#34 What entrepreneurs should not do

"The essence of strategy is knowing what not to do," said strategy guru Michael Porter. You can find out why this truth is especially true for entrepreneurs in these special times, in which form of crisis even making strategy no longer helps and why strategy routines help to avoid these crises in our episode on the occasion of the virtual live podcast for the Federal Association of Small and Medium-Sized Enterprises on the occasion of our book release on November 23, 2022.

The key question in this episode is: Why does a true entrepreneur need a well-formulated corporate strategy?

The corporate strategy is the plan with which set goals are to be achieved. Every company should have such a plan. Because - without a plan, everything is nothing or is left to chance. There is a nice quote from Michael Porter, the strategy guru, "The essence of strategy is knowing what not to do."

Unfortunately, every entrepreneur only has 24 hours in a day and we as humans only have two hands and one head. Without a proper plan, that's not enough, because there's so much to do.

Above all, it is important to know exactly what does not need to be done. So it's all about the right focus! Because every company only has limited resources - in terms of capital, people, time and its own performance. That's why entrepreneurs should ask themselves the following questions:

Where do we currently stand? What goals do we want to pursue? And what do we need to tackle in order to achieve these goals?

We are currently living in very special times. It is not usual for so many challenges to emerge at once - climate crisis, pandemic, increased ESG regulations.

Then there are the supply bottlenecks. There is a lack of material everywhere and when it is available, it is incredibly expensive. The shortage of skilled workers is a problem for everyone. The ongoing war in Ukraine is causing markets to disappear. And all this after two years of the coronavirus pandemic - during which the capital base of many companies had already suffered greatly.

This is creating a tense situation for many entrepreneurs. Especially as it is foreseeable that most of the current challenges will continue for quite some time and experience shows that once one challenge has been overcome, the next one will not be long in coming.

What needs to be done? The first step is to analyze the situation. Current issues - especially macro issues, which affect companies as well as society as a whole - are divided into relevant and less relevant issues depending on their influencing factors.

This type of analysis always takes place at different levels: At the company level, the industry and market level and the macro level. In addition, there are the various trends whose further development is written in the stars - for example, the ageing process of societies or possible new pandemics.

This is why it is so important to use the situation analysis to gain clarity about the initial situation and the resources currently available. The influencing factors and their development in the near and distant future must also be taken into account. What are the challenges and threats? The short and long-term goals must be aligned with these.

To summarize: A precise situation analysis is required - which is also part of the StrategyFrame®. In our book, this is underpinned by appropriate visualization. There you will find the various points relating to the market, competition, customers, trends and general environment.

Your own realities play an important role in the StrategyFrame®. In the current pressure situation in which most companies find themselves - with the exception of a few profiteers - it is certainly not easy to keep a clear head and focus.

Routine processes and the simultaneous adjustment to changes in environmental conditions are part of the everyday tasks of entrepreneurs and managers.

The alternative - burying your head in the sand and hoping that the storm will pass - is not an option. A great deal of effort is therefore required - at least with regard to our own realities. It is worth taking a clear, rational and considered look at the good results achieved so far in order to reproduce or even improve them in the future.

Companies are currently in various crisis situations. Different types of crisis include, for example

Sales crisis Strategy crisis Earnings crisis Liquidity crisis

Especially during the sales and strategy crisis, entrepreneurs should think about a new strategy at an early stage and ask themselves the following questions:

What does this situation have to do with our previous strategy? Which results are attributable to external factors?

It is also worth turning the strategy into a continuous process. It is not very effective to develop a strategy and only carry out the next situation analysis two years later. Our time is too fast-moving for that, with its constant changes in the environment and circumstances.

For example, you need to review your sales force during the sales crisis and at the same time monitor changes in demand and customer preferences. Ideally, you should act with foresight in both areas. Together with the marketing team, you should always have your ear to the customer.

The earnings crisis also requires serious thought. Are the products or services needed on the market or are they no longer profitable enough? Profitability and the two elements of profitability therefore need to be reviewed:

Sales (revenue) Costs

Both should be managed at the same time.

These examples alone show that every type of corporate crisis requires a plan that defines the measures to be taken when certain circumstances or crises occur.

The biggest challenge for companies today is to keep an overview of the complexity and to keep an eye on all the options and important levers in order to be able to react and act appropriately. This is because all decisions that are made are interdependent, which means they have side effects that are not always visible at the time.

The trick is to adapt the entire system, such as internal organization, production, sales, etc., to daily market changes. It is obvious that not everything runs smoothly.

When managers are scolded in the business press because things are not going well, it is easy to forget that a company is a complex organization that has its daily, multi-layered challenges even in small and medium-sized businesses.

With the help of various StrategyFrame® modules - such as the aforementioned situation analysis or the target image and fields of action - you have a powerful tool at your fingertips.

These are the three pillars of the StrategyFrame®, which supports you as a kind of visualization aid and guide throughout the entire workflow. Eight workflow steps are defined in the book. These support entrepreneurs, managing directors and managers with the information that is important at that precise moment.

By the time a liquidity crisis hits, no company will turn to a strategy consultant because they don't have the money. In the best case scenario, you should turn to them much sooner, as an outside perspective can be of great benefit. It helps to keep an eye on events beyond your own reality and to get to know other perspectives.

The StrategyFrame® also makes it easier to establish strategy routines. It's like training. A one-off process will have no long-term effect on the success of a company. That's why the StrategyFrame® also contains a few strategy routines.

StrategyFrame® provides entrepreneurs with a tool that they can use to develop strategies themselves together with their own management team. Experience shows that the success of strategy development and implementation is much more likely if the company and management team see the measures as their own strategy and are not dictated to them from outside.

More and more people are recognizing how important it can be to involve their own employees in such processes. There is a study on this by "strategy&" - the strategy division of PwC. Several thousand managers in Germany were surveyed on the topic of strategy. Of these, two thirds were of the opinion that the current corporate strategy was doomed to failure. One third even said that there was no strategy in their company.

Other studies in the USA emphasize that strategies mainly fail during implementation because the processes are too lengthy or employees have not been involved appropriately.

This proves that the path from strategy formulation to implementation and execution is an arduous one. However, if you make this process routine, it becomes a lot easier.

With our book, we want to encourage you to start processes and get them going. That's why it's more of a workbook. It contains blank pages to fill in, lots of tables and some visualizations to help you put your ideas into practice in a simple way.

The StrategyFrame® is also available digitally atwww.strategy-frame.com, especially for companies with a larger organization. This provides you with the entire workflow including the process organization - all in one innovative tool.

Our approach is to ensure that companies retain sovereignty over the strategy process - naturally always with the freedom to engage a strategy consultant, possibly on a selective basis.

For all companies that have previously steered their company ship without a major strategy - but now realize that it is no longer working properly - but have no experience in the strategy process, it is worth creating a structured process.

The development of such a process should always take place in the workflow so that everyone - including new employees - can get involved in the ongoing process at any time. This makes it easy to get everyone involved on board.

One of the current challenges is the fact that, due to coronavirus, many managers and employees are still working entirely or partially from home and not on site at the company.

The term "new work" keeps cropping up, but no one really seems to know what it actually means. Older managers in particular are unfamiliar with working from home and tend to be critical of it. There is a great deal of uncertainty, particularly when it comes to access to employees.

However, it must be clear that these changes are here to stay. The wheel will not turn backwards, so the management team needs to think about which mechanisms will work best here.

The basis for functioning can only be trust. If this does not exist, the implementation of any strategy becomes difficult, if not impossible. Here too, it is important to implement a framework - a strategy frame - within which employees can move and with which they can identify.

Strategy is often seen as a process that bypasses the company levels or does not take them into account. But this is also doomed to failure. Yet strategy can be a great thing - for everyone involved.

This means that the company management is the captain and must set the direction, the path and the goal for the team. Because only with a clear perspective can the necessary security and connection be created among employees.

It is a bad thing when companies are unable to clearly formulate their own strategy and leave employees somewhat disoriented. This creates uncertainty, which can only be transformed into security with clear leadership, including a clearly formulated corporate strategy.

Advice of the day from Jürgen

What would be the first step for those who want to start a strategy process now?

First of all, you need to think about where you are right now. Why are you where you are today and what has made you or your company successful? And what do you need to do to remain relevant and successful in the future?

The strategy process should then start from there.

At the end of this episode we answer questions from the chat - you remember - it's a live episode and listeners have the opportunity to ask questions.

Most strategy plans from large consultants fail when it comes to implementing the strategy, as they impose their standard model on companies and do not take care of the implementation. This is why either a small consultancy or a practical interim manager is used to develop and support the strategy. Would you agree with this?

Christian:

That can be one way. But it is more important to ask yourself why the strategy implementation fails. One reason is that there is a lack of acceptance if the strategy comes from outside and the company's own management team is not involved. It can therefore be important to have a strategy coach at your side for a certain period of time.

The fact is, however, that if a company does not make the strategy its own strategy and does not allocate time and resources to it, then even a consultant cannot help. Regardless of whether it is a large or small consultancy - it must not be responsible for "your" strategy. You cannot outsource this responsibility.

Jürgen:

The more the strategy comes from within the company and is supported by it, the more likely it is to work.

You can see that working from home is now on the decline again. How can you convince bosses of the principle of working from home in 2022?

Christian:

We also need a strategy for this. And at the moment, this topic often leads to emotional discussions. So my advice is to look for a good amicable solution with the workforce. Despite all the advantages and disadvantages, there is always a middle way. This also includes the willingness of the team to work in the company from time to time and to take advantage of the personal exchange.

Jürgen:

Due to the pandemic, the pendulum has swung more towards working from home in recent years. However, we have noticed that there are people who miss face-to-face meetings at work. Especially now that the pendulum seems to be swinging back, a certain balance is needed. A middle way and flexibility are required. Whereby consensual arrangements between employees and management play a major role.

The details of the strategy process can be worked out remotely using appropriate tools. Face-to-face workshops are clearly better for formulating the goals and strategy because you can better assess the body language of the participants, for example.

Jürgen:

Exactly. And that's how we set it up in the book. The strategy formulation should take place physically in presence. It is precisely because of differing opinions and convictions that proper moderation is required in order to make progress with the strategy within the company.

Christian:

In Corona times, this was also implemented completely digitally. Nevertheless, a lot can be lost in the process. For this reason, the book contains tips and instructions for organizing physical meetings and collaborating via the digital tool. The tool is designed so that it can be used in any situation - remotely at home or together in a workshop.

The advantage: you work with a database and don't have to use an infinite number of Powerpoints and Excel spreadsheets. In addition, coffee and lunch breaks and any evening events should not be underestimated. These are helpful for discussing conflicts and topics that cannot always be conclusively clarified in the call on the side. This is an important part of the strategy process.

The end-to-end approach is important for SMEs. A consultant must not only develop the strategies, but also actively support the implementation: This is the only way to ultimately measure the success of the practice consultant or interim.

Christian:

Anyone who only ever thinks about strategy in terms of one area has not understood the process. It has to be about the end-to-end, because at the end of the day, the only thing that counts for all entrepreneurs is the bottom line. And that is also the case with strategy.

This is not measured by the fact that a nice meeting was held at the beginning and something was pinned to the wall. Even the StrategyFrame® - if it is not implemented and things are not thought through together - will not be enough for success. Appropriate resources must be made available to implement the measures. You also need a trusting environment and appropriate support.

In my experience, the consultant or interim manager should be the one who supports, structures and moderates the process and provides the necessary tools. The strategy must come from the company. How do you see this?

Jürgen:

That is what we always emphasize: The strategy must come from within the company. Anything imposed from above or from outside will not find the necessary acceptance and employees will not feel comfortable with it

A listener asks if the episode can also be heard later.

The podcast will be available on the website https://www.strategy-frame.com/pages/hoffnung-ist-keine-strategie as well as on Apple Podcasts, Spotify and other platforms. And we will share the video of the event on YouTube.

Finally, Ms. Janzen has one more question or comment. She would like to know something about the market and benefits for the user.

Jürgen:

When companies talk about strategy, they always mention the customer focus. But often the intention behind this is to treat customers as they have been treated up to now - without giving much thought to what actually happens to NON-CUSTOMERS.

Why don't they become customers? As a company, you have to think about who your profitable customers are. Who do you want to reach and with what? What benefits can I create for my customers? And always relative to the current competition.

Christian:

That is the important thing! We have to differentiate: What can we do differently or better than the competition? To find this out, it is worth going to the customer and taking a look at how customers deal with my products - regardless of whether they are consumers or B2B customers. And the right conclusions must then be drawn from these experiences. You are welcome to talk to your customers in order to understand their needs and notice their changes. This is exactly where "making strategy" begins.

This means going out, testing, observing practice and determining what is still needed. The best way to do this is through constant feedback, which is easy to instrumentalize.