Do Small Businesses Really Needs A Strategy?

Strategic planning is often overlooked in small businesses with 54% not having any documented plans at all [1]. This might not come as surprising considering they are often more short-term focussed due to being more reactive to market conditions and are potentially without the time or capability to engage in strategic planning as often as large organisations. Nevertheless, SMEs working with a strategic plan on average grow 30% faster and have a 133% higher chance of lasting 5+ years [2, 3]. So why is this?

Well, a prerequisite to understanding how a strategy benefits your business is understanding what strategy is.

The term strategy is often overused with the word ‘strategic’ as a prefix to make whatever follows sound more intellectual such as strategic partnerships, as opposed to a non-strategic partnership? Or strategic marketing as opposed to marketing aimlessly? A pedantry I enjoy pointing out despite hypocritically opening this article with the phrase ‘strategic planning’. 

In reality, strategy is simply creating a goal and using information to devise a plan to achieve it, which in our context is your business and market understanding. See figure 1 for an example of the strategy framework we use. Our overall goal is the vision, and our objectives are how we plan to achieve it. These objectives are intern goals we set out to achieve by the objectives below them and so on, until you cascade down to activities that are clear enough to action.

Figure 1 - Example Of A Strategy

Right, so how does this make your business grow 30% faster?

Creates direction

The fundamental purpose of a strategy is to understand what it is you need to do by making you fully aware of the goals you are trying to achieve and how you attempt to achieve them, giving you direction. This alone has been shown to increase profits by 63% due to promoting a long term mindset as without direction, you become reactive to the day-to-day, focussing only on immediate challenges which leads to short-term thinking at the expense of long-term success [4].

Direction also ensures all activities you conduct as a business are purposeful in achieving your goal by creating alignment. This is especially important for small businesses due to having less time and resources to waste on pointless tasks. This is evident in figure 1 where each of the underlying activities align to the overall vision of the business due to the cascading nature of the strategy framework. This alignment of activities has been found to increase overall company performance by 80% as it helps organisations focus on activities that maximize commercial performance [5]. Or, in other words, with a strategy in place, businesses know which activities to execute and prioritise for commercial success as they have direction.   

Informs decision making

Having a strategy significantly improves decision making by grounding choices in a comprehensive understanding of your business and market due to the continued awareness required to create and maintain your strategy. This awareness keeps you up to date on market trends, competitive landscape and wider macro influences, allowing you to make decisions based on up to date information to minimise risks and maximising opportunities for growth. 

Improves adaptiveness          

A strategy also improves adaptiveness by becoming a quick decision making framework. While this may sound counterintuitive since strategies are often associated with rigid planning, it is actually the structure provided by a strategy that allows small businesses to be more flexible. This is an important misconception to address.

A strategy is supposed to be dynamic. Your environment is constantly evolving, whether there’s a new disruptive competitor, change in customer preferences or we find ourselves in another global pandemic, it is expected your goals and objectives will change. As a result, continued market awareness, regular strategic reviews and a detachment from the sunk cost fallacy are necessary. Through these, your business becomes more adaptable for two reasons.

Firstly, a clear strategy provides a framework for decision-making, enabling small businesses to pivot quickly in response to unforeseen challenges by ensuring every reactive action is aligned with long-term goals, reducing the risk of poor decisions that could derail progress.

Additionally, a strategy helps businesses identify potential threats and opportunities early, facilitating proactive adjustments. This foresight allows you to capitalize on new trends or mitigate most risks before they become critical to improve the growth and stability of your company. 

Increases employee engagement

A strategy improves employee engagement by giving your team direction. This was evidenced by University of South California who found when leaders are transparent about their strategy, 72% of employees report being highly engaged as it shows how their role contributes to broader organisational goals, fostering a sense of purpose [6]. This engagement translates into higher performance as engaged employees are shown as twice as likely to exceed expectations​ [7], leading to a stronger overall company performance.

Additionally, a strategy improves employee autonomy as it becomes a framework for their own decision making. When employees understand the strategic objectives, they can align their actions independently with the company's goals, leading to more confident and informed decision-making. As a result, small businesses can expect to see increased productivity by allowing individuals to make decisions and solve problems quickly without waiting for approval from higher-ups.

Enables success monitoring

A strategy acts as a performance monitoring framework as KPIs can be easily assigned to each objective. This allows you to track progress, identify gaps, and make data-driven decisions to adjust your strategy and operations in a way that directly aligns to the overall goal of your business. As a result, companies with a strategy can optimize resource allocation, ultimately enhancing the overall performance and success of their business. 

For a more detailed explanation on how a strategy becomes a performance management framework, see our article here on how to implement a strategy with OKRs. 

While the idea of strategic planning might seem like an overcomplicated luxury for small businesses, the evidence strongly suggests otherwise, significantly accelerating your growth and longevity. A strategy provides clear direction, enhances decision-making, and improves adaptability, all of which contribute to faster growth and increased resilience. Furthermore, a strategic framework improves employee engagement and enables effective monitoring of success, ensuring efforts are aligned with overarching business goals. By embracing strategic planning, small businesses can not only navigate the complexities of the market more effectively but also position themselves for sustained success and competitive advantage.