What makes a good strategy different from bad one? 9 ½ signs of a good strategy.

What makes a good strategy different from a bad one? This is one of the most frequently asked questions that I hear during consulting projects and in classes at business schools. It’s also one of the most important. This question shouldn’t be underestimated. My experience of communication with managers of different spheres shows that the number of people who clearly understand how a good strategy differs from a bad one is extremely small. This is also mentioned by American authors, for example, Richard Rumelt. There is no need to go far to confirm this thesis: just look around and you’ll see how many companies are actively developing, growing, and gaining leading positions in the market, and how many are barely making ends meet and closing. Obviously, the number of the first ones is dramatically low.

Some business schools also contribute to these sad statistics. Teaching people tools of strategic management, they often do not explain the essence of a strong strategy and do not explain how it differs from a weak one.

In order for you not to make the same mistake, we want to share with you 9 ½ signs of a strong strategy that will help you to build a successful strategy. We’ll also discuss the typical mistakes and misconceptions that make the strategy weak or make it impossible to say that the company even has a strategy. This discussion, if not guarantees, then increases your chances of developing a successful business strategy that will lead you to success in the market.

It’s not easy to formulate common signs of a good strategy because people’s nature makes them regularly invent new ways of solving problems they face. But at the same time, they make new pratfalls and do dumb things. In both of them, people show enviable enthusiasm. Nevertheless, we tried to systematize effective approaches to strategic planning and identified some mistakes that many people make.

1st Sign of a Good Strategy – Good Strategy Answers “How” Questions

One of the most common mistakes in strategic development is equating strategy with goals. Many managers believe that the development of strategies is the same as setting goals that must be achieved by the company for a certain period. They sketch a list of goals, then bring it to their subordinates, and believe that this is strategic planning. This is completely wrong. It’s essential to understand that a good strategy is a clear answer to the question "HOW will we achieve our goals?". Yes, without goals, there won’t be any strategy, but the purpose alone is not enough.

If the strategy of your company does not provide clear and detailed answers to the HOW question, then the company does not have a good strategy. In this case, goals will most likely remain unfulfilled. Most people are not geniuses, and if they do not understand something, they certainly won’t sit and think about how they can achieve their goals. Most of them will simply ignore the incomprehensible task. If it is not clear how to achieve the goals, then from their point of view, there are no goals. If you do not make everything clear, if you do not explain everything in the most detailed way in the strategy, no one will do anything. Remember the simple rule: a successful business strategy is the answer to the question: "HOW will we achieve our goals?"

3rd Sign of a Good Strategy – Be a Paranoiac

Many senior managers think that their competitors are fools and lazybones, believing they will sit back and do nothing as the market goes to their rivals. They imagine their competitors will quietly watch their customers and profits slip away. This mindset is a huge mistake. A good strategy must acknowledge that competitors will fiercely defend their market positions. If your strategy doesn’t account for strong competitive opposition and doesn’t have a clear plan for outplaying competitors, it is not a good strategy.

Successful business strategies involve anticipating competitors' moves and having a plan to counteract them. You must feel paranoid, constantly calculating possible competitive moves and preparing your responses. If you don’t, you’ll miss critical opportunities, and your strategy will fail. Remember: competitors are not stupid and will likely take aggressive actions. You must be prepared, calculating all possible scenarios and planning your responses in advance.

4th Sign of a Good Strategy – Concentrate

Even the strongest person will be defeated if they begin a fight with many competitors at once. They will simply be overwhelmed. Conversely, a person with average abilities, by defeating competitors one by one, can win against a whole crowd. The same principle applies in business. If you plan to compete against the entire market, you will not win. A good strategy means focusing on specific targets, knowing that this approach increases your chances of success. This allows your company to grow, take a bigger market share, and become stronger before moving on to more powerful competitors.

A key aspect of a successful business strategy is choosing priorities. You are a good strategist if you can distinguish the most important goals from the secondary ones. Achieving significant goals over insignificant ones is crucial. Remember, you are chronically suffering from a shortage of resources, so you should use them wisely to achieve critical indicators that ensure success. This approach can include "blue ocean" strategies or strategies that avoid direct competition by shifting to other spheres.

5th Sign of a Good Strategy – Minimize Dependence on Others

Forget the notion that people are the key value of your business. This perspective can make you overly dependent on employees' whims and goodwill. Experienced leaders know that people are a resource, one of the three main types of scarce resources, and should be managed as such. This approach allows the creation of a strategy whose success is minimally reliant on specific employees. Treat your staff well, but remember, high dependence on specific people increases the risk of strategy failure. A clever strategist loves people but doesn't overly depend on them, developing a strategy that can survive even when key employees act unpredictably.

6th Sign of a Good Strategy – Create an Effective Business Model

One of the most valuable pieces of advice is to ensure your strategy includes creating an effective business model. A good strategy is not just a list of activities but also answers how your company will make money more efficiently than competitors. You must find ways to produce cheaper, improve quality, survive harsh market conditions, promote more effectively, and work faster than competitors. If your business model doesn’t become more efficient than your competitors' due to your strategy, it is incomplete and will not provide a stable competitive advantage.

7th Sign of a Good Strategy – Achieve Superiority Over Competitors

Superiority over competitors results from effectively leveraging existing competitive advantages, not merely possessing them. For example, having access to cheap raw materials doesn't guarantee the lowest costs unless accompanied by efficient production technologies and cost management. A good strategy turns competitive advantages into real superiority by implementing relevant activities. In strategic planning, it's crucial to distinguish between competitive advantages (potential) and superiority (realized potential). A successful business strategy focuses on how to transform advantages into market-leading positions, ensuring consistent outperformance in business-critical areas.

8th Sign of a Good Strategy – Differentiate to Survive Hard Times

Strategic differentiation involves creating a resilient business model capable of thriving even in adverse conditions. Unlike marketing differentiation, this strategic approach reduces reliance on a single market or product. Effective differentiation might include entering diverse markets with different macroeconomic dependencies or expanding the product portfolio to mitigate risks associated with a single product's decline. The recent crises have highlighted the importance of such strategies. Strong strategists proactively build safety nets to ensure stability and growth, even when market conditions are unfavorable.

9th Sign of a Good Strategy – Always Have Plan B

Successful business strategies are scenario-based, requiring the management team to develop multiple scenarios, including realistic, optimistic, super-optimistic, pessimistic, and super-pessimistic. This approach ensures flexibility and viability, providing a plan of action for various circumstances. However, merely adjusting goals based on external conditions is flawed, as it makes the company too dependent on these conditions. Instead, a strong strategy involves creating multivariance, maintaining core goals with reserve plans to achieve them despite external changes. This ensures the company can meet its targets under any circumstances, reducing dependence on external factors.

Moreover, good strategic planning includes several parallel concepts (groups of events) to reach goals. Since every strategy likely contains errors unknown at the planning stage, implementing multiple concepts simultaneously helps identify which works best. This approach involves planning more activities than necessary, ensuring that despite some failing, the overall goal is still achieved. This multivariance must align with strategic concentration and the company’s limited resources, ensuring that additional options help reach desired outcomes effectively.

9 ½ Sign of a Good Strategy - You Should Think About a Possible Sale of the Company

The consequence of the strategy implementation should be the growth of its value. This last feature is not so much an indication of the strategy itself but an important strategic concept that a good strategist must keep in mind. Even if you do not think about selling your company, you should always create such an opportunity. A good strategy and skillful business is the skill of creating (yes, it is creation!) and using opportunities and, consequently, you must create the opportunity to sell the company at a good price. Whether you use it on occasion or not, it's up to you. But it is not far-sighted to deprive yourself of such an opportunity beforehand, without even thinking about it.

Hence some practical pieces of advice that I can give to an attentive reader.

Firstly, during the development of the strategy, determine the approach to measuring the value of the company. There are many of them and it is not guaranteed that a potential customer agrees with the one you have chosen as your priority. But, nevertheless, you initially need a clear benchmark and a clear valuation technique. Our favorite is the method of discounting cash flows, which determines the value of the company as the sum of future profits for the stipulated number of periods discounted to the current day. As a guide, I lay the amount of profits for 7 years, someone can increase this time, and someone can reduce. This is a matter of taste and bidding with a potential buyer.

Secondly, in general, your strategy should be aimed at increasing profits, not revenues. If during some of the years while planning you allow a decline in profit, then it must have a clear strategic justification and be compensated by the profits of future periods. The main thing that needs to be understood is that the investor most often buys the future profit in other words they want to receive income, pay back the costs of acquiring your company and earn extra. Of course, someone will object to it, citing as an example numerous Internet companies that for several years do not bring profits, while showing a huge revenue, and they are sold/bought for a lot of money. However, the purchase of such companies is very rare, and it is still conditioned by the investors' expectation of profit in the future, which should grow out of the impressive size of the company. If in the future such a company is unable to convert its large revenue into a sizable profit, it will inevitably be deflated, like any market bubble.

Thirdly, while negotiating a sale the key is the ability to prove to a potential buyer that the predictions you make about the expected profits in the future are accurate and will come true with a high probability, i.e. the key to increasing the value of the company is the seller's ability to demonstrate a reliable analytical model. This is a model of the market, as well as a system for forecasting the results, which shows the company's business model, in comparison with the predicted results of business models of the competitors. Demonstration of such a model and system as well as their performance during previous periods significantly increases confidence in the seller's predictions about expected future profits. Accordingly, your company needs a system for collecting statistical data and regular adjustment/improvement of this system. The methodology of how such analytical solutions are created itself is described in detail in my book on strategic analytics.

Of course, in this article I have not described all the signs of a good strategy. There are others. But everything can’t be stated in one article. The remaining signs, perhaps, I will set forth in a separate article.

[1] Richard Rumelt in his book "A Good Strategy/Bad Strategy". Publishing House “Mann, Ivanov and Ferber”, Moscow, 2014.

[2] Jack Trout "Positioning: The Battle for your mind", Publishing House "Peter", St. Petersburg, 2007.