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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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