(0:00) You may have mission, vision, and values identified, but if you don't get super clear on the strategic problem you're trying to overcome, you're going to be all over the place. This is Business Strategy, where I help the ambitious to build more profitable, iconic companies using the principles I've learned while growing and turning around million and billion-dollar companies through Coltivar.com. I hope you share and enjoy.

(0:24) If you're running a business, it's actually really easy to get strategy wrong. I'm going to explain the three fundamental things you must know in order to maximize the value of your company and not blow it up or run out of cash in the process. It took me a long time to figure out point number three, so I'm going to emphasize that at the end and explain exactly how I use it to turn around and grow companies.

(0:44) My name is Steve Coughran. I'm the founder of Coltivar. I've been doing this for a long time. I've been a CFO. I've been an owner of a company, and I know exactly what levers to pull because I've created over a billion dollars in value in the process. Let's go ahead and jump in.

(1:03) Number one is that strategy is never done, right? Strategy is not a one-time event. It's not about getting your whole team together, writing out some hotel conference center, and then going through a SWOT analysis by writing out your strengths, weaknesses, and opportunities and threats and creating a laundry list of things to do for the year and calling that a strategic plan.

(1:22) In fact, somewhere along the line, I don't know where this happened, but somebody thought planning was too boring, so they wanted to make it more sexy, so they added the word strategy to it. So that's where you get strategic planning from, and too many companies go down the path of creating strategic plans, but a plan is just a plan. You have to have a strategy to understand what the plan actually is.

(1:51) Also, when I say strategy is never done, it's because it's a system. It's a process for making interrelated choices about where you're going to focus your attention. More on that later, especially as we get into number three, but what I want you to understand is that strategy is ongoing.

(2:07) When I work with companies to turn them around and to grow them, oftentimes the CEO will say, "Okay, how long is the engagement? When are we going to be done with strategy?" And I say, "We're never done with strategy, but that's the good news because I'm going to teach you the system to follow in order to identify constraints and then to focus attention on the things that really matter in your business so you can maximize value."

(2:28) That’s the first thing I want you to understand, which leads into point number two. When it comes to strategy, you have to combine strategy and finance together in order to maximize value. I've been talking about this for a long time, over a decade. In fact, I created a course called Strategic Financial Leadership at the University of Denver.

(2:51) I taught this to students, and it was a big hit. I've also done conferences where I've spoken about strategic financial leadership, and it's really taken off. The reason why I'm so passionate about strategic financial leadership and this idea of connecting strategy and finance together in order to drive value is because here's what I see out there in the world.

(3:12) Some so-called experts will go down the path of strategy. So they'll go into a company and they'll say, "Look, we're going to help you with your strategy." And it's really just a glorified marketing plan. They'll identify their mission, their vision, and their values. And I'm not saying there's anything wrong with that.

(3:29) I'm just saying that those alone are not a strategy in itself. So companies will think they have a strategy, right? They'll identify their mission, their vision, their values. They'll create a laundry list of things to do. And they'll say, "OK, that's strategy." But if there's no connection to finance, then value isn't going to be created.

(3:50) I've seen this happen a million times, all right? Now, on the other side of the equation is you have finance. And that's where you have a bunch of nerds. And I can say nerds because I am one of those. I'm a CPA. My whole background's in accounting and finance.

(4:08) They'll create these spreadsheets and these big, intricate financial models. And they'll show growth, right, into the future. They'll show a big, fat bottom line and all this cash flow sometimes. But they have these financial models nonetheless. And they'll say, "OK, this is our path forward."

(4:33) Introducing the bridge. That’s where Coltivar comes in. When we're working with companies, we create this bridge between the two because you have to connect your strategy—saying, "Alright, we're going to expand internationally," or "We're going to compete on differentiation"—with the financial reality.

(4:43) But then you have to understand, "OK, how much cash do we need to make this strategy actually feasible? And what's our return on invested capital if we pursue this strategic option versus this other strategic option?" Case in point, years ago, I was the CFO of a large solar company.

(5:07) We were in charge of building those massive solar farms out in the middle of the desert, out in the middle of nowhere. Well, guess what? In the United States, tariffs hit solar panels and steel. And all of a sudden, the solar market shrank, especially the utility-scale solar projects that we were doing.

(5:29) So we had to pivot because we saw our revenue collapse massively. What we did was evaluate different strategic options. We considered doing a joint venture with another company, vertically integrating, and even expanding internationally.

(5:47) This is where finance comes into play because we had the strategy. We identified strategic options and then modeled them out to identify how much cash we would need with each option and what the potential financial upside was. After doing this, we decided to expand into Australia.

(6:05) We did that successfully and secured over $300 million of work in our first year. So you have to have a bridge between strategy and finance in order to drive value. And that is point number two.

(6:10) Moving on to point number three. And I can tell you, this took me so long to figure out. I wish somebody would have just explained this back in the day when I was studying strategy in school. If someone had sat me down and said, "Steve, focus on this one thing," it would have made all the difference in the world.

(6:30) And it’s this: strategy is all about focus. Think about it. In the world today, there are so many distractions, so many opportunities, and so many possibilities to pursue. The best companies that I work with, those that really thrive, are those that can focus their resources on solving constraints.

(6:50) In Coltivar’s strategy framework, we call this the strategic problem. We spend so much time helping companies identify their strategic problem. Because if you don’t clearly identify what your problem is—the constraint, the number one obstacle that’s choking your company and preventing it from growing—you’re going to be pursuing a bunch of random things that won’t move the needle.

(7:17) So what we do is help organizations identify their strategic problem. I’ve done other episodes about this, so be sure to check out my other content if you want to learn how to craft a strategic problem statement for your organization.

(7:32) Identifying the biggest problem a company is dealing with—its constraint—and then getting laser-focused on the initiatives, actions, and key results that will measure the company’s ability to overcome this constraint is what strategy is essentially all about.

(7:50) This took me so long to figure out because I’ve always been so organized. I’ve always been very ambitious and hardworking. But in the past, I would make a list of things to accomplish, whether for myself or for my company, and we were working on B and C and D tasks instead of on A tasks.

(8:10) When I say A tasks, I mean the most important tasks that will help your organization overcome its constraint—its strategic problem. That’s where the framework is really important with strategy. Sure, you may have mission, vision, and values identified, but if you don’t get super clear on the strategic problem you’re trying to overcome, you’re going to be all over the place.

(8:32) And guess what? When it comes to initiatives, strategic initiatives are designed to help you overcome your strategic problem. That’s how it all ties together. When I work with companies, I use a variety of tools to help them identify their biggest problems.

(8:54) Once we’ve identified these problems, we narrow it down to the number one problem or the number one constraint that’s preventing the company from growing and achieving its purpose. When organizations focus on solving this one constraint, everything else goes away.

(9:10) It’s a mindset shift for many organizations because so many are well-intentioned but focused on the wrong things. They’re hardworking, smart, and energetic. They have cash. But they burn a ton of cash, time, and energy in the process by focusing on the wrong things.

(9:31) I don’t want that to happen to you because I went down that path several times in my past, and it was very painful. So learn from my mistakes and stay focused on solving your strategic problem. Make sure all your initiatives and actions underneath those initiatives support your efforts to overcome your strategic problem.

(9:49) Once you overcome your strategic problem—that number one constraint—something else will pop up. But the good news is, if you follow this approach, you’ll stay laser-focused on what matters the most. Because if you’re over here doing B, C, and D tasks unrelated to your constraint, you may waste a ton of energy.

(10:10) If you solve this constraint, another will emerge. If you spent all this time trying to fix other problems, it might be in vain because those problems may not exist anymore once you solve this primary constraint. That’s what I focus on when I work with companies.

(10:26) I get obsessed with the constraint and help companies focus their attention on solving it by first identifying the strategic problem they’re trying to overcome. Then I teach them about initiatives, actions, and results using the IAR framework to drive tremendous value in their companies.

(10:48) All right, that’s all I have for you. Go out there and execute. And until next episode, take care of yourself. Cheers.