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What is a Business Strategy and How to Create One
Kody Wirth | Oct 31, 2023
There is so much you could do to grow your business. You could develop new business partnerships, build new features for your product, or add new products and services. It’s an ever-growing list of seemingly good ideas.
But you can only do so much with the time and resources available, and chasing the wrong thing can be incredibly costly. How are you supposed to know what’s worth pursuing?
By developing a business strategy.
What is a business strategy?
A business strategy outlines what makes your business unique and how you’ll solve a specific problem for your customers. It helps you focus on creating value to solidify a competitive advantage in the market and reach your goals.
Creating a business strategy gives you a guide for making decisions that prioritize growth. A few use cases for your strategy include:
- Entering a new market
- Launching a product
- Repositioning your business
- Allocating resources
- Addressing business challenges
Why is a business strategy important?
A good business strategy helps you:
With a business strategy in place, you’ll be better prepared to avoid chasing every new opportunity. It helps channel your efforts toward opportunities that align with your objectives.
Avoid wasting resources
Without a well-thought-out strategy, there’s a higher risk of wasting time and money, possibly leading to business failure.
Keep your team aligned
A clear strategy keeps you and your team on the same page. It guides your collective focus towards specific business goals and ensures everyone moves in the right direction.
Investors need to see how you solve a problem in a way that differs from the competition. Your strategy explains that and shows how you’ll execute on your idea.
Your business strategy doesn’t just take your customers into account—it also forces you to understand your competitors. You’ll understand how you compare and what it will take to grow beyond them.
How to create a business strategy
When developing a strategy, keep it simple. Focus on the needs of your customers and the value of your business. Here’s how:
Tip: Download our free one-page business plan template. It provides a simple but effective format to document your business strategy.
1. Know your customers
You shouldn’t take action without understanding your customers’ needs. Read reviews, conduct surveys, dig into forums, and—most importantly—talk to your customers.
Whatever you do, collect real-world data and develop an understanding of your target market.
Now, you need to document your results. Add enough information for you, and anyone else, to easily understand:
- Who your target customers are
- How many potential customers there are
- Specific preferences like buying habits, cultural affinities, etc.
Don’t go into too much detail here. Just have enough information to paint a picture of your ideal customer.
What if you’re an up-and-running business?
If you have created a business plan, you should already have a profile of your target market. For this step, revisit your information and determine if it is still relevant and accurate.
2. Define your value proposition
The crux of your strategy is the distinct value your business provides. The research and information you’ve documented will make defining that value much easier. By the end of this step, you will have brief descriptions of:
- The problem you solve
- Your solution
- Your value proposition
These will be brief but powerful statements for your business. It’s where you define what you do, why, and how you do it better. They’ll drive your strategy and help turn your customers’ needs into memorable statements that you, your employees, and even potential investors will focus on.
Tip: If you’ve written a business plan, you don’t have to start this process from scratch. You likely already have the components or even entirely written statements in your Products and Services and Sales and Marketing sections to use.
Describing the problem
In a sentence or two, outline the critical problem your target customers face.
Example: “Most local consumers lack access to fresh, organic bakery options that support health and community sustainability.”
Explaining your solution
Briefly describe how your product or service addresses the problem identified.
Example: “Our bakery offers daily-baked, organic bread and pastries using locally sourced ingredients, providing a healthy and community-supportive alternative to mass-produced baked goods.”
Creating your value proposition
Your value proposition is a clear, concise statement explaining:
- The unique benefits your products or services provide
- Who you provide them to
- How they are different or better than similar offerings in the market
You can use your descriptions of the problem and solution to help define the key product/service benefits in your value proposition.
List what factors set you apart from the competition. Hone in on a theme for both that resonates with your customer’s needs and preferences. Then, combine these ideas into a single sentence.
Example: For a local organic bakery focused on quality and healthy eating, your value proposition might look like:
“Enjoy fresh, organic goods baked daily with locally sourced ingredients to support your health and community sustainability.”
3. Analyze your competitors
Understanding your competition is crucial for carving out your unique space in the market. Here’s what to look for:
- List your competitors: Identify the main players in your market.
- Evaluate their offerings: Examine their products or services. Try to spot differences in product features, pricing, customer service, or brand perception.
- Assess their value proposition: Understand how they position themselves, the unique value they claim to offer, and how they communicate this to customers.
- Understand what customers think: Look at customer reviews, testimonials, and social media feedback to gauge customer satisfaction and common pain points.
Like your customer research, you don’t need to be overly detailed here. You want a simple summary of the competition and why you’re different or better than them. That should provide enough information to help with the final step.
Example: After checking out the competition, you realize that your bakery offers far more gluten-free and vegan options (and they taste far better). You’re also planning to offer delivery services, which current bakeries in the area lack.
But what if your business provides a solution that isn’t drastically different from competitors? It’s a fairly common situation, and you may struggle to immediately identify how to set your business apart.
If this sounds like you, then you’ll need to focus your differentiation efforts on:
- Where the product/service is sold
- Messaging and marketing channels
- How your business makes money
All of which we’ll cover over the next three steps.
4. List your sales channels
The sales channels you choose and prioritize should be based on the needs of your target customers.
- Where do they expect products/services like yours to be?
- Where do your competitors sell theirs?
- Are there untapped sales opportunities that would better serve your customers?
Focus on that last question if you’re trying to differentiate through your sales efforts. The biggest opportunity may simply be to better serve the purchasing habits of customers instead of offering a fully unique solution.
Let’s revisit our bakery and assume you plan to open a physical storefront. That’s one sales channel—customers make purchases in person. Your competitors also do that, but maybe the location you choose is more convenient and accessible to people on their morning commute.
As previously mentioned, you also plan to offer your baked goods through 3rd party delivery apps—another sales channel.
Sticking with that idea, you realize that online ordering is a very attractive benefit to your customers and that most competitors don’t have an up-to-date website. So, you decide to offer online ordering directly through your website.
Other sales options you consider include distribution through local grocery stores and bulk catering contracts. For the purposes of your strategy document, you’d list off these sales channels based on how you’ll prioritize them and end up with something like this:
- 3rd party delivery
- Catering contracts
- Retailer distribution
5. Explain your marketing activities
How will you spread the word about your business?
Will you take out traditional ads in newspapers and on billboards? Focus on paid advertising through Google search or Facebook? Maybe branch out and partner with influencers?
Whatever you choose, focus on marketing activities that get you in front of your customers. There’s no reason to invest money in places where your customers aren’t spending their time. If you do, you’ll struggle to see any real return on marketing efforts.
Now, that doesn’t mean you just replicate what your competitors are doing and do the same marketing activities. They may not be the most effective or targeted efforts. In fact, by taking a different approach, you could differentiate your business through the channels and messaging you choose.
You notice that most of your competitors’ marketing consists of billboards, flyers, and similar out-of-home awareness efforts. They don’t market much online or try to directly connect with customers.
You believe that your target customers appreciate a more personal approach. So, you split your efforts and try to build a connection through complimentary digital and traditional marketing efforts.
You send direct mailers providing regular incentives that also feature your Instagram. Then you create regular posts showing how your baked goods are made and previewing upcoming treats—which can be repurposed for online ads.
This approach, compared to your competitors, is far more interconnected. Each effort promotes and bolsters the rest—potentially leading to more consistent messaging and cost-effective creation.
6. Describe your business model
Your business model describes how your business will make money—covering where revenue comes from and your expenses.
But, did you know that your strategy can be focused on innovating with your business model?
You don’t need to invent a fully new business model either. Instead, focus on identifying ways to optimize:
- The creation of your product/service
- How you sell your product/service
- How and what your customers pay
You’re not trying to break the mold with how you make money through your bakery. However, you have identified a few ways to make your business model more profitable.
First, you found local suppliers who can provide high-quality ingredients but are far less expensive to acquire due to a lack of shipping costs. Your expanded sales channels also provide far more options for customers to engage and purchase however they want.
And since your products are of a higher quality, you’re positioning them as a premium option. However, due to your cost-saving efforts, you’ve been able to keep prices relatively close to competitors and even have the flexibility to go lower if needed.
If you’re just putting your strategy together, don’t focus on going too in-depth with your number crunching. Instead, describe your business model by simply listing your revenue streams and key expenses.
Once you have a business model that you believe will work (and have ideally tested it with customers) then create detailed forecasts to make it usable.
3 questions to help you build a long-term strategy
Clarify your value, target the right buyers, and understand how to reach them meaningfully by asking three simple questions.
11 tips for creating a long-term strategic plan
Try implementing these tips to turn your strategy into an effective management tool for your business.
How to execute your business strategy
The process above helps you create your business-level strategy. However, there are ways to make your strategy more actionable.
Define your tactics
Transitioning your business strategy into functional tactics is essential to achieve your business goals. While your strategy sets the direction—tactics detail the operational steps and day-to-day activities necessary for execution.
Example: One of your differentiation strategies is to provide greater customer service than your competitors. You need to enhance customer satisfaction, which may translate into tactics like implementing a feedback system or training staff in customer service.
Successfully implementing your tactics requires setting clear deadlines, identifying and addressing potential bottlenecks, and adjusting processes. Remember, you want every tactic to contribute to your long-term goals. If you find that work isn’t aligning with your strategy, it likely isn’t worth prioritizing.
Why strategy is useless without execution
Tactics and specific details make your strategy actionable. You'll struggle to achieve consistent growth if you fail to understand how these three things work together.
7 steps for successful project planning
Similar to your strategy, the most effective projects are thoroughly planned before starting. It may take more time up front, but it will save you time and money in the long run.
The entire point of developing a strategy is to ensure you are making progress toward the growth of your business. Even if you’ve worked through all of the steps we’ve outlined here, you will struggle to make any real progress without tracking and evaluating your performance.
The metrics or key performance indicators (KPIs) you focus on measuring fully depend on your strategy. You should at least track revenue growth and cash flow. These will provide you with the basics for understanding the health of your business. The rest is up to you.
Are you focusing on bringing in customers? Track your customer acquisition costs and retention rate.
Looking to improve brand visibility? Retention rate, market share, and Net Promoter Score may be useful options.
In any case, know what you need to track and set up a way to do so as early as possible. Regularly reviewing these metrics provides insights into whether your strategy is working. The longer you go without knowing what demonstrates success, the longer it will take to execute your strategy.
5 signs you need to pivot your business
If you’re losing customers, bleeding cash, or underutilizing your team it may be time to rethink your strategy.
Bring in your team
Engaging key stakeholders early provides unique insights that can lead to a more well-rounded strategy. It also helps foster a sense of ownership and trust between you and your employees.
You don’t need to share it with everyone in this early stage—but collaborating with the right people can streamline your efforts. You’ll avoid misalignment between individuals, teams, and the business. Plus, it can lead to discussions and ideas for applying the strategy to smaller projects and goals.
How to create business management standards
Before you get your team involved in developing your strategy, it may be wise to establish set guidelines for everyone to follow and reference.
What makes a successful business strategy?
Your strategy won’t be perfect. Even if you follow these steps to the letter, unforeseen circumstances, changes in the market, or any number of things will force you to adjust.
The key to a successful strategy is to pay attention to your performance and change course when necessary. Your strategy cannot be static and isolated. If it is, you’ll struggle to grow as things change.
If you’re looking for a tool to help you document and review your strategy—the one-page business plan is a simple but effective option.
For something more flexible and long-lasting, we recommend LivePlan’s Growth Planning process. It turns the concepts described here into a living 4-step system focused on business growth.