler perspective.

Kaplan and Norton’s original Balanced Scorecard framework (now deprecated)

As mentioned earlier, it is very common to list revenue as a strategic priority. And while this might be necessary to your development of the mission and vision, it is likely that revenue as a metric would be insufficient.

Other financial measures could be even more powerful. If your vision is to create a publicly traded company, or even to sell the company so that you can generate bigger returns, it might be more important to have a higher amount of retained earnings and dividend payouts, for example, in order for shareholding to have any value. This is more likely to positively impact shareholders.

On the other hand, there are three other important factors that contribute to mission and vision, namely Enablers, Internal Processes and Customer Relationship.

How exactly would your team contribute to the vision and mission? More often than not, they will execute processes that create value for the customer. This value experienced by the customer in turn is responsible for the revenue earned. Hopefully your customer receives great value from your service or product when he or she exchanges money for it. This is determined by the strength of the value proposition: just being a middleman does not make a strong proposition when everyone is clear about the prices that a middleman makes. Conversely, intangible factors such as trust in your provider, is likely to add to the overall value you provide.

In other words, it is essential to measure your people and your capabilities in relation to how well they execute internal processes that impact the customer. This is all about determining your lead measures so that you can have a productive cycle of improvements before the end of the financial year.

A lead measure is basically a metric that informs you of a change that needs to be done. An example of a lead measure is the number of articles posted on a blog. This is because it determines whether or not people actually visit the blog in the first place. Likewise a lead measure in advertising would be the total impressions on an ad. This will determine how many click throughs you have that lead to purchases.

The design of these internal processes must directly influence and impact the quality of the customer relationship. For example, if you have an internal process such as giving away a free book to a customer, how does it directly impact the customer relationship? The internal process can be done in so many different ways. You could send them a voucher so that they claim this book from the nearest bookstore. Or, you could hand-deliver this book and take a selfie with them in order to celebrate it on social media. Either approach could be viable, depending on the nature of the customer relationship that you wish to develop!

I still remember many years ago, going for car servicing at the Mercedes-Benz distributor. We were not just offered a waiting area, that was free flow of coffee and drinks at the bar, and work areas where we could get our work done, charge our devices and so on. The provision of such an exclusive environment was perceived as a positive customer experience.

Conversely, there was another situation where I had to collect a free gift from a faraway location. It was literally a speaker, which I could have purchased online for fifty bucks. It not only took me 30 minutes to get to this location, I also had to wait in line for an entire hour before I could get this speaker. By the time I was done collecting this gift, I did not feel that it was valuable enough for me to collect in the first place.

The nature of your customer relationship has to be well defined because in different businesses, feedback is probably the most valuable mineral that you can mine. It can help you to redefine the way you do your business, improve the relationship with our customers, and help your employees even feel that the job that they are doing was meaningful in the first place. Take for example the receptionist at the Mercedes-Benz distributor. When it was time for me to make payments, she promptly asked how my experience was. I said It felt great and smiled. And there it was: a big smile on her face. I’m pretty sure that you want to serve happy customers, don’t you? I’ve spoken to many customer service executives in call centers dealing with customer complaints. Burnout and stress are their companions, and if it can be eliminated, your customer experience could lift performance dramatically.

So, Kaplan and Norton came up with the idea of a Strategy Map.

Example of a Strategy Map

The strategy map highlights alignment and contribution of enablers to processes, processes to customer relationship, and customer relationship to the financials.

To illustrate, if Jenny, your customer service executive, interfaces with a process called “proactive customer success call”, it is possible to lead to a higher customer satisfaction rate. However, if Jenny is simply taking reactive calls from customers who complain, and gets burned out and overwhelmed by this, it might signal the need for a different process (such as proper internal product or service fulfillment quality checks), or a different set of capabilities (such as improving the ability to manage customer complaints professionally and arrive at customer satisfaction).

Here are some questions that can help you with the process.

Enablers and Capabilities
1. What enablers and capabilities do we currently have?
2. Given our vision, what do we need to develop, learn and improve upon to arrive at that goal?
Internal Processes
1. What internal processes do we need in order to arrive at consistent customer satisfaction?
2. What internal processes are required for our enablers and capabilities to function better?
Customer Relationship
1. What kind of customer interactions do we currently have? What is the effect of these on customer impression of our brand?
2. What kind of customer interactions should we have or improve that impact our financial results? How might this impact existing processes?
Financial
1. What kind of financial outcomes are expected if we satisfy customers?
2. What would stakeholders be satisfied by, and what improvements need to be made?

Phase 6: Systemization

The sixth phase is about systemization. Systems and processes are dead. They only exist because of the unique context of your team and your leadership. This is literally about how to be a leader for your small business. You see, a lot of people ask us to build internal processes and systems for them because we can think effectively having seen so many businesses before us. And, it is a highly tedious process. The problem with adopting other business templates is that you have to still take that step to incorporate those ideas into actionable steps within the context of your own business.

Also, remember that systems you built at 5-figures will not get you to the 7-figure mark and beyond. Very often, businesses that start up building standard operating procedures at the beginning will realize that they are either not communicated and therefore wasted, or that the SOPs become redundant after new employees come into the business.

If you use SOPs as an excuse to keep the business predictable, you will find that many people will not be able to exhibit their talents, end up being disengaged and leave. What I always recommend is to study the activities that your business needs to run, and then invite talented people to take on certain jobs within the business. Unlike traditional corporations where they already have fixed pathways and corporate advancement, small and medium businesses hardly have that kind of hierarchy. Process and systemization is going to warrant another guide because you need to adopt sensible logic by taking what works and tweaking it to suit your context.

Phase 7: Iterative Experiments, Comparing Present State and Desired State

Einstein once said that imagination is more important than knowledge.

I totally buy into it!

For one, vision is imagination with aspiration. You can create something that’s moving, inspiring, and loyalty binding to a point where people crave to join you regardless of the consequences.

As a result, you also need to start thinking about your desired states. Where do you want to go? This question can be applied to any of the four perspectives. How do you want to grow your enablers? What kinds of processes can you implement, improve, or remove? What kind of customer relationship would you like to install? What Financial perspectives will make the biggest impact as a reference for the team?

All of these help you improve what’s going on incrementally. There is another approach that can radically change the way you think, known as red teaming. In the military, one is often presented with two forces. The Blue team refers to your own forces, and the Red team refers to adversary forces. In order to think clearly about your battleground, you need to be able to observe how the adversary will respond to your own forces.

In a sense, this is a form of competitor analysis. When you are able to systematically think about your own competitors within the industry, you can simulate scenarios to assess how they will react to your actions.

Conversely, referring to the strategy canvas above, it might be far more effective for you to collaborate with your said competitors in order to craft a much bigger market opportunity. If you innovate, it is very likely that you could convert your competitors into a distribution source for a brand new product.

Another way to radically imagine the future is to think about what happens when you quadruple your sales. If this were to happen, how would you deal with the future? This is very likely to directly impact your enablers, Internal processes, and also the nature of your customer relationships. For instance, at Super Scaling, it is going to be difficult to have such direct levels of intimacy if we had 200 Inner Circle members. However, if we really did have that many Inner Circle members, we probably wouldn’t be able to do one-on-one consulting for all hundred of them unless we had multiple Principal Consulting Teams. Hence, the processes by which we establish customer satisfaction will have to be innovated upon to deliver value that is expected from our customer.

The way by which you choose how to do this is really dependent on the environmental analysis that you did previously. Remember your SWOT? Where are you most vulnerable? How do you mitigate these risks? By handling these points of failure, it becomes an effective simulation, turning it into a business example.

One thing must be said about an Agile approach to testing. If you’re not yet familiar with the concept of Agile project management, you ought to study the wide body of knowledge that’s available even on YouTube.

In a nutshell, what we’re trying to do with an Agile approach is to use small and iterative steps in order to check how to move forward in times of uncertainty. Since the path forward is uncertain, it does make sense to be cautious and carry out iterations to examine what the effect of your testing is. So, if you are attempting to experiment with a new value proposition, go ahead and carry out small design thinking projects that can help you to arrive at an outcome more readily. In my opinion, design thinking is a valuable tool for any business leader because it assists you in your experimentation without breaking the bank, and itself warrants a guide so you can exploit innovation and creativity in your company.

Phase 8: Communicating and Cascade to the Team

In various client calls, we’ve suggested that they need to identify their vision, mission, and values clearly. This will then help them to identify strategic priorities rather than just making decisions based on their own gut feel. In a call that I just did today, by putting on my strategic thinking hat, I had the business owner articulate what he was doing, so as to help to articulate the strategic priorities of the business.

Once these core directions are established, it makes it really easy for various managers or heads of business units within your business to flesh out their balanced scorecard. They ought to go away, think about it, and come up with initiatives, measures, as well as targets that are aligned to the overall strategic vision that you have.

This is particularly important if you have many new business units and people who are driving these business units. You are no longer going to have micro-resolution focus in the areas that you used to manage. You need to give space to your mid level managers to do that. Let them generate new ideas. The reason why you are a CEO is simply because you have elevated yourself to a higher level of thinking.

You need to let other people do that work, and allow yourself to restructure your thought process: by being a clear, concise and collaborative thinker so that you can give people the direction that helps them to make best use of their strengths.

You also get the opportunity to redirect them if they don’t get why the vision is so important. In the end, your own strategic thinking skills and ability to lead your team begins with your ability to structure an inspiring vision that makes people motivated and driven to work towards that end.

Conclusion

SME strategy is often put in the backburner because founders think that decision and thinking frameworks are intangible and a miscellaneous skillset. But you have to admit that poor decisions set companies back by hundreds of thousands of dollars. I’ve known many who try to double their monthly revenues only to notice a breakage in their business model due to burnout and drop in confidence.

Business owners are really good at solving problems especially everyday business challenges: if they can detect them. But time and again, we have seen business founders make the same kinds of mistakes in their organizational design, their team structure, their hiring policies and more. Many of these painfully costly mistakes could have been resolved if observed by an experienced eye in Super Scaling. For instance, did you know that making the wrong move to hire or even fire a person can have a dramatic impact on morale? It could literally mean the difference between retaining a hire that you mistook for a lazy person. It might end up with you losing your entire business.

We often help CEOs with multiple business units exercise important strategic thinking skills in order to craft key metrics to track the growth and scale of their company. As it varies from company to company, we highly recommend you join our Super Scaling Inner Circle if you have already started to exceed $360,000 per year in revenue. Not only will systems be of critical importance at this stage, it will be foolhardy to attempt to continue to grow revenue without an extended brain with experience to guide you through the landmine at that stage of growth.

If you want to learn how to improve strategic thinking skills alongside business scaling capabilities, don’t wait any longer. Learning the right skill sets will set you on the right path far faster. Make an application for coaching here and if you qualify, we will hop on a call to help you to identify if we are a good match to take you to the next higher level in your business when you access our frameworks for strategic thinking skills development.

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