My partner Mats Lederhausen, formerly worldwide head of strategy for McDonald's, introduced me to "Strategy Trees." The concept is, like most useful things, deceptively simple. It forces you to get at the heart of what you are trying to achieve. The "tree" analog comes from the linkage between the questions in a Strategy Tree. Start at the root purpose of why you are doing something and link it to your goal and how you will measure progress. Graphically, it looks more like a series of adjacent boxes, as illustrated below (click on the image to see a bigger version):
It comes down to asking the "Why, what, who, and how" of your business, arraying it across one page in a way that makes it extremely useful as an alignment tool amongst management or board members. This is hardly a novel concept, but it falls into that category of common sense that is not so commonly done. There are various permutations of these questions, but here are four that I have come to use in trying to summarize the big picture of a portfolio company (with an example provided):
1. Why do you exist (what's the big idea)? Why does your business have a right to exist and what purpose is it trying to achieve? For example, in one of our portfolio companies, nail salon chain MiniLuxe, its purpose is to try and "Starbuck nail salons" by offering more consistent service and labor practices to the most used, but most under-regulated beauty service. There are 65,000 nail salons in the US, but they are largely mom-and-pop shops with no serious chains offering consistent quality.
2. What is your value proposition? This is a statement geared towards the customer. For MiniLuxe it is to be the place to go for healthy and happy nails — by being the most hygienic, highest quality, convenient, and bang-for-buck experience around. In writing down your value proposition "answer," think about the unique capabilities and assets that your business has that clearly differentiates it from the competition. In the case of MiniLuxe, the company uses medical grade autoclaving equipment (a sterilization process for the instrumentation) and exposes that process through an glass "clean lab" where clients can see the tools being sanitized and sterilized. That is a unique process and asset in the nail salon world. What do you have that is different and appealing to the customer?
3. Who are you trying to serve? This is a question about your targets and being as specific as possible about them. For MiniLuxe, each store targets those who are living within one mile of a location, predominantly women between the ages of 20 to 55; from young single professionals seeking beauty maintenance, to moms looking for that "pick-me-up," to the mass-affluent who see this as a regular social and "quick bliss" experience. Think about your three, or at most four top customer clusters and focus on the ones that will be of highest recurring value to your business.
4. How do you know you are winning? Putting down the key customer and financial metric goals and where you stand against them is key. How many client visits per week should you target and what mix of service offerings is right? What is a good client happiness metric? MiniLuxe uses Net Promoter Score, a measure of how likely a client would be to recommend the service to another person. They also measure weekly financial metrics with the most critical ones being year-over-year sales growth comparables; time to positive cash flow in a new location; and sales per square feet. As I have espoused in the past, knowing your 2-3 key operating metrics and 2-3 top financial metrics makes managing a business a whole lot easier. Start with best guesses at the right target levels for each of your metrics, start measuring, and adjust as necessary.
The Strategy Tree is a variant of a decision tree, except it is less about forcing choices along a path than simply outlining a path for strategic purpose and growth. It is very effective for fostering discussion on what is truly important, and if done in a collaborative manner will create alignment on the most critical priorities. On a single page you get the big picture and linkages. Start with the purpose and objective of the "why" and the "what," and move through the "who" your business will target, and "how" to measure progress, and you will get better alignment, faster — which hopefully translates into better results. Common sense, not commonly done.