Family businesses represent the heart and soul of the American economy – and while leading a family business brings profound rewards, it also features some inherent challenges.
As a family business leader, you’re constantly balancing business requirements and opportunities with the needs of the family.
In order to smooth this process, a strong family business will lean into an overarching strategy that drives toward the best interests of both the family and the business.
In our experience, strategy is something that many businesses struggle with.
We tend to associate strategy with bulky, three-ring binders that sit on a bookshelf and gather dust.
But that isn’t strategy.
Strategy is a mindset.
It’s a mindset living inside a family business that permeates the entire operation.
And it’s a way that you can create a business that will thrive for generation after generation.
So, let’s look at strategy making in a family business.
What is Strategy?
As John Darling tells us in Peter Pan, strategy is, at its simplest, a plan of attack.
How will your business attack the market?
How will you compete?
How will you add value to your business over time?
In short, your strategy is a succinct plan of action that will lead your business to achieve its goals.
In addition, strategic planning represents a tremendous opportunity to coach your team in how to think ahead, plan ahead, and outsmart your competition.
Why Do Family Businesses Need Strategy?
It’s important to note that every business needs a strategy. Otherwise, it either fails immediately, or it succeeds despite itself until it’s no longer relevant or sustainable.
But a family business needs a strategy even more than most – because the unique nature of a family business adds an extra layer of complexity.
In fact, leaders of family businesses actually manage two parallel strategies: the values, vision and continuity of the family, plus the management philosophy and strategic commitments of the business.
The two must work in tandem for a family business to reach prosperity and to grow in value.
If you don’t know how to measure the value and prosperity of your business, how will you possibly know how to increase it?
That’s where strategy leads the way.
A clear strategy allows you, your team, and your family to make wise decisions, to be more proactive and to stay ahead of variability in your business environment.
A clear roadmap gives everybody in the organization a common direction, unifying your team and increasing employee engagement.
And finally, when you want to assess the value of your business, if it doesn’t have a strategy in place, the business value will be greatly discounted.
Dimensions of Strategy
Let’s keep this part simple – the three major dimensions of any business strategy are:
- How will you compete?
- Where will you compete?
- How will you make money?
These are the key strategic questions you need to think about. And as you do, you’re going to end up thinking about increasing the overall value of your business.
Never forget: that’s why you’re competing.
You’re competing to sell more of your product or service and make more money. You want to make more money – not only for your shareholders, but also because, we believe, you have a social responsibility when you lead a business. And if you’re not profitable, you’re not going to fulfill your social obligations.
When it comes to how you’ll compete, will you have a price advantage? Or will you compete based on product differentiation? And for where you’ll compete, what geographic areas make the most sense for your product or service?
These are the key questions.
Keep in mind, your strategy informs not only today’s success, but also your business’ prosperity well into the future.
What do you want your business to look like five years from now? 10 years from now?
What is your overall mission and purpose, and how do your actions help take you there?
Because the immediate and the future elements of strategy are always engaged in a tug-of-war, we encourage our clients to remain flexible.
Don’t try to develop the “perfect” strategy, because strategy is dynamic, evolving to meet the needs of the market and your customers.
The Strategic Process
The basic strategic process consists of the following steps, performed in a loop over time:
- Setting a strategic agenda
- Analyzing the current situation
- Formulating a strategy
- Implementing the strategy
When you’re engaged in the strategic process, it’s important to keep in mind three very different types of strategy.
First is intended strategy – this represents top-down, centralized decisions about company direction.
Intended strategy is followed by realized strategy: how your strategic intents actually play out in the market, as you respond to various external factors.
It’s important to note that roughly 10 to 30 percent of all intended strategy actually makes it to realized strategy. Knowing that ahead of time can help both you and your team stay flexible in the throes of market variance.
And, finally, there’s emergent strategy – this encompasses decisions that emerge from the complex process of individual managers interpreting intended strategy and adapting to changing circumstances.
Again, flexibility is your friend here.
Good strategy matters: it sets direction and ensures alignment within your organization.
Strategy becomes a guiding philosophy that helps you make wiser decisions at all levels of the organization, it encourages innovation and contributes to the resilience and success of the family business over many generations.
At Ferguson Alliance, we’d love to help you implement a strategy for your family business.
Reach out today to set up a consultation with one of our experienced strategic advisors. book a call