Small Business Strategic Planning: a Process for Success and Survival

By Hao Li | January 25 2012 2:17 PM

The small business strategic planning process has two essential elements: devising a strategy and changing it when necessary.

LukeRobinson1 / flickr

By focusing on heavy-duty trucks, Peterbilt and Kenworth were able to prosper and carve out a space for themselves for decades alongside behemoths GM and Ford.

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Charles W. Hofer, Professor of Management and Entrepreneurship at Kennesaw State University, spoke to IBTimes about this process.

Hofer first stated that while some successful small businesses have a formal strategic planning sessions, others, run by savvy, intuitive entrepreneurs who really know their markets, do not.

The importance, therefore, is about having the right strategy and not so much about how one achieves that.

Strategic Plans for Small Businesses

Small businesses have limited resources, so in most cases it does not make sense to compete in broad market segments dominated by big players.

Instead, they should focus on smaller, niche markets they have a better chance of winning.

By winning, Hofer means dominating. Multiple studies have shown that a company's profitability is highly-correlated with its market share; the differences in profitability between the market leader and other players are usually huge.

Therefore, it is better to dominate a few small niches rather than having a small market share in many broad markets, said Hofer.

Moreover, a common path for small businesses to get big is when the small niche market they dominate becomes big.

Once a specific niche market is identified, a small business should focus its energy on satisfying the specific needs of the customers in that market, said Hofer.

When to Change the Strategic Plan

A sound strategic plan, however, does not remain relevant forever.

In mature markets, a strategic plan can be valid for as long as a decade or more. In more dynamic markets, which is the case for many small businesses, a strategic plan's shelf life is usually a lot shorter, said Hofer.

There are several warning signs that potentially spell the need to change one's strategic plan.

Declining sales from a small business' core customers is one. A change in market position by competitors, entry of new competitors and the evolution of the market are others.

Hofer used the car industry to illustrate these points.

In the beginning, the American automobile industry was mostly marketed to the affluent. But Henry Ford changed the industry by building cars that had qualities that attracted the masses.

For a while, Ford dominated the industry until General Motors (GM) offered consumers more variety and choices with its annual model changes. Ford was slow to react to this new reality and nearly went bankrupt because of it, said Hofer.

In the beginning stages of most markets, the needs of the consumers are simply having the product. As markets mature, however, so do expectations, he said.

In the 1960s, U.S. carmakers operated under the annual changes model and were focused on horsepower. The big two, Ford and GM, were mostly worried about each other and Chrysler; they paid very little attention to Japanese carmakers.

However, starting from the 1970s, consumers began to appreciate smaller, more fuel-efficient and more reliable Japanese cars. U.S. carmakers were slow to react to this change and lost tremendous market share to their Japanese counterparts as a result.

To illustrate the point of dominating a niche market, Hofer pointed to Peterbilt and Kenworth, which, by focusing on heavy-duty trucks, were able to prosper and carve out a space for themselves for decades alongside behemoths Ford and GM.

Peterbilt and Kenworth remain major players in the heavy-duty trucks market to this day.