To make your business more profitable and efficient, you’ll need a solid business strategy in place. Here are some tips on getting started…
Thomas Edison once said, “Genius is 1% inspiration and 99% perspiration”.
Unfortunately, it’s the perspiration side of the equation that trips many creative professionals up.
Since 2009, the Creative Industries Innovation Centre (CIIC) has advised more than 400 creative businesses on lifting performance. This includes 261 Business Review clients with turnover greater than $1 million per annum, and 175 Biztro clients, which are micro creative businesses or sole traders.
Only 6% of CIIC’s recommendations to Business Review clients have related to product and service development. However, 94% of its recommendations have related to business operations such as advertising and marketing, human resources, finances, systems or strategy and planning, with strategy being the most frequent at 24%.
“Across all creative industry sectors with the exception of architecture, business strategy is the highest recurring recommendation amongst our Business Review clients,” says Tamara Ogilvie, industry analyst at CIIC.
Clients with the highest turnover, staff numbers and years in business were least likely to require strategic advice, according to Ogilvie.
“This indicates that a lack of strategic planning and direction is inversely related to stronger performance. Our strongest clients in terms of revenue and size are stronger in business strategy than their smaller counterparts.”
This begs the question: why don’t more creative businesses have a business strategy in place?
It’s a similar story amongst CIIC’s Biztro sessions. To date, these sessions have focused 100% on execution, suggesting small and micro-sized creative companies have no trouble coming up with ideas. However, 58% of Biztro sessions to date have focused specifically on strategy, according to Ogilvie.
Tony Shannon, business adviser at the CIIC who conducts both Business Reviews and Biztro consultations, believes many creative entrepreneurs are too busy tumbling along from one job to the next to make time for creating a business strategy.
“But if you want to build and grow, or make your business more profitable and efficient, then you probably need a good strategy to ensure that everything you do – from staffing, to finances, branding and sales – is focused on the customer need,” he says.
Elements of a business strategy
Shannon believes there are three key steps to creating a business strategy: “Identify the customer and the customer need; structure and resource your business accordingly; implement a sales, marketing and pricing plan.”
Finding a starting place can be surprisingly simple. Shannon suspects that Facebook’s launch strategy was no more complicated than: ‘Let’s accumulate as many users as possible, and work out what to do with them later.’
At a minimum, your business strategy should:
1. Identify customers and a customer need
2. Define your products and services
3. Include a sales and marketing plan
4. Establish some financial targets
5. Determine the resources, equipment and staff required to meet your customers' needs.
If in doubt, consult an online tool such as the Business Model Generation or Business Model Alchemist, or undertake a free Business Review or Biztro session with CIIC.
What does a business strategy look like?
You'll need to revisit your business strategy periodically, so make sure you write it down.
“A business strategy can be as simple as a diagram or picture, although it will probably contain some words, numbers and goals,” says Shannon.
“There’s no point having a strategy if you change it every other day – it's got to have some backbone to it. Then again, there's a lot to be said for deconstructing your strategy every three years and giving it a thorough health check.
“Ideally, your strategy shouldn't cover a period of less than 12 months, and never more than five years. The further into the future you write it, the more likely you're going to have to rewrite it along the way.”
When to implement a business strategy
A business strategy is not a prerequisite to launching a business – but it is a prerequisite to achieving growth.
“If you start a business with 20 employees and a big office, then you should have a strategy in place. If you're starting as a sole designer, animator or video producer, then you can probably begin by moving from one job to the next. But when you're ready to grow, it's likely you will need a strategy,” says Shannon.
Identifying the customer need
Identifying prospective customers means putting yourself in their shoes.
“This requires an element of business imagination. Ask yourself, ‘What problem do these customers have that I can solve? How can I structure my business to solve that problem?’” asks Shannon.
Failing to identify customers is the biggest mistake creative companies make. Ask: ‘How big is my ideal customer? How much are they prepared to pay? What level of service will they require? Will this require additional resources that I don’t currently have?’
Once you've identified the customer, then everything in your business needs to be focused on the customer outcome.
“This could impact the name of your business, your pricing model, staffing, office location and the execution of your product or service.
“Another sage piece of advice is: when everything is working perfectly, it’s time to worry. A good strategy needs to be flexible, and it may occasionally need quite dramatic intervention to bounce back from unexpected hiccoughs and external factors beyond your control.”
When do strategies fall down?
“The worst strategies are based on statistics from the Yellow Pages,” says Shannon.
Imagine there are 50,000 tradesmen listed in the phone book in Australia. A designer might deduce that selling logos for $100 to 1% of these tradesmen will generate $50,000. Or, if they sell logos to 10% of tradesmen for $250, they’ll generate $1.25 million.
Unfortunately, scratching out ‘1%’ and replacing it with ‘10%’ is not a business strategy, says Shannon.
Another threat to business strategy is fear. Many business owners don't have the courage to reject customers that do not complement their business strategy for fear of losing income.
“If your business is geared to produce one piece of pottery per day, then it would be silly to accept a job to produce 5,000 pieces per day,” he says. “You need to consider each prospective client on a case by case basis, but there’s no point accepting jobs that you won't make a profit from.”
If in doubt, consult an expert: “Business strategies are best designed by two parties: the owner/s in the business, and a business advisor who can poke and prod the strategy to make sure the whole thing hangs together.”
Which sectors need strategies most?
Since its inception in February 2009, CIIC has provided business advice to 261 Business Review clients and 175 Biztro clients. Of these, architectural firms were the strongest as measured by turnover, number of employees and years in operation, and the least likely to require strategic business advice.
The advertising and marketing sector was the weakest performing sector, and business strategy the most common recommendation, which suggests that business strategy and business performance are correlated.
As Shannon says: “A business strategy is really the basis of a business. If you don't have a strategy, you won't have a focused sales plan. You won't know what differentiates your business from competitors. If you do, it means everything you do –people, money, brand, sales – will be focused on the customer need.”
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Tony Shannon, Business Adviser at the Creative Industries Innovation Centre, offers some further advice...
Do's and Don'ts when creating a business strategy