Category Archives: Strategic Planning

Final Pre-Implementation Strategy Review

It is clear that the strategic planning process can be time-consuming and requires a substantial amount of managerial resources.  Once the mission and strategy statements have been completed, and the goals and objectives have been established, the senior managers of the relevant business unit (or the firm as a whole in the case of corporate-level strategies) will obviously be eager to push forward.  Before proceeding, however, it is wise to have an objective, independent group composed of members that have not been involved in the strategy formulation process conduct a final pre-implementation strategy review.  This type of approach, which can also be used for specific “bet-the-company” transactions, introduces a “devil’s advocate” to the process in order to ensure that full consideration is given to the tough questions that need to be recognized and answered before the firm commits its resources to a particular strategy.  While it is not surprising that the strategy developers will often resist this approach, their cooperation and understanding can be solicited by assuring them that the members of the group are not interested in managing their business but rather are looking to gain a better understanding of how decisions have been made and the assumptions that are being used in developing the strategies.  The personal agendas of the reviewers and the strategy developers should not be allowed to interfere with the review process and the focus should remain on determining whether the proposed strategy is the best of all feasible alternatives even if it includes risks and minor defects that can only be recognized and not totally overcome.


The review group should always be led by someone who has no direct stake in the outcome of the review and is not part of the management hierarchy involved with creating and executing the strategy.  In this case of a review of a business unit strategy this means that the group leader should be a senior manager of another business unit.  Corporate-level strategies should be reviewed by groups overseen by an independent member of the board of directors with proven experience in strategy development who understands the overall organization of the company.  Group members should have a knack for being able to pose questions that focus specifically on the assumptions used in developing the proposed strategy since it is important to ensure that a wide range of possible scenarios have been considered.  Group members should also be reminded that it is not their role to come to conclusions and advocate their own answers to the questions that they raise, nor should they seek to develop their own alternative strategies.

The questions posed by the review group will obviously depend on the particular strategy under consideration; however, questions that probably should be asked in almost every instance include the following:


  • Is the strategy realistic and is it likely to produce long-term success for the business unit and/or the firm as a whole?

  • Is the strategy constructed in a way that it will withstand public scrutiny and reasonably anticipated turbulence in the relevant business environment?

  • Have the developers of the strategy taken past experiences and failures into account in assessing the likelihood of future success for the strategy?

  • Does it appear that the members of management hierarchy involved with creating and executing the strategy have had access to all relevant information, including dissenting views?

  • Has consideration been given to the impact that the strategy will have on existing businesses?

  • Have the strategy developers considered all reasonable options before settling on the specific strategy under consideration?

  • Do the advocates of the strategy demonstrate sufficient confidence in its likelihood of success and would they be willing to risk their personal resources on the ultimate outcome of the strategy?

The work of the review group should be respected and the managers associated with the development and execution of the particular strategy should be required to prepare some sort of formal response to the review even if it is ultimately decided to move forward with the strategy in essentially the form it was originally presented for review without significant modification to take into account the findings of the review group.

The discussion in this post is based on P.B. Carroll and C. Mui.  “7 Ways to Fail Big” Harvard Business Review, September 2008, 82-91, 86-87.

Business Plan Preparation: The Mission Statement

One of the most important and challenging elements of any business plan is the mission statement, which should be a short and concise pronouncement of the purpose for which the company has been organized and the specific targets and objectives of the company’s business activities.  The process of developing the mission statement forces the founders and other members of the senior management team to carefully evaluate the resources of the business, their own personal goals and objectives and the function that the company’s product and services may serve in the marketplace.  The mission statement should not be confused with operational aims such as achieving profitability or accumulating wealth for investors—the statement should educate customers, employees, business partners, regulators and members of the general public about the social function that the company intends to serve (i.e., the value that the company will create in the marketplace).  A statement of purpose creates an identity for the business and also helps guide decisions about key issues such as what products and services to offer and how they should be positioned and marketed.  The mission statement also become a rallying point for the company’s human resources and plays a strong role in how and where the company seeks capital to fund its operations.


The process of creating a mission statement forces companies to address a fundamental question that is often deceptively difficult to answer—just what business is the company engaged in?  While it is typical for companies to define their business by reference to the specific products and services that they offer the better approach is to focus on the value associated with the output of the company’s business activities and the core competencies that the company has developed in order to generate that value.  By taking this approach companies can avoid defining their businesses too narrowly and thus missing out on opportunities for positive that may be created by unforeseen future events such as new technologies and competitors.  For example, the launch of a new company may be based on development and commercialization of a specific device to provide greater protection against theft at the homes and offices of customers.  While the particular product may be sufficient to sustain the company in the short-term, the ultimate survival of the business will likely depend on the continuous development and introduction of a suite of security-related products and services.  In fact, this will be crucial given that competitors may soon duplicate the original device and drive down prices and margins.  In that situation the company must embrace a mission statement that institutionalizes a broader goal of offering value in the form of superior security products and services and acquiring the resources necessary for creating and sustaining the necessary core competencies to developed value-added outputs.


Although the mission statement should be short, often no more than a single sentence, it can take days or months to emerge and once the statement has been drafted there is still more work to do—the founders and other members of the management team must identify the basic philosophical tenants of the firm that will support the mission statement and serve as the foundation for the appropriate corporate culture.  There is obviously a vast array of issues and questions that might be considered when crafting a company’s basic philosophy and organizational culture has become an important sub-discipline within the broader field of organizational studies and theory.  In any case, serious thought needs to be given to fundamental questions such as the level of risk that is appropriate in making decisions about new products, services and business relationships and the best ways for the company to interact with its external environment (e.g., customers, suppliers, competitors and regulators).  The answers will determine how the business operates and the decisions by managers and employees that are considered appropriate.  For example, if the firm philosophy is relative “risk averse” the sales team may shy away from aggressive credit policies for new customers and the product development group will be more likely to select projects that incrementally improve on current offerings as opposed to pursuing ideas that may lead to true innovations but also carry much higher levels of uncertainty.



Preparing The Business Plan – Putting It All Together

The suggested analyses of products, competition, financial matters, risks and environmental factors are some of the most important elements of the broader exercise of preparing a business plan for an emerging company.  A business plan is the first step toward creating the discipline necessary in order to launch, operate, and grow a successful business.  Some entrepreneurs are so excited about the technology or the product that they simply want to press forward without deliberation.  When told that they need to do a business plan for potential investors and lenders, the first attempt is often quite rushed and incomplete.  The consequences, however, of failing to take the planning process seriously can be dire.  Not only is an opportunity lost to demonstrate the credentials of the proposed venture to potential business partners, the momentum of the enterprise itself will soon begin to diminish due to the lack of interim goals and milestones that keep the business and the founders moving in the right direction.


There are a variety of methods that might be used to put together a solid business plan; however, most formal business plans cover the following areas:


  • A description of the proposed business activities, including the products and services the company will be offering;
  • A description of the target markets for the company’s products and services and an explanation of how the company intends to reach those markets, including an analysis of competitive factors;
  • A detailed analysis of the costs associated with launching and operating the business and a strategy of how the business will obtain the capital to pay these costs (including initial capital contributions and long-term financing requirements);
  • A description of the operating plan for the business, including an analysis of how the company will manage the core functions of the business (e.g., manufacturing, human resources, sales, accounting, etc.);
  • A description of the managerial infrastructure of the business, including the mechanisms to be used for management and control of the business, and each of the persons who will be filling management positions within the business;
  • A description of the plans and strategies for recruiting non-executive employees, including cash and equity incentive arrangements;
  • A description of the company’s property and facilities requirements, including any specific leasing arrangements;
  • A description of the legal and regulatory environment for the company’s business, including strategies for perfecting and maintaining intellectual property rights and business permits;
  • A summary of any plans for acquiring any needed resources or further capabilities; and
  • Detailed budget and projected cash flow statements.

Preparing The Business Plan – Risk Analysis

While the underlying assumptions regarding the development and competitiveness of the company’s products and services, as well as the company’s financial projections, should always be tested during the initial analysis in those areas, some form of overall risk analysis can be a valuable final step in the planning process.  Perhaps driven by regulatory concerns and the propensity for investor’s to litigate with founders and managers if things do not go well, the practice in the United States is to include extensive “risk factors,” sometimes referred to as just “certain factors,” in investor disclosure documents.  While drafters have tended to create what are essentially “boilerplate” explanations of events and trends that might create problems for the company in the future, it is important to separately consider all the key risk factors that might be relevant to the company and its ability to attain its business objectives.  Some of the questions that need to be asked include the following:


  • How will the company’s inability to raise all the required capital impact its product development plans?
  • What might be the consequences if the company is not able to complete development of its proposed products on a timely basis?
  • Are there other parties that might have a legitimate proprietary interest in a material element of the company’s technology?
  • What might be the consequences of the company’s inability to reach acceptable agreements with potential manufacturers or distributors for the company’s products?
  • What is the possibility of new or modified regulatory requirements that might apply to the company’s products?
  • What might be consequences of the departure or unavailability of one or more of the members of the founding group?

Obviously, this is not a comprehensive list and reference should be made to public disclosure documents of other companies involved in similar business activities.  While anticipating a risk does not always prevent the adverse event from occurring, it does allow the founders to take some precautions.  Moreover, this is an area of great interest for potential investors, who will almost certainly require responses during their due diligence investigation.

Preparing The Business Plan – Financial Planning and Analysis

One of the most difficult tasks for the founders of any new business is finding the capital necessary to get the business up and running.  Before abandoning the financial security of their current positions, entrepreneurs need to carefully review the capital requirements for the proposed business, their own personal financial position, and the sources of financing for the new business.  The issues in this area are challenging for technology-driven companies that will operate in a risky and uncertain environment and the founders should exercise caution when creating budgets and projections.  While the founders obviously prefer to keep their investment in professional services manageable until the business is up and running, input from experienced accountants and financial consultants can be extremely valuable.  The goal is to establish a practical and useful financial reporting system, including the ability to generate GAAP-based income statements, balance sheets and statements of cash flows, and procedures that will allow monitoring of the financial aspects of departmental activities and major inter-department projects.  All forecasts and projections should be supported by key assumptions and should be rigorously and regularly tested through sensitivity analysis.


1.         Costs and Expenses


Financial planning and analysis begins with the projected costs and expenses associated with launching and operating the proposed business.  Every business is different and the budget items will depend on the type and number of products and services, the functions to be performed by the company, and the location and scope of the company’s business activities.  For example, among other things, the founders may need to consider:


  • Manufacturing and inventory costs, including the purchase or licensing of equipment or intangible assets;
  • Employment costs, such as wages and payroll taxes;
  • Facility costs, including payments for use of buildings and furniture; and
  • Overhead costs, including payments to legal and accounting professionals.

New businesses must also attempt to conserve financial resources when selecting office and manufacturing space and the equipment required for operations.  In most cases, the company should take advantage of rental and leasing opportunities to conserve cash and retain flexibility before making significant long-term investments in facilities and capital assets.  This can be particularly important in situations where the technology underlying the business activities of the company is rapidly changing or unstable.  Also, while the founders should certainly attempt to make accurate estimates of demand and unrelated capacity requirements, it often takes some period of time to identify realistic resource requirements.  Other issues that may have an initial impact on financial reserves include improvements to facilities and security deposits.

Once the business is launched, the founders need to consider the ongoing costs and expenses that will be incurred in order to operate the business.  The company may incur expenses in building up an acceptable level of inventory and may also need to absorb finance charges if customers are not able or unwilling to pay on a timely basis.  If expansion of business activities is contemplated, consideration must be given to projected costs of new facilities and equipment and hiring new employees.  The need to comply with financial reporting requirements and simply monitor the financial performance of the business means that cash and human resources must be invested in setting up and maintain a recordkeeping and reporting system.


2.         Cash Flow


It is often said that “cash is king!”  The life blood of any business is its ability to collect cash and pay bills as well as pay its managers and employees.  Far too often, young businesses do not have enough operating capital to meet their current needs.  Consequently, they may be forced to sell out to a stronger competitor, sell a portion of the company to investors at an undesirable price, or close the doors and put the company out of business.  None of these alternatives are typically what the founders intended when starting the business.


The ability to forecast cash resources and uses is an art and is by no means a well-defined science.  No one has a crystal ball and any cash forecast that is prepared by the management of a company or an outside consultant can be no more than a guess as to when the customers will pay and when the business will pay its obligations.  Hopefully, the more effort that is put into cash forecasting the better will be the educated guess and the more accurate the resulting picture of the future operations of the business.


Cash flow projections can be very slow, time consuming and tedious to undertake.  It is often very tempting for the founders to hire someone else to prepare the projections for them.  There are a variety of individuals who can help, but the critical factor is that they only help.  The managers of the business are the only individuals truly qualified to develop cash flow projections. Certainly a trained professional can offer guidance and ask pointed questions to be sure that consideration is being given to all of the necessary and sometimes hidden costs of operating a business.  However, the more effort put into developing cash flow projections the more accurate they will be.  This exercise may also help pinpoint potential cash savings which had not otherwise been considered.


One of the most significant factors to be considered in cash flow analysis is the volume of sales that will be generated for the period for which the forecast is being made.  The sales forecast must be as fine-tuned as possible.  In many cases, sales forecasts are based on assumptions, often unrealistic, regarding the size of the market for the company’s products or services and the market share that the company will be able to capture.  While these measures and targets can provide a good starting point for preparing the forecasts, reference should be made to actual experiences of similar businesses in comparable markets.  Moreover, the forecasts should take into account other factors that might impact the level of sales at any point in time, such as new distribution arrangements, expansion of product lines, seasonality, and the state of the economy.


New businesses selling technology-based products and services may find it is difficult to estimate the average sales price for its products during the product launch period.  While some reference can be made to comparable products, actual customer use and satisfaction will ultimately determine the sales price, as will the future impact of competition.  Another factor to consider is the need for the company to offer discounts on products and services in order to create incentives for customers to use their products and services during the launch period.  If discounts are planned in advance, they actually can be budgeted as a marketing expense.  If, on the other hand, discounts are offered in response to market reactions after the projections have been finalized, they will reduce the projected sales revenues during this period.

Once a reasonable level of sales has been determined and the founders are comfortable with their forecasts, consideration must be given to converting sales into cash that can be used for the business.  One of the most common problems for new businesses is their inability to promptly collect amounts due from customers.  The forecasts should include realistic assumptions about collection of receivables, including the average amount of time between the date that a sale is booked for accounting purposes and the date that the income is collected.  Also, the founders must not assume that all receivables will actually be collected and create reserves for returns and discounts that may be necessary in order to build customer trust and loyalty.


3.         Working Capital


It is the fortunate, and rare, business that can match its expenses and income from operations from the first day.  Instead, it is far more likely the founders will not to obtain some amount of working capital to continue operations until the business is profitable.  The amount of capital will depend on the shortfall from operations identified by the projection of income and expenses, as well as the need to fund long-term investments that are not likely to reap returns within the specific planning period.

Preparing The Business Plan – Competitive Analysis

Decisions regarding products and target markets must be made in the context of the competitive and technological environment in which the business is operating.  As a general rule, unless existing competitors are not able to meet demand for specified products, thereby creating an opportunity for new companies to sell identical or similar products, a new entrant must have a competitive advantage that can be translated into customer satisfaction in order to survive.  Studies indicate that successful technology firms are able to develop and introduce new products or processes that offer some significant benefits over existing competition, be it in the areas of cost, functionality and/or performance.


Competitive analysis begins with identification of all principal elements of competition in the company’s marketplace.  There is no standard list that applies in each situation; however, it is not uncommon to find that companies compete on the basis of price, service, product quality and reliability and/or manufacturing efficiencies.  Each of these factors can enhance the value to customer in terms of lower costs or improved product performance.  Marketing, distribution, and acquisition of technical resources are all supporting strategies and can also be an important part of the company’s efforts to create a competitive advantage.


Once the company has identified the principal elements of competition in the relevant market, it must then identify its own distinctive competencies that will allow it to compete effectively.  One method that can be used in order to identify these competencies is to ask a series of questions regarding the manner in which the company completes the tasks necessary for it to develop, produce, and distribute its products and services.  This exercise, which is sometimes referred to as “value-chain analysis,” is designed to establish the basis upon which the company will compete in the future and, to some extent, to identify those areas in which the company’s skills fail to match the expertise of competitors.  In any event, the following questions should be considered:


  • Is the company able to compete on the basis of its strengths in procurement, processing or manufacturing?
  • Is the company able to compete on the basis of its strengths with respect to sales, distribution, customer service, delivery, promotion, maintenance or field engineering?
  • Is the company able to compete on the basis of the characteristics and capabilities of its products and services?
  • Is the company able to compete on the basis of its human resources strategies?
  • Is the company able to compete on the basis of its strengths in the area of research and development?
  • Is the company able to compete on the basis of a unique technological advantage, which is either embodied in its product line or is utilized in the course of its manufacturing?
  • Is the company able to compete on the basis of its financial assets or strategic business relationships?

The end product of this analysis should be selection of a strategy that is consistent with the company’s competitive advantage and the needs of the marketplace.  For example, while a given product may be technically “inferior,” it may flourish due to exceptional distribution capabilities.  Some companies may be able to become the lowest cost entry in the marketplace by virtue of its ability to use low-cost production facilities in an offshore location.  A similar result may be achieved if the company is able to exploit its own proprietary technology to reduce production costs.  In other cases, a company’s technology can be used to develop a variety of new tools or applications that can be used to by customers to solve their own engineering or development problems.

Preparing The Business Plan – Product & Market Analysis

No business can expect to be successful unless the founders and managers understand the relevant markets and develop a strategy for reaching potential users and educating them about the value of the company’s products or services.  Presumably, serious consideration of a new business would not be undertaken unless the founders have some sense that a market will exist for the company’s products and services.  However, a mere “gut feeling” is not enough, and the preliminary planning for the new business must include a comprehensive and candid analysis of market characteristics and opportunities.  In particular, the founders should be able to provide clear and substantiated answers to each of the following questions:


  • Who will be the likely customers for the company’s products and services?
  • What are the important benefits of the products or services and what specific needs will the company’s offerings meet in the marketplace?
  • What is the proposed pricing structure for the product or service?
  • What methods should be used for distribution of the company’s products to its identified customers?
  • What marketing and promotional strategies will be needed in order to reach the potential customers, including advertising campaigns and public relations efforts?
  • What ancillary products or services will (or should) the company be offering in connection with its core products and services?  For example, does the company expect to take on any warranty or service obligations with respect to its products?
  • What intellectual property rights are involved with the company’s products or services?  If intellectual property rights are essential to the company’s business, what steps have been (or can be) taken to protect the company’s position?
  • What are the critical stages of developing and selling the company’s products and services?  Are there any processes in this cycle that have not yet been completed?  If so, is there a clear strategy for getting the job done, including raising sufficient capital and recruiting the necessary personnel or business partners?
  • What procedures should be implemented for tracking the success of the company’s marketing plan and insuring continuous improvement in its products and services?

Studies have shown that successful technology-based firms demonstrate a discernable strategic focus with respect to the mode of market entry and product positioning.  In most cases, successful firms opted for exploitation of a niche market that promised sufficient returns and was perceived as being defensible and/or of less interest to major competitors.  Successful firms also selected markets that were both large and growing.  Ideally, the selected markets would be capable of rapidly embracing products and processes that provided substantial “added value” or contributed to rapid innovation in manufacturing techniques.