Re-defining strategy:

Despite the extreme turbulence that the UK was thrown into as a result of the COVID-19 pandemic, we saw the overwhelming majority of businesses adapt, and most have even thrived. Now, as the economy takes steps on the road to recovery, it is a great time for business owners to take bold steps in redefining the next steps for strategic growth.

In this article we discuss the important aspects of strategic planning for business owners coming out of the Coronavirus pandemic. Each aspect is not a ground-breaking new approach to strategic planning, our hope is that it serves as a reminder to business owners of their market’s, their shareholders’, their investors’ and their competitors’ expectations of strategy development in today’s world. Some of the most successful businesses over this time have been those that to them this is second nature, but hopefully set within the context of the current dynamics this will aid those entering into the planning process with growth for the future in mind.

We cover:

• The importance of being bold in the current climate,
• Why a data-driven approach to strategy is now non-negotiable,
• Capital considerations,
• Documenting strategy, and finally
•  The growing importance of digital strategy.

Be bold

For many industries, the pandemic amended the rule book on what business owners previously understood as the hallmarks of a successful business in their industry and, in nearly all cases, increased the pace of change to remarkable speeds. Businesses are now making decisions that would ordinarily have taken months (if not years) to implement and instead making them happen in a matter of weeks. Simple examples include moving to remote working in professional services, offering delivery and takeaway services in hospitality, and conducting court hearings via video conference. However, more holistic changes in the supply chain agility in manufacturing, channel strategy in retail and digital first business development approaches across industries have also challenged traditional business thinking. Those who have reallocated capital and strategic focus quickly and cleverly are thriving.

As a result of lockdown measures, businesses have been forced to be bold in order to survive, but now that we’ve all seen what is possible, businesses will need to continue to be bold in order to prosper. What felt like a significant shift 18 months ago now feels like business as usual, but it will be vital that businesses keep that survival instinct that drove so many businesses forward during the pandemic if they want to be the ‘winners’ going forward. That will mean re-assessing business models, value propositions, resources, personnel and investment decisions to see if they are still fit for purpose in the new environment and being brave enough to push boundaries, take some risks and to let those that are no longer on board with the pace of change move on.

This won’t be the right approach for everyone, some business owners may want to take the time to step back and reassess their own role in the business, and perhaps consider succession planning or sale options. Equally, it’s important that all business owners recognise the need to take a break and have a rest after the last year in order to re-energise. However, for growth businesses, now is not the time to go back to pre-Pandemic comfort zones, but instead to keep pushing on and being bold.

Utilise data to outperform competitors

Historically, strategy development has relied on the creativity, intuition and ambition of the management team. Strategic planning was driven by gut feel, white boards and traditional ‘MBA’ style thought processes. In today’s world this is not enough. We have seen many examples of strategy flowing from these processes being overly optimistic, built predominantly on ‘hope’, full of potential blind spots and, frankly, easy to beat by competitors matching the traditional approach to planning with data driven insights.

While hope will always remain a considerable factor in growth strategies, particularly for high-potential early-stage businesses, by utilising data and analytics businesses can ensure that their strategy has an edge and work with the foresight that enables plans to be both ambitious, but realistic.

Some of the benefits of a data-driven strategy are:

Improved resource allocation

By taking a data informed approach to strategy, owners are able to be smart about what parts of their business they invest time, money and resource into. Every business operates within a value chain and understanding which parts warrant investment is critical to driving strategic growth and long-term shareholder value. Cloud capabilities, advanced marketing software, databases on other companies and modern accounting systems all unlock incredible potential for businesses of all sizes. Feeding this data into decision making helps to reduce bias, improve resource allocation, challenge assumptions and inform a smarter growth strategy.

Easy places to start for financial data include benchmarking gross margin, customer lifetime value, economic profit, revenue growth rates and return on capital employed by business unit. This combination of KPIs is also valuable in determining why the valuation ‘multiple’ of a business should be high, average or low.

Pricing

Pricing presents a significant opportunity for many businesses. Business leaders are understandably cautious on raising prices unless their input prices are rising. However, pricing opportunities by customer segment, product clusters and underlying buying reason all present opportunities. Slick, modern, often digital first buying processes create perceived value and there have been many ‘disrupters’ to traditional industries that demonstrate you can charge more even for the simplest of products if you offer the right segment a perceived benefit. Typically, for an established business, a 1% rise in prices increases Profit before interest and tax by around 8% to 9%. Therefore, finding these opportunities, and delivering them in a smarter way than just a blanket rise in prices, is a major driver of strategic growth.

Discovering new, unforeseen growth opportunities

The data may identify pockets of opportunity for growth that the business can take advantage of. These opportunities could be bringing future plans into the immediate plan, causing a shift in new product development plans or the sales and marketing strategy, or perhaps result in management putting off exit plans to a point when a premium valuation may be achieved. Ultimately, if the business is convinced from the data, their knowledge of their business, their customers and their experience operating in the market that there is an opportunity for growth then it’s probably not one you want to waste.

For larger companies with access to greater resources they can utilise machine learning tools, advanced analytic tools and gain access to proprietary information that can support in informing each of these. However, this does not mean that for companies that cannot afford such tools that they cannot develop a data driven strategy. Smaller, private companies just have to be a little bit more inventive, not less effective. For owner managed businesses, data and insights can be garnered through the use of appropriate primary market research (such as surveys, focus groups and product testing), open-source information and secondary market research through aggregators. These tools provide access to detailed market information, costing and performance benchmarking and privileged insight on the perceptions, preferences and patterns of behaviour of current and potential customers in both existing and new markets.

For those businesses considering growth via capital investment or acquisition, transaction and deal data can also help to provide vital insight on how businesses in similar spaces are being valued, the details of the deal structures and be able to assess the likelihood of finding an appropriate buyer or investor. You can read more about this in our Company Valuations eBook

Funding growth

Capital requirement is a key element that needs to be taken into account in designing growth strategy. Capital is essentially the cash fuel that powers a business, and it comes, broadly, from three sources – debt, equity, and reinvesting profits.

One of the challenges we have observed is that businesses often mismatch the type of capital they use to fund their decisions on growth. This leads to a variety of problems, ranging from running out of cash through to being too conservative to make necessary decisions. The best businesses know what capital to put at risk for each growth strategy and have detailed plans, evidence and thinking behind this; the outcome of which is a well-considered plan to engineer stronger returns to shareholders.

For some time and still currently there is a lot of cash sitting in private equity funds not being deployed because they don’t see enough quality business opportunities and for the last 18 months at least, focus has been on supporting their existing portfolios. Funds are looking for businesses with strong prospects, and there’s some cash out there to be invested in relatively cheap debt; but growth largely fuelled by reinvesting retained profit can be a popular option for the best companies who want to be masters of their own destiny. However, in many cases at the moment, surplus cash is either non-existent or it is being reinvested for the purposes of navigating the road back to recovery, rather than growth. Therefore, taking the time to consider the funding requirements and work out what the optimal capital structure for the business needs to be in order for it to achieve its growth goals, is vital in the planning stage as it is very easy to let these things slide when the business is doing well and growing, but can have unforeseen negative consequences when things aren’t going so well. The most successful companies are those that are on top of their capital structure, review it regularly, and make the necessary steps that enable them to continue growing.

Committing it to paper

Taking the time to appropriately discuss and design the ongoing business strategy is one thing, and often these conversations can be facilitated with the support of an advisor who brings with them a wealth of experience and knowledge of strategic planning, market dynamics, transaction and capital landscapes, and strategy implementation across a number of sectors. However, the hardest challenge can be committing strategy to paper in a way that will ensure its comprehension and implementation, without being too rigid that it cannot be amended as market dynamics evolve.

The best approach will come down to the individual business, but if you’re looking to gain external investment (through debt or equity) or looking to engage in M&A activity, then a strategic plan (usually in the form of a deck or information memorandum (IM)) and a financial model are fundamental documents that any potential investor or acquirer will expect to see.

Harness the power of technology

Business models globally are at risk of digital disruption. The pandemic has thrown into the spotlight how vital embracing new technologies is to the sustainability and growth of businesses; this is not something that will be news to most business owners. For instance, according to McKinsey & Co’s recent Global survey (consisting of 1,140 responses from C-level executives in companies across the full range of industries, regions and sizes), only 11% of business owners believe that their current business models will still be viable in 2023; only 2 years away. The rate of technology adoption during the pandemic was rapid and far reaching as businesses tried to reduce the amount of disruption to their business. For some, these changes will be enough to sustain the business’ position relative to competition for a time, however digital and technology-driven disruptions are creating first mover dynamics in an increasing number of sectors. This means that the opportunity to ‘win’ in a market is shrinking and even the winners cannot rest on their laurels at the risk of further technological disruption coming through. A strong digital foundation is now critical for any business, but for those looking to achieve significant growth and outperform, a robust and rapid investment strategy (informed by data) into technology is fundamental.

This article was written by Price Bailey Partner, Chand Chudasama. If you need further information on any of the above, or would like to discuss how we can support in developing your strategic plan then please feel free to get in touch with Chand using the contact form below.