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Episode 129 – The Six Elements of a Good Strategic Plan

 

November 1, 2024

 

The point of a strategic plan is to create an objective roadmap for growth and how to get there so that the company can prioritize what to do and what to spend money on. 

 

In its absence, companies tend to waste money on poorly thought-out experiments and even make inappropriate hiring decisions based on impulsive thinking. 

 

The irony of all those over-funded startups you’ve read about is that they have so much money, they can afford a non-strategic, confused, spray-and-pray approach to growth. The cash pile buys time to clean up the mess created by poor planning.

 

Under-capitalized consumer brands don’t have that luxury. They need to be much smarter, much earlier on to spend limited cash wisely and to deploy limited staff hours on productive execution, not just a whole bunch of shiny sh*t. 

 

So, here are the six components you need. 

 

  1. The strategy: a competitive theory of capturing $ from other categories with a specific consumer audience. In my book, Ramping Your Brand – I boil this down to using initial sales and research to isolate your high-value outcomes and the attribute-outcome signal tied to heavy usage among your fans. This becomes the behavioral basis of your business growth, anchored primarily in product and packaging design. 

 

  1. Top-line revenue goals (should be realistic based on category case studies, broker data, and your degree of competitive advantage); if same-store sales growth is in the double-digits and is driving most of your growth, you may be a candidate for acceleration to exponential growth. Of course, you need to be ready to supply and to fund that kind of growth.  It’s easier to ‘sell-in’ 100% growth, especially to new accounts, than it is to service them professionally. 

 

  1.   4P Playbook – How you plan to pursue the strategy: You need to have a 4P Playbook, which is essentially how you plan to pursue the strategy that you have outlined. As I discuss in my book, the pyramid of causality in CPG begins with your product, including its packaging symbolism. This needs to be unbelievably memorable to minimize your need to pay for awareness. You need early fans to do most of your marketing for you through word-of-mouth, especially when you’re in Phase 1 (That’s the time you can barely cover fixed operating costs certainly not a lot of social media advertising.)

 

    The Playbook is going to have:

    1. product line (the list of UPCs and their key competitively advantaged attributes)
    2. placement approach (i.e., sales plan by channel and relevant retail banners)
    3. promotional plan (trade bias in the beginning but also your consumer promotional activities that you think are going to attract the right people to where you’re selling)
    4. pricing plan, (simple in the beginning including the role of discounting that you want to assign.)

 

  1. Operational plan (how you plan to produce the required units of your strategy and revenue targets)

1. A detailed map of your supply chain and ALL of its costs, especially variable ones and those subject to market forces (like ingredient costs)

2. unit production plan to provide excess units beyond target revenue goal. You want to pay for extra storage of excess inventory. You don’t want to run out.

3. COGS and gross profit per unit (to inform your budget)

4. working capital to fund operations

 

 5. Budget for all the above (relying on maximum team labor until you have outside investment) Some quick notes on budget management as you grow:

    1. It’s essential to keep your budget minimal in Phase 1 and Phase 2 so that your gross profits cover fixed operating costs (You may raise money to cover Minimum Order Quantities from Co-mans initially, sure, but high-fixed operating costs will drive you quickly out of business, including getting your stuff into distribution into retailers. This is the period to sweat like hell, even you have raised seed money. Save that for later (when you know what you’re doing). My experience is that credit card founders generally never make it out of the Death Funnel. 
    2. Don’t spend dry powder sloppily in the beginning. That’s when you can least afford to screw up with how you spend things. Because you don’t know what in your Playbook is actually working to drive the business growth. Once you know what’s going on, it’s going to be easier to budget for more investment. You need to have cash on hand for the future, but you have to have it to cover unforeseen issues in the supply chain. If the COVID Pandemic wasn’t a good wake-up call for that then I don’t know what was. Those kinds of issues in the supply chain can happen all the time throughout the industry.

      Another reason to have cash on hand because you want to have the opportunity to seize opportunities including stocking up on ingredients and other things for your early survival.

    3. The Playbook that you are investing in and budgeting for has to be really smart, based on small tests. This is especially true today in the middle 2020s, post-glory years, now that there is less venture capital available to founders.

 6. Forecast financial impact of big risks to any component of your plan (varies by category and competitive positioning) – The biggest annual risks in omnichannel CPG brands, especially early on when you don’t have leverage in the trades include:

    1. targeted retail accounts don’t take you on or that you have to walk away from a bad deal at said accounts
    2. gross margin problem or revenue model problem, bad shelf placement, gross margin loss due to sudden COGS increase,
    3. required funding doesn’t appear on desired timeline
    4. production ramp-up hits an obstacle you didn’t foresee
    5. major retail account roll-out doesn’t go as planned, leading to poor velocities
    6. new UPCs get delayed due to unforeseen quality issues

These are all the things you should be thinking about as risks that you can, even in a rough sense, forecast what that impact will be.

 

Do this pessimistic homework every year, so your budget will be shifting to preserving and maintaining cash on hand for emergency issues. All of this careful thinking that I’m promoting on this episode if you do it, it will change how you think about fundraising, especially the timeline. The time to raise money, to fund your strategic plan is NOT when you need it to service a new account. And not to cover fixed operating costs that are way too high. OMG. Please. No. You can’t be reactive. You should always be networking for cash and collecting it well before you need it on the basis of the past performance and the high level of trust people are putting into you as an operator.

 

Be safe out there.