What’s Your Strategy? (Yes, You Need One)

I was with a family-owned lumber company a couple of weeks ago who reminded me about the importance of strategy. Over the past five years or so, this company positioned themselves to be able to serve production builders (companies that build large subdivisions of similar homes) well because production dominates their marketplace. If they had chosen to continue their focus primarily on custom builders (generally smaller, local companies that build-to-suit), they might not have many customers left.

It seems to me that most companies rarely think about strategy. By that, I mean that most people simply open up the doors and sell to whomever they can. And that’s not a strategy; it’s just luck.

Thinking about strategy means thinking about your desired customer base. For example, in the lumber industry, are you targeting high-end custom builders, production builders, or starter-home custom builders? Depending on which you choose, you will structure your business very differently. Some customers value service; some value price. If you are going after all market segments, you are requiring yourself to provide excellent service at the lowest price – not typically considered a recipe for success.

There is not one best strategy. You can be successful on either end of the spectrum and anywhere in between. For instance, Target and Wal-Mart sell essentially the same stuff, but they are very different companies going after very different market segments. And Dollar General has figured out how to live happily on the leftovers from those two stores. But they design their stores differently and staff differently to follow their strategies.

When I ask lumber dealers what makes them different from their competition, most of the time they tell me it’s their service. Then when I drive down the street to meet with the next company, who is their competitor, I ask the same question. Invariably I get the same answer. If everyone believes they differentiate based on service, then everyone is actually the same. Ultimately they end up differentiating on price, which so often becomes a race to the bottom for everyone.

So back to my example of the lumber dealer who shifted strategy. This is a proud, old company that has gone through several generations of family ownership. Like most, it struggled during the housing downturn but emerged a leaner yet still strong company. They made incremental changes to be better (shored up collections, tightened staffing, etc.) but didn’t make wholesale changes. But they saw their customer base shrinking and the marketplace shifting to production builders, so they knew they were looking at a slow decline if they didn’t make some significant changes.

They engaged in a planning process that helped them work through ways to ensure viability into the future. While they have not jettisoned their custom builders, they realized they had to sell to production builders as well. But they also knew they couldn’t really serve that market as they were currently structured. They spent a lot of time thinking about how they could make changes that would allow them to be attractive to production builders and operate efficiently enough to make money serving that market.

I will not go into specifics of what they did to become attractive because they do have competitors in the membership. The moment I get loose lips is the moment people stop welcoming me into their businesses and trusting me with sensitive information. If I lose that, then I can’t be effective in my job, so I won’t push the envelope. Suffice it to say that they did create efficiencies while also creating a couple of new divisions of the company that gave them a leg up with production builders (think manufacturing). They also restructured distribution to allow them to become more efficient in delivering to production neighborhoods.

While the change has not been without bumps in the road, the company is most certainly headed in the right direction from a sales and profitability standpoint. They will be a robust company for many years to come.

How about you? Are you robust? Are you structured for the future? Have you thought about where your marketplace is going? Can you survive doing things the way they’ve always been done? Do you have a competitor who is more innovative than you? When was the last time you thought about your strengths and weaknesses vs. your competitors? Are you really any different than them? If so, do you exploit that difference to your advantage?

I know everybody is busy. It is so difficult to stop and think about these kinds of things when urgent things more than fill your plate every day. But only the owner can do this kind of work. Sure, you may engage your leadership team (I’d encourage that), but the impetus comes from the owner.

Can you live without thinking about these things? Yes. No one is going out of business tomorrow because they haven’t spent time thinking about strategy. But I assure you that you have competitors thinking about it. Wouldn’t you rather stake out your future than have someone else box you into it?

If you’d like some assistance with strategy and planning, we can help. You can’t afford to operate as if things are always going to be the same.