Business Growth & Exit Ready Weekly - July 10: Mastering The Art and Science of Strategic Thinking for Business Growth

Welcome to the Business Growth & Exit Ready weekly newsletter! July 10th, 2024.

Your weekly dose of resources, strategies for growth, scaling, profit maximization, and lucrative exits.

This week's topic:

Mastering The Art and Science of Strategic Thinking for Business Growth

Quotes about the art and science of strategic thinking:

"Strategic thinking is like seeing the chess board from above while everyone else is seeing it from the side." - Unknown

"The strategic mind is restless. It formulates and reformulates problems to create a perspective that no one else has attained." - Kenichi Ohmae

"Strategic thinking is not about following a prescribed set of steps. It's about cultivating a mindset that constantly seeks opportunities and anticipates challenges." - Ram Charan

"The essence of strategic thinking is the ability to imagine a future that does not yet exist and then chart a course to create it." - Gary Hamel

"Strategic thinking is less about tools and more about asking the right questions. A strategic thinker's most powerful weapon is curiosity." - Roger Martin

Book of The Week:

Strategic Thinking: A Nine Step Approach to Strategy and Leadership for Managers and Marketers by Simon Wootton and Terry Horne:

Strategic Thinking in 9 Steps: A Game-Changer for SMBs

1. Gather Intelligence: Stay informed about your industry and competitors.

2. Develop Foresight: Anticipate future trends and scenarios.

3. Challenge Assumptions: Question the status quo regularly.

4. Interpret Information: Analyze data to uncover valuable insights.

5. Decide Priorities: Focus on what truly matters for your business.

6. Design Strategy: Create a coherent plan aligned with your goals.

7. Implement Strategy: Turn plans into action with clear responsibilities.

8. Monitor Progress: Track performance and be ready to adjust.

9. Learn and Adapt: Embrace continuous improvement.

Key Takeaway: Strategic thinking isn't just planning—it's a mindset. Cultivate these skills to navigate uncertainty and drive your SMB's success in today's dynamic business landscape.

This week's topic:

Mastering The Art and Science of Strategic Thinking for Business Growth

In today's rapidly evolving business landscape, the ability to think strategically is no longer a luxury—it's a necessity. For small and medium-sized businesses (SMBs) looking to thrive in an increasingly competitive market, mastering strategic thinking can be the difference between stagnation and explosive growth. But what exactly is strategic thinking, and how can SMB owners and leaders cultivate this crucial skill?

Strategic thinking is "the cognitive process that enables leaders to map their businesses' future". It involves analysing complex situations, anticipating potential outcomes, and making decisions that align with long-term goals. The key to effective strategic thinking lies in considering multiple perspectives and thinking in layers, much like a chess grandmaster planning several moves ahead.

The Multifaceted Nature of Strategic Thinking

At its core, strategic thinking involves visualising your business as a complex, interconnected system. Picture your business as a three-dimensional matrix, with components representing people, numbers, and operations. This visualisation helps you see how each element influences the others, allowing for more holistic decision-making.

Consider the example of Atlassian, the Sydney-born software giant. Their approach to planning considers how product development (operations) affects user satisfaction (people) and revenue growth (numbers). This interconnected view has been instrumental in their journey from a small startup to a global powerhouse.

Switching between macro and micro views is another crucial aspect of strategic thinking. As the article notes, "Top-notch strategic thinkers can effortlessly switch between macro and micro views of their business. Zoom out to spot industry trends and market positioning, then zoom in to analyse specific processes or team dynamics".

Canva, the Sydney-based graphic design platform, exemplifies this approach. They keep an eye on global design trends while continuously refining their tools based on user feedback. This dual focus has allowed them to maintain their position as a leader in the democratisation of design.

People-Centric Strategies

At the heart of every successful strategy are the people involved—owners, team members, and customers. Aligning team goals with business objectives not only boosts productivity but also lifts morale. Cochlear, the Australian hearing implant manufacturer, demonstrates this principle by encouraging employees to spend time on passion projects that align with company goals.

This approach fosters innovation and employee engagement. As former Cochlear CEO Chris Roberts once said, "Innovation is not just about technology. It's about people and creating an environment where they can flourish".

Operational Efficiency and Profitability

Streamlining operations is crucial for driving profitability. SMB owners should regularly analyse their processes to identify bottlenecks and inefficiencies. The Cotton On Group, the Geelong-based retail giant, provides an excellent example of this principle through its vertically integrated supply chain.

Cotton On's approach allows quick responses to fashion trends and efficient inventory management. CEO Peter Johnson explains, "Our vertically integrated model gives us the agility to respond to customer demands quickly and efficiently. It's been key to our global expansion".

Industry and Community Insight

Understanding your industry landscape and community impact is vital for sustainable growth. Who Gives A Crap, the Melbourne-born toilet paper company built its entire business model around addressing environmental concerns and community development.

Co-founder Simon Griffiths explains their strategic approach: "We saw an opportunity to create a product that people use every day, make it environmentally friendly, and use the profits to help build toilets for those in need. It's about creating a win-win-win situation for our customers, the environment, and communities in need".

High-Impact Action Plans

Developing clear, well-formed outcomes and sound action plans is crucial for strategic success. Start by defining your desired end state, then work backward to create a step-by-step plan. Be prepared to adapt based on feedback and changing circumstances.

Afterpay's meteoric rise, the Australian fintech success story, can be attributed to its ability to continuously evolve its offerings based on user needs and market trends. Co-founder Nick Molnar attributes their success to this adaptive approach: "We're constantly listening to our customers and merchants and evolving our product to meet their needs. It's about staying ahead of the curve".

Mental Models and Strategic Questions

Mental models shape our decision-making processes. Challenge your assumptions by asking better questions. Instead of "How can we increase sales?", ask "How can we provide more value to our customers?". This shift in perspective can lead to innovative solutions.

The global success of Airbnb stemmed from the question, "How can we make travel more personal and accessible?" rather than "How can we compete with hotels?" This question led to a revolutionary business model that disrupted the entire hospitality industry.

Adopting different mental models and perspectives is a crucial aspect of strategic thinking. This skill allows you to view challenges and opportunities from various angles, leading to more comprehensive and innovative solutions.

Mental Models: Frameworks for Understanding

Mental models are conceptual frameworks that shape how we understand and interact with the world. They're like lenses through which we view reality. In business, adopting different mental models can lead to breakthrough insights and strategies.

For example, the 'First Principles Thinking' mental model, famously used by Elon Musk, involves breaking down complex problems into their most basic elements and then reassembling them from the ground up. This approach can lead to revolutionary innovations by challenging established assumptions.

Another powerful mental model is the 'Inversion Principle,' which involves thinking backward from the desired outcome. As Charlie Munger, vice chairman of Berkshire Hathaway, puts it: "Invert, always invert: Turn a situation or problem upside down. Look at it backward."

Australian SMB success story Atlassian uses various mental models in its strategic thinking. Co-founder Mike Cannon-Brookes explains: "We often use the 'Regret Minimisation Framework' when making big decisions. We ask ourselves: In 10 years, which decision will I regret not making? This helps us think long-term and take calculated risks."

Perceptual Positions: Viewing from Multiple Angles

Perceptual positions refer to the different viewpoints from which a situation can be observed. In NLP (Neuro-Linguistic Programming), there are typically three perceptual positions:

1. First Position: Your own perspective
2. Second Position: The perspective of another person involved
3. Third Position: An objective, detached observer's perspective

Switching between these positions can provide a more holistic understanding of a situation and lead to more effective strategies.

Katrina McCarter, founder of Marketing to Mums, a Sydney-based marketing consultancy, attributes much of her success to this approach: "By constantly shifting between our perspective, our client's perspective, and an outsider's view, we're able to develop marketing strategies that truly resonate with our target audience while also achieving our client's objectives."

Practical Application for SMBs

To incorporate these concepts into your strategic thinking:

1. Practice perspective-taking: Regularly ask yourself, "How would this look from my customer's perspective? My employees? An outsider's?"
2. Use diverse mental models: Familiarise yourself with different mental models and consciously apply them to your business challenges.
3. Encourage diverse viewpoints: Foster a culture where team members feel comfortable sharing different perspectives.
4. Conduct regular 'perspective audits': Periodically review your strategies from different perceptual positions to identify blind spots.
5. Learn from other industries: Study how businesses in unrelated sectors solve problems. Their approaches might inspire novel solutions in your industry.

Naomi Simson, co-founder of Big Red Group and former Shark on Shark Tank Australia, emphasises the importance of this approach: "The ability to shift perspectives and apply different mental models has been crucial in scaling our business. It's not just about seeing things differently yourself, but also about creating an environment where your team feels empowered to share diverse viewpoints."

By consciously adopting different mental models and perspectives, SMB owners can enhance their strategic thinking capabilities, leading to more innovative solutions and robust strategies. This approach can be particularly valuable in navigating today's complex, rapidly changing business landscape.

Flow and Productivity

Understanding the flow of work processes, cash, and communication is essential for optimising productivity. Analyse these flows to identify blockages and enhance performance. Xero, the Wellington-born accounting software company, revolutionised small business accounting by understanding and optimising the flow of financial data between businesses and their accountants.

Rod Drury, Xero's founder, explains their strategic approach: "We saw that small businesses were struggling with traditional accounting software. By focusing on the flow of financial data and making it cloud-based, we've transformed how small businesses manage their finances".

Native Strategic Thinking vs. Strategic Processes

It's crucial to understand that following strategic processes and being a native strategic thinker are different. Many businesses diligently follow strategic planning processes, complete with SWOT analyses and five-year plans. While these are valuable tools, they don't automatically translate into strategic thinking.

Native strategic thinkers possess an innate ability to:

• See patterns and connections where others see chaos
• Anticipate future scenarios and prepare for multiple outcomes
• Challenge conventional wisdom and ask "what if" questions
• Adapt quickly to changing circumstances
• Balance short-term needs with long-term vision

Ruslan Kogan, founder of Kogan.com , exemplifies native strategic thinking. His ability to anticipate shifts in consumer behaviour and rapidly adapt his business model has been key to Kogan.com 's success. When traditional retailers were still grappling with online sales, Kogan pioneered new e-commerce and supply chain management approaches.

Kogan explains his approach: "We're always looking at where the market is heading, not where it is now. It's about being proactive rather than reactive".

Developing Strategic Thinking Skills

To bridge the gap between process and native thinking:

1. Practice scenario planning regularly, even for small decisions
2. Seek out diverse perspectives and information sources
3. Cultivate a learning mindset, always asking "why" and "what's next"
4. Regularly step back from day-to-day operations to consider the bigger picture
5. Encourage strategic thinking at all levels of your business

Remember, while strategic processes can be taught, native strategic thinking is developed through practice, experience, and continuous learning.

Strategic Thinking in Action: Global Success Stories

Let's examine how strategic thinking transformed businesses across the globe:

Boost Juice (Australia): This Adelaide-born smoothie chain expanded internationally by adapting its offerings to local tastes while maintaining a consistent brand identity. Founder Janine Allis attributes their success to strategic market expansion: "We didn't just copy and paste our Australian model. We studied each market carefully and adapted our offerings while keeping our core brand values intact".

Netflix (USA): Originally a DVD rental service, Netflix strategically pivoted to streaming and then to content creation. Their ability to anticipate shifts in media consumption and adapt their business model showcases exemplary strategic thinking. As CEO Reed Hastings once said, "Most entrepreneurial ideas will sound crazy, stupid and uneconomic, and then they'll turn out to be right".

Toyota (Japan): Toyota's strategic focus on lean manufacturing and continuous improvement (Kaizen) revolutionized the automotive industry. Their long-term thinking and commitment to quality have made them a global leader. Former Toyota Chairman Fujio Cho encapsulated their philosophy: "We get brilliant results from average people managing brilliant processes. We observe that our competitors often get average (or worse) results from brilliant people managing broken processes".

Spotify (Sweden): By reimagining how people consume music, Spotify disrupted the industry. Their strategic decisions to focus on user experience, leverage data analytics, and partner with artists have solidified their position as a music streaming giant. Co-founder Daniel Ek explains their approach: "We're not in the music space—we're in the moment space".

These examples illustrate how strategic thinking, when applied effectively, can lead to transformative business success across various industries and geographical locations.

Charting Your Course: Becoming a True Strategic Thinker

Mastering strategic thinking is an ongoing journey that demands practice, reflection, and adaptability. By honing layered perspectives, focusing on high-impact actions, and continuously refining your approach, you'll drive sustainable growth for your business.

Remember, strategic thinking isn't just about planning for the future—it's about actively shaping it. While strategic processes provide a solid foundation, cultivating native strategic thinking skills will give you a true competitive edge in today's dynamic business environment.

As you embark on your journey to become a strategic thinker, consider these final tips:

1. Dedicate time for strategic reflection: Set aside regular periods to step back from day-to-day operations and think strategically about your business.
2. Seek diverse inputs: Engage with people from different industries, backgrounds, and perspectives to challenge your thinking and broaden your horizons.
3. Embrace uncertainty: Learn to be comfortable with ambiguity and see it as an opportunity for innovation rather than a threat.
4. Cultivate curiosity: Continuously ask questions, explore new ideas, and stay open to learning.
5. Practice systems thinking: Train yourself to see the interconnections between different aspects of your business and the broader market ecosystem.

By incorporating these practices into your routine, you'll gradually develop the mindset and skills of a native strategic thinker. Remember, as the business landscape evolves at an unprecedented pace, your ability to think strategically will be your most valuable asset in navigating uncertainty and driving success.

In the words of management guru Peter Drucker, "The best way to predict the future is to create it". By mastering strategic thinking, you're not just preparing for the future—you're actively shaping it for your business and industry.

Rod Fraser - Investor + Business Mentor

Business Growth Strategies

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