What does long term strategic planning look like and how do you do it?
It starts with your Vision
You’ve likely heard the phrase, “Begin with the end in mind”, popularized by Stephen Covey in his book The 7 Habits of Highly Effective People.
It’s important to start with a visioning process. I encourage Business Owners to first look at their personal lives and envision where you want to be and what you want to be doing in your life overall in the next 3, 5, 10 and 20 years. Attach the actual year and age you will be at each point. This makes it real. Say you are 40 this year, then you realize that in ten years, in 2029, you will be 50, and in 2039 you will be 60. What do you want your life to look like at those points? This includes not only your relationship to your business, but your family, friends, lifestyle, hobbies, etc. Next look at your business. Where do you want your business to be at those dates? This includes Revenue and Profit targets, number of personnel, organizational structure and target markets and service niches.
Once you’ve done this exercise, you’ll have much more clarity on what you want both personally and for your business.
Planning for Revenue Growth
Now that you’ve done your visioning process, you should have arrived at rough revenue targets for 3, 5 and 10 years from now. Your short term plan ideally will support those future targets. For example, if your current year budget/profit plan shows that you will gross $750,000, and your 3 year target is double your business to $1,500,000, then your 1 year plan should probably aim for about $1,000,000, so that you show a feasible projection for getting from here to there. You’ll want to know what your gross profit margins, direct cost percentages, as well as variable cost percentages and fixed costs in order to project out what your net profits should be in future years. Keep in mind that you’ll need to add infrastructure along the way, in terms of overhead personnel, equipment, office/shop space and marketing costs.
Planning for Growth in Organizational Structure
It’s good to know what your projected “billable” hours are to produce your revenue targets. I suggest this in short term planning as well, so that you always know how many field workers you need to hit your current year monthly and annual budget targets. The same applies to your long term planning. You’ll likely need about 10-12 full time equivalent workers to produce $1,000,000 in revenue depending on your hourly bid rate and your team’s productivity. It’s vital to your plan to have a good hiring plan to make sure you have the workers you need to achieve each phase of your plan.
You also want to plan for changes and additions to your overhead personnel. This includes estimators/sales people, project managers, operations managers, office managers and assistants. I suggest drawing out an Organizational Chart for the positions your company has now, and then others for what it should look like in 3 years and 5 years. Check in with your vision to see where you want to be in terms of your duties and time dedicated to the company in those time frames. For example, let’s say you have one salesperson now, but you are doing half the sales in your company. But if in 3 years you want to be out of sales completely, then you’ll need to plan to increase the capacity of your current sales person and bring in another sales person in the next year or two to start doing more of the sales, particularly since you’ll likely be planning for increased revenue along the way.
Planning for Growth in Service Niches and Target Markets
Typically, when you are planning for growth, you’ll need to devise a strategy for expanding your revenues by one (or a combination) of the following ways:
- Increase your market share in your current target market of customers
- Add new services to sell to your current target market
- Add new target market segments
- Increase the geographic area in your target market
Each of these strategies for growth needs a plan, marketing strategies and a marketing budget. If you plan to increase your market share of your current target market, you’ll likely need to increase awareness of your company, differentiate yourself from your competitors, increase repeat business and improve your close ratio.
If you plan to add new service niches or new market segments, you may also need to hire or train for new skills as well as define and invest in new marketing strategies to reach new markets and promote new services. This all adds up to a clearly defined marketing plan that should be updated annually and reviewed quarterly.
See Taking the Long View – Part 1 for the first part of this article. For the last part, see Taking the Long View – Part 3.