Why Small Businesses Should Scrap Strategic Planning

What fast-growing companies need is strategic thinking—not strategic planning. Here are three things smaller companies can do to develop an adaptive, opportunistic approach to strategy.

If you want to witness true cultural diversity, watch Dubai International Airport come to life one morning. Every color, every language, and every custom you can imagine weaving through an Armani- and Rolex-studded mall.

We claim to celebrate diversity in America. But when it comes to companies, we prescribe one size fits all. This realization hit me hard this week. There is a disconnect. Something is wrong.

You see, most of what we learn in business schools and textbooks is written for large companies. There are many justifiable reasons for this. Jim Collins, business consultant, author, and lecturer on company sustainability and growth, once explained to me and a group of entrepreneurs that he studies large public companies simply because there is not enough information available for smaller private ones. And we make the erroneous assumption that since every small company wants to grow (it doesn’t), it should strive to adopt the practices of the large firms that made it.

I read a fascinating dissertation on my flight over to Perth, Australia this week that proves what I have suspected all along. Best practices for large companies dictate they should plan carefully. They should adopt an annual planning rhythm, survey their environments, build scenarios, set strategies, and monitor their results. But for small companies, the winning recipe may be precisely the opposite. Small companies should not do strategic planning.

I got off my flight at 6:30 a.m., rushed to my hotel for a quick shower, and by 9 a.m. was starting my first of three workshops, for a group of about 10 companies. As I listened to the CEOs share their challenges and plans, I saw the thesis of that paper coming to life. Strategic planning is inappropriate for small companies because:

  • No time: They don’t have the management time or resources to invest in days of planning.
  • Big cost: Because their top teams usually lead their sales efforts, taking them off the road has an immediate negative impact on revenues.
  • Small payoff: The payoff of strategic planning is often measured in millions of dollars rather than hundreds of millions, so it makes no financial sense to overinvest in the effort.
  • Short-lived: Smaller businesses must continually adjust their strategy so the strategies they develop during a strategic planning session are usually short-lived. They win because they are more nimble, quicker to seize unexpected opportunities, than their larger competitors. Long-term planning can slow them down and kill this advantage.

This doesn’t mean small-growth companies should fly blind. It means they should adopt an adaptive opportunistic approach to strategy. They should plan in the hallway, not the boardroom. 

Here is an example of what I mean. Over three days in Perth I worked with about 60 mid-market CEOs. One of them shared with me that three years ago, his friend showed him one of my books and he read about a strategy called “befriend a distant enemy to attack one nearby.”

That gave him an idea. He was having trouble getting major distributors to give him the rights to distribute their skin and hair products in his beauty retail stores. Distributors viewed him as an “enemy.” But he saw another player in the industry chain that was a “distant enemy” and realized he could partner with them in a clever way to get the distribution rights he needed.

He implemented the strategy and today, that one idea produces 60% of his revenue! That is how strategy is done with smaller, fast-growing companies. It happens in the moment; it is not planned. 

What fast-growing companies need is strategic thinking, not strategic planning, the practice of hitting every challenge and opportunity strategically. Here are three things you can do to turn your size into an advantage:

1. Plan in the hallway:  Don’t expect your big ideas to come out of a formal strategy offsite. Instead learn to huddle with your team and—in five minutes—break apart whatever strategic challenge/opportunity you are facing right now. In my book, Outthink the Competition, I suggest you rapidly go through five steps (IDEAS): Imagine, Dissect, Expand, Analyze, Sell.

2. Ask (and answer) “Why not?”: Small companies become big usually because they challenge industry dogmas. I once asked the CEO and cofounder of Urban Outfitters how he built his $600 million business. He said, “Because we knew nothing about retail when we started.” Making choices that are inconsistent with accepted industry logic is the only way to get big quickly. So when you hear yourself think, “This won’t work,” ask “Why not?,” and write down the three reasons the idea won’t work (e.g., it costs too much, customers won’t like it, it’s not technically feasible). Then test whether those three reasons are true, and brainstorm how you can overcome them.

3. Try and adjust: Big companies make big bets so it makes sense for them to conduct exhaustive analysis before pulling the trigger. You don’t need to. You can’t afford to. Instead, develop a “strategic hypothesis” and test it out making very small bets. Try to sell the idea to a customer before it’s built, look for a supplier, ask a friend who has some expertise in this new area.

I want to dig deeper into this topic, so if you have ideas or challenges, please share them with me. If you are in California, come talk to me at one of the four short open sessions I am conducting there next week.

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[Image: Flickr user casch52]

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10 Comments

  • Owiti Aggrey

    How small is small?
    Does a small organisation need a vision, mission and core values? If so is this not part of strategic planning? How small is small? Is it the income or physical size, or the number of people involved?

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  • Dsorre

    The argument here is not to scrap strategic planning but to prescribe it in a fashion that it fits the business. This should always be considered for every business process don't bring to much rigor but NEVER fail to plan.

  • Kathryn

    This is great to finally hear. Ten years ago, when we started our business, a primary ticketing services business (www.midwestix.com), we were told to plan all the time. Every time we sat down to plan it was impossible as things were changing so fast. We embraced the 'on the fly method' organically and still use it to this day.

    When you are a young  (or not so young) company, especially looking for money, the processes around procurring this money is heavy on planning. In the beginning my partner and I would laugh at how many crazy assumptions (otherwise known as projections) we were making so that we looked like we knew what we were doing. This really perpetuates the incorrect assumption from the get-go that you need to be heavy planning all the time. I've known a lot of business owners who spent wa y to much time planning and then tweaking THE PLAN instead of getting out and doing business.

    It's a bit easier now and we do use the experience and data we have to help in the strategic thinking process, and we review our assumptions against numbers on a more regular basis than in the beginning, but essentially its still the same method as when we started. It must work, we've been around for 10 years and still going strong.

    I'd be happy to share more of our story if you'd like to contact me.

  • Colm Hannon

    I really do agree with this article. I run an enterprise social media consultancy in London and we recently launched an offering for SME's to train their staff to interact online. Previously we had only worked with big mulitnationals and the research and planning phase was fairly extensive where as now with the SME's the elements of the process are the same but the SME's can make an informed decision and act faster because they have to as don't have time and resources to plan to the level of detail that the big boys do. It makes me wonder if multinationals don't over complicate a lot of their decision making. 

  • Ryan

    Strategic planning in a rigid environment and relegated to
    yearly off-sites does not work – whether SMB or Enterprise.  The strategy developed in off-sites (or
    whatever the choice) must be implemented. 
    A regular process of reviewing strategy allows for it to adapt to
    changes. When done right, a strategic plan also allows for communication at all levels
    of the organization and lets the team know where they fit in. 

    In my opinion, what you talk to in your three points at the
    end are all steps that should be incorporated in standard monthly strategy
    reviews.  They can/should be standard to the rhythm
    of the business – that means it can happen in the hallway as well.  A good strategy allows for a culture of
    strategic thinking.  Without a basic
    foundation of a strategic plan, many people/companies can’t get to the level of
    strategic thinking.  There are one off
    examples per your story, but for most people/businesses they lack the ability
    to jump directly into strategic thinking (whether small -medium - large) (staff - managers - executives). 

  • JohnSeiffer

    Quick plans, testing hypotheses and moving on the fly are great ideas. what keeps you consistent with your long term goals is knowing your business model. Every piece of your company has results (and costs) associated with it - and the cost and results interact with every other piece. Having an understanding of how all those fit together is your model.

    For example: How does adding $50K of annual revenue from 2 customers differ from adding that same $50K from 20? Probably the sales cycle (and cost of sales) is different. Certainly the cost of supporting those customers is. Knowing those interactions depends on your model.

    Which is better or worse? That depends on your company's goals. Goals are part of the model too.

  • I like this. I consult with small businesses (0-15 employees), the challenge I usually face is the gap the author described between making a plan and being able to have immediate responsiveness. The business plan makes all the difference. I love using the book, "business model Generation" as an simple and easy to use guide. If a small business can make a habit of being innovative in the moment then connect these decision by updating the business plan on a monthly basis, I think it goes along way to keep them on track and provide the flexibility they need. Really, such planning could take only an hour or two.

  • daisyjiang

    Kaihan, you make an excellent point in this article. I've found that the sparse times when can find breathing room in between projects to do strategic planning, all the plans that I lay out for anything further than a month into the future do nothing but accumulate dust. 

    I work for a small company and my team - myself included - is getting pretty comfortable with thinking on the spot and adjusting as needed, but there's that ever nagging thought in the back of my head that perhaps altering the strategy to tackle the next big obstacle/curve ball may not be consistent with where we want to be years down the road. 

    Obviously success is a product of both short term wins and long term wins. What are your thoughts on how to ensure that one complements the other? 

    Cheers, 
    Daisy