5 common mistakes in developing strategies and ways to deal with them

Hello, dear habrovchane!

My name is Vyacheslav Arkharov and I have been working in the field of strategic management for many years. It seems to many that this is such a harsh and heavy thing, necessary only for large corporations. But this is a popular misconception. The right strategy is needed for a small startup developing a photo editing application, a medium-sized web studio with two hundred orders per year, and a large system integrator with billions of dollars in turnover. Of course, the strategy for each of them will vary in scale and detail - but nevertheless, the basic approaches, methods and results will be the same for all. And the errors will also be similar - because Contrary to public opinion, the owners and managers of large companies do not always possess the skills of strategic management or just even analytical thinking.

In this article, using the example of a fairly typical business case, I will try to show a few typical mistakes in developing a long-term strategy and ways to deal with them. I hope it will be useful for both beginner and advanced businessmen to improve the performance of their business, no matter how simple or complex it may be.

Because, despite the apparent simplicity, the correct formulation of a business strategy for a company is a very difficult task. The problem is that it is difficult for an ordinary person to predict what he will do even in the next two or three months. The head of the company, as a rule, can predict the development of the company before the end of the fiscal year and roughly represent the development of events in the coming year. But even an experienced manager is usually hard to imagine what will happen to his company in 3, 5 or even 10 years.  

And the matter is not even that it is difficult for him to figure out what to occupy his employees in the coming years. The problem is that over a long period of time, the goals become very vague - and the expectations become increasingly high. As a rule, leaders with positive and energetic thinking, after 5 years see themselves in a luxurious Rolls-Royce studded with diamonds on their own island - therefore they easily set themselves fabulous and unrealistic goals, which, however, seem to them quite achievable. However, without special skills to work with a strategy, it is usually very difficult to understand how realistic and realistic that task is perceived to be completely logical and correct.

So, let's go!

Mistake number 1: Abstract wording


With one of my clients, the owner of the company-developer of integration projects in the field of IT with a turnover of about 300 million rubles a year, we somehow worked through the task of creating a business strategy for 5 years ahead. In fact, the client has always believed that he already has a clear and clear business strategy. It was formulated simply: “you need to earn more and go to new customers”. The client was sure that this was quite enough and did not pay any particular attention to the strategy. Actually, he also attracted me not in order to formulate it - but in order to understand exactly how “you need to earn more and go to new clients”.
It was then that the first mistake was made. The classic problem of developing strategies is that, without being able to qualitatively predict activities for several years ahead, people are limited to abstract formulations, such as “more actively developing”, “increasing sales” or “becoming a market leader”, which they mistaken for a strategy.

However, the “increase sales” strategy is like a promise to “lose weight by the summer” - all lovers of sweets are well aware that such a promise leads nowhere, except for the purchase of new sneakers and a gym membership. In turn, people who formulate the task of losing weight in the form of “3 times a week to go to the gym, stand in the bar 5 minutes a day and do 100 squats” achieve much better and noticeable results than those who simply want to lose weight abstractly. Therefore, the well-known SMART criterion is that the task should be simple, measurable, achievable, result-oriented and limited in time - this is the first and most important criterion in the formulation of any strategy, from the gymnasium to investing.
Therefore, I asked my client: “What does it mean to earn more for you?” As expected, he could not give me a clear answer. Various members of the Board of Directors saw the task of “earning more” as earnings from 400 million to 1.5 billion a year. Therefore, for a start, I suggested that the owner of the company set a clear task in the form of a specific figure, which is justified by calculations.

Mistake number 2: Taken from the ceiling indicators


Soon the owner of the company presented me with his specific vision: “by the end of the year we will earn 300 million - therefore, in a year the company should reach the turnover of 500 million, in two years 800 million and in three years earn 1 billion”. The rationale for this figure was the fact that over the past year the company managed to grow its turnover by almost a third - and the client was confident that the salespeople could work hard and grow the company to a billion in three years. He suggested that this figure be set as a strategic goal for three years.
Here lies the second classic mistake. Fascinated by the simple and logical SMART criterion, managers often spend time in deep calculations of some numbers and then happily show it with the words: “Here, everything is in SMART, I calculated a clear and measurable figure and it should be done in three years, the task understandable, ran to work! ". However, the most important step, when any digit appears in your strategy, is its validation. That is, the figure is not enough to calculate in some ingenious way. It is important to understand - and this is generally the correct figure? Are you mistaken in the calculations? Are you wrong in the estimates? Are you mistaken in the original premises? There are many options where to make a mistake - therefore, all indicators in the strategy should be strictly validated.

How to do it? This requires a benchmark - a similar or similar indicator, which is known a priori and with which you can adequately compare your figure. Adequate - this means the comparison should be carried out for approximately the same indicators in approximately the same units. You can not directly compare sales in the project IT business and FMCG-retail - these are fundamentally different models. You can’t compare business with yourself - a 25% growth this year doesn’t mean the same growth next year. But you can always compare business growth rates with industry average and market average indicators - they, at least, can serve as a guideline or help to define the permissible boundaries.

What do we see from industry indicators? The key indicator of the market is our country's GDP, if it grows, then by 3-4 percent per year. The IT market in Russia is growing by a few percent, in rare years by 10-12 percent. The global IT market is also growing at 8-9 percent per year. All these data can be found in various public reports with any level of detail.
What does this mean for our strategy in which, at the request of the client, every next year the business should grow by 150%?

First, with a market growth of 10%, no business can grow by 150%. Yes, some venture businesses and start-ups are able to grow twice a year (but as a rule, this is a growth from one sale per year to two :-). But the business of our client was absolutely standard - not a venture, but an ordinary project business in the field of IT, which in no way gave rise to such insane growth. And, in fact, the entire experience of the company over the past years showed that it grew to 300 million not in one year, but in ten years.

Secondly, if you look at the average IT market, then standard companies do not grow by more than 10-15% per year. This is a bit higher than the market, and this is the figure that a normal sales department can give during normal operation to a small increase in the plan. Of course, there is information that some particular areas - for example, online retail - grow by 30-40% per year, but, as a rule, these figures are narrowly specific and need to be checked and very deeply looked at the reasons for such growth. In our case, there were no prerequisites for such growth.

That is, in general, it can be said that when planning sales growth, it is necessary to focus on figures of 10-15% per year as a kind of realistic average benchmark - which, in fact, usually correlates with market growth in a particular area. That is, the market, self-developing, grows about a percentage - and buyers buy more at the same percentage. And if someone sets himself the goal to grow several times over a year - that is, to grow seriously above the market - then you need to look very carefully and very clearly, due to which he is going to give out this growth. For such growth either there should be some crazy investments in sales and marketing, some new products should be launched or radically new approaches in production should be introduced, etc.

Mistake number 3: hallucinations of rapid growth


But in this company, no special activities for growth and development have been done. That is, the owner simply assumed some organic growth, which was supposed to triple the business in three years. Of course, it was an illusion - or rather, even a hallucination - because, unlike illusions, hallucinations are very often perceived as an objective reality. Since if there are no special activities planned, then in some special way business will not grow.
However, in this situation, the owner had a fairly common hallucination of such growth. The fact is that it rotated among its clients, who constantly stated that they had some bigger and more interesting tasks. Our businessman perceived this, if not as a ready-made commercial offer, then as a very easy way to earn money, like low-hanging fruits that can be picked, without doing anything for it.

But, in fact, despite the fact that customers have been saying such things for many years, the company didn’t break any low-grade fruit. Of course, she had separate contracts that were easy enough and were fairly large. But this, rather, was a single story - and in no case could it be considered as a system one. This is also one of these classic hallucinations - to confuse random one-time contracts with the system business. The contracts, which were actually randomly obtained, did not have a chance to repeat themselves, and were rather atypical for the industry.

And indeed, when later we began to check the deals, it turned out that these large contracts were only 2-3 for the entire company - and they gave a small increase in revenue, and the rest of the business profile did not change. That is, it was an absolutely situational story, which the business owner took for a systematic one. But this topic is already for a separate article.
The conclusion is simple: it is very important not to deceive yourself and not to think that even if there are a lot of cool projects and contracts around you, then tomorrow you can easily come and pick them all up. Even if you know how to do it. In fact, the market always exists around you - but this does not mean that if you want to take it away, you will come tomorrow and take it. Many customers think: “Tomorrow we will undertake and capture the entire market, simply telling our sellers that it would be time to capture the entire market!”. But it is a hallucination. To do this, at least special activities should be done: special marketing, increased sales, the development of new products, etc. The team should be strengthened, targeted investments should be made. Without all this, there will be no strong growth.

Error # 4: Resource Capacity Revaluation


Of course, at this stage, the owner of the company did not believe me. He said: “You make it all up - and after all, in fact, we are growing steeply! We have a strong team, we invest in development - and we will normally sell as much as we need, quickly grow and earn this billion easily. Come on, don't push us your horror stories. I don’t know where you got the figure of 10%, as a benchmark - but we cannot be compared with the market, we have our own way, our own business, and we normally grow three times in three years. ”
In general, this was expected - so in response, I suggested calculating this figure in the opposite direction, namely, based on the capacity of the resources. This is also a fairly common method of validating strategic calculations when it is proposed to calculate not the volume of sales itself, but the capacity of some key point through which this volume will pass - the capacity of the distribution channel for the sale of such a volume or the capacity of production for the production of such a volume.
Here, in fact, everything is very simple and even basic estimation is enough.
So. Now the company earns about 300 million a year and employs about 200 people. That is, 200 people master these 300 million - and it is logical to assume that with an increase in the number of orders, the number of people in the state will grow linearly. That is, additional people will be needed for the development of this money and projects - just to fulfill the orders that the company will take for itself.

Thus, if in 3 years it is supposed to make a turn 3 times more - then, probably, this will also require about 3 times more people. It is clear that this is a very approximate figure and here you can optimize a lot of things in terms of labor productivity, workload on staff and even outsourcing - but for a rough estimate it is quite enough. That is, in this situation, instead of 200 people, it will take 600 people at a minimum. We have 250 working days a year, respectively, 3 years is 750 days. And for these three years we will need to recruit the missing 400 people. And if we divide 750 by 400, we will get 1.75 days per person - that is, about once every two days we will need to hire a new person for the staff.
Once again - starting today, we need to hire one person every two days in the state simply to be able to master a billion rubles by the end of three years. Considering that the company had not been able to hire one new seller and two new developers for two months, who were already very necessary, I asked a simple question: “How are we going to trite these projects, if we don’t have people and are stupid there is no possibility to hire them - and all the current indicators for hire show that we cannot hire a person in two months — not so much in two days?

Secondly - will there be, trite, such a number of people in the market so that we can hire them ourselves - given that the company has a very serious approach to recruitment and personnel qualification and a rather serious dropout in terms of requirements for the same developers - when out of a few dozen people coming in, few were hired? Plus, part of the development of this company is made in the regions - where there is simply no suitable number of specialists, and all the right people are already working either in this company or in a pair of competing companies? Where will we stupidly take people in order to at least make these projects? Not to mention the fact that they need to be sold and made presale - and that these people should already be on staff before the project is sold! ”
This question is very puzzled by the owner of the company. Outsourcing projects in this business was impossible - and the question of hiring people for him was always very obvious and painful. There are really few good specialists on the market and the selection of personnel in this company has always been accompanied by great difficulties and a headache.
It worked. The head again retired for a couple of days to reflect on more realistic numbers. And he came back with the number not in a billion, but in the order of 600 million in three years. That is, next year he was ready to grow to 420, then in a year to 530 and then to 600. Although it certainly was a two-fold increase in three years - but it was already a figure more similar to reality and under it even the account immediately became clear -plan.
As a result, this number was quickly signed by the commercial director, since for her, it was already possible to plan somehow the state, and the activity, and the salesperson’s load - because in principle he understood where he would take this money and people for such a period of time. The strategy has shown its viability!

Mistake number 5: The focus is not on what is really needed.


The next task was to make the business grow abruptly. When we decided to formulate the problem more clearly, a large number of different proposals immediately arose about what it means to “develop a business cool”. The owners wanted to enter new markets and increase the volume of contracts from current customers, wanted to develop new products and enter related segments, wanted to invest in venture capital areas, believing that these areas would bring them short-term money, wanted to develop projects from other industries, in which they believed as in money - and go to the real sector, etc. etc. That is, there was a huge pile of options that were discussed from different angles, from different perspectives.
And somehow, when we had another meeting to discuss how business could develop, the owner suddenly asked to end the meeting early - because he was very tired and he needed to leave. And when I asked what was the matter, he said with a weight in his voice that now he had some kind of capital blockage - because he had gained a huge amount of different tasks for managing the company, he began to build several parallel new businesses, plus he in the current business, legal problems arose with careless contractors and toxic clients - and he traveled to lawyers and lawyers trying to solve these issues ... Besides all this, he had a young family that he did not pay attention at all, working 12 hours a day, and very With flax tired - and still not coping with all tasks.
And then I asked him: “Are you sure that your goal, in terms of business development, is some kind of extensive growth, especially in some new direction? Or maybe it would be better - from the point of view of strategy - to envisage exactly the stabilization of the current business, reducing the burden and risks on yourself and gradually withdrawing you from the operational work on this business? To do this, you just need to stabilize the business as a process - so that you can finally quit your job, start enjoying life and engage in new projects - and let the business work on its own and bring you money. ”
I remember that this idea struck him very much - because after a decade and a half of work in this business, he had never even imagined that he could get out of it and give it to someone else. In general, it has always been normal for him that he works and works a lot in this business - but now the circumstances are such that his workload has greatly increased, plus his responsibility has increased very much - because the company began working with more serious and more responsible contracts and the first cases of unscrupulous contractors and clients appeared when it came to legal proceedings. At the same time, many of the punctures were committed not through the fault of our owner - but because of the sellers or directors who took bad contracts to the company - but since the company always worked more like a family, rather than as a business, our owner has always been one for all and defended the honor of the company at the forefront. And when I offered him, instead of developing a business, to think about stabilizing the business, then for him the very idea that this could be done was a shock.
But the situation, when it all fell on him, acted as a correct and timely driver of what he was able to correctly perceive this idea. Because all my attempts to bring it to him ended up with the fact that he said: "I already have a stable business, everything is fine with him." In general, he again retired to a closed meeting with the owners and returned to me with a radically new strategy.
He said: “We do not want - we absolutely do not want! - move into new segments and new industries, we do not want to extensively develop the business and double it in 3 years - and in fact, we want to maximally stabilize this business within the framework of current customers and the existing team! We want to make it as optimal and productive as possible at the level at which it is now - to protect the owners of this business from possible problems, minimize their participation in this business and make the business as independent, safe and reliable as possible. ”
For me, it was a tremendous breakthrough - because the owners themselves finally formulated the really important task that their business strategy had to solve, the task - which they really needed and which was not dictated by populist slogans, like: it is necessary to develop, it is necessary to move upwards ”, etc. - and proceeded from the real and real needs of business owners.

Results and conclusions

After that, the entire strategic car of the company began to spin very strongly - because the owners, realizing what they really needed, began to reassemble the business in general from a different angle. First of all, they made a very powerful legal project on the binding of their entire business. That is, they have seriously worked all sorts of legal nuances of how contracts are built - so that there are no excesses with negligent suppliers and customers, they have correctly divided the responsibility between the directors and all employees responsible for key business decisions - in order to maximally protect the business owner directly responsibility, shifting it to those who are really engaged in the execution of these tasks. Under this task, a team of top managers was subsequently reassembled: someone was fired, someone was hired outside, someone was reassigned to more responsible positions to match the seriousness of the tasks. Then the company resolutely abandoned all projects for extensive development: unnecessary marketing and PR, investment in new unconfirmed products, movement into new and incomprehensible business areas - and focused on working with existing customers with whom relationships were already built, so that maximize cash flow from existing structure.
But the most important achievement of this whole strategy was that they decided to completely transfer the business to a white scheme of work. Like many Russian businesses, this business used to work according to a gray scheme: some employees were paid in envelopes. But it all gave very strong risks in the management of contracts - and the company made a landmark decision to switch to a completely white tax scheme. This decision increased their monthly expenses by one and a half times absolutely out of the blue - and, in fact, would have ruined the company if it had been made six months ago. But now they were ready for this, because their strategy was now focused on optimizing costs, and not on rushing to new areas to believe in some unrealistic growth figures. And they successfully coped with it!
 That is, the moral of this story is that the right approach to validating the strategy and the right approach to formulating what is really required by business can turn the company’s strategy and vision of the business as a whole - and change them beyond recognition almost instantly! And work on strategy is a much deeper task than to simply set a bright and unattainable goal and joyfully go to it and never come. It may seem that the calculations and methods described in this article are absolutely simple - so much so that they will certainly be taken into account by any manager when developing a strategy. However, in practice, the overwhelming number of businessmen do not use them - even while creating tremendously complex calculations and models of target indicators, which are then disintegrated into dust with the simplest calculation
But this is all very correct - because it is much more important for business to work on what really works and what is really important to it - rather than on the fact that they hang the hallucinations of the founders, their stereotypes, limited experience - or development trainings that scream be sure to develop, grow at a frantic pace and set insane goals. In the end, no one has canceled the objective reality. And it’s not at all the fact that growth, development and some crazy numbers for this particular business are more important than stability, security, reliability - or any other goals and objectives that the business owner may actually need. In the end, his personal life of the owner is no less important than some kind of pursuit of mythical figures and unrealizable plans. And the right strategy will help him in this.

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