(0:00) Being very clear and intentional with your strategic problem and spending the time with (0:05) your team to revisit it to make sure it's still relevant will be a super valuable exercise.

(0:11) Welcome to Business Strategy, where we are documenting the best strategies and valuable (0:15) lessons learned to build more profitable and iconic companies. Please share and enjoy.

(0:22) Happy 2025. It's a new year and I love fresh beginnings. Now, in order to kick off 2025 (0:29) the right way, it's important to revisit your strategy because if you're like most business (0:34) owners, here's what you may be thinking.

All right, this year is going to be different. (0:37) I'm going to be more profitable. I'm going to have more cashflow.

We're going to get systems (0:41) in place. We're more organized and more efficient. I hear it all the time, right? And that was me (0:46) back in the day.

I used to say this every single year. And then guess what? The year would get (0:50) ahead of me and get away from me. And then we would just stay stuck in the same exact cycle.

(0:54) So I'm going to help you to break free from the cycle and to make some really big moves in 2025 (0:59) that will have a major impact on your company's firm value.

(1:04) So when it comes to revisiting your strategy, one of the most important things to get right (1:09) at the onset of the year is defining your strategic problem. Now, I've talked about this (1:15) before in other episodes, but at Coltivar, we follow the scientific method, not necessarily (1:21) a business method when it comes to designing and executing a strategy.

So let me explain. (1:27) Think about the scientific method. It begins with defining a problem.

And then you create a (1:32) hypothesis for how you will solve that problem. And then you go out and run experiments and then (1:37) you make adjustments along the way. So the same thing is true at Coltivar.

We follow the same (1:41) exact approach, except for we call the problem a strategic problem. Now, every single company (1:47) has a strategic problem and you're no different. And really what this follows is the theory of (1:52) constraints because we believe at Coltivar that every single company is going to grow (1:58) up to its constraint and then it's going to stay stuck.

So I've been there before, (2:02) running companies as a CEO, as a CFO, or participating as an investor or advising (2:09) companies. I've seen this happen over and over again. Organizations will grow up to their (2:13) constraint and then they will stay stuck there.

They'll keep bumping up against that constraint (2:17) until it's solved. And if you don't address the constraint, guess what? You're just going to (2:22) spend a ton of time, money, and energy spinning your wheels, staying stuck. And guess what? If (2:28) you scale your company without solving this problem, all you're going to do is just scale (2:32) your problems.

So you don't want to scale your problems. You want to scale your business (2:36) so you could be profitable. So going back to revisiting your strategy, you're kicking off (2:41) the year.

It's a brand new start. It's a fresh beginning. It doesn't mean that if you have a (2:46) strategy in place, you have to completely reinvent it when you revisit it.

Instead, you just want to (2:51) look at your strategic problem, make sure it's still relevant, and then evaluate your initiatives (2:57) to ensure that your initiatives are focused on the right things. Now remember, I've talked about (3:01) this before in other episodes as well, that initiatives are designed to do four things. (3:05) They help you to overcome your strategic problem, to enhance the customer experience, to foster (3:11) innovation, and to build competitive advantages so you can drive a higher value in your organization.

(3:19) So let me take a step back. When we work with companies, we help them to increase their firm (3:25) value. And if you just look at a generic valuation method, the multiples method, (3:30) if you take profit times some type of multiple, you could come up with a value for a business.

(3:36) Now if you determine your current value for your business and you compare that to your potential (3:41) value, and that potential value will be derived of your potential profit if you were operating (3:47) smoothly and if everything was going well, and an ideal valuation multiple considering you minimize (3:54) things like key man risk or key client risk or channel risk, etc. So when we are working with (4:00) companies at Coltivar, one of the first things we do is we look at the difference between the (4:05) current value and the potential value and we call that the value gap. And then we get into the (4:09) strategic problem, right? Because that's what's preventing the company from realizing its full (4:15) potential, its full value, the value gap, right? The value gap exists because you have a strategic (4:20) problem.

So here's the deal. A lot of times I work with companies and they're very well-intentioned, (4:26) they're very organized, they're very smart, their leadership is very capable, but they're focused (4:31) on the wrong problem, right? Or they're focused on the right problem, they're just trying to solve it (4:36) in the wrong way. So whatever the case may be, I think it's a great use of time to work with your (4:42) teams to revisit your strategic problem, make sure it's super clear in that if it is solved, (4:49) it will have a major upside in the business.

Now I've done other episodes about defining a (4:55) strategic problem, but let me just give some more context here in case you're new to this podcast. (4:59) A strategic problem is a primary issue that hinders your company from fulfilling its purpose (5:05) and achieving its vision, okay? So a strategic problem is going to threaten your organization's (5:10) long-term success, and it must be addressed through strategic decisions. And those strategic (5:16) decisions involve what type of initiatives you're going to pursue in order to overcome your strategic (5:22) problem.

But time after time, when I go into organizations, they have a strategy in place, (5:27) they're executing, but guess what? They either A, don't have a problem defined, they just have a (5:32) bunch of random initiatives, or they don't have the correct problem identified. So that's why I say (5:38) when it comes to kicking off the new year, being very clear and intentional with your strategic (5:45) problem and spending the time with your team to revisit it to make sure it's still relevant (5:49) will be a super valuable exercise. Now when it comes to writing a strategic problem, there are (5:56) really two parts.

The first part includes defining the number one constraint that the company is (6:02) currently facing. And then you're going to add this if then statement in between part one and (6:08) part two. And part two is the consequence if the constraint is not solved, all right? That's your (6:13) strategic problem.

So let me give you some examples. Verizon, for example, its strategic problem may be (6:20) defined as it is becoming increasingly difficult to earn a profit as pricing pressure increases. (6:26) We are in a constant battle for market share with competition, resulting in a decline in our average (6:31) revenue per user.

Here's the if then, okay? If we do not figure out how to differentiate and increase (6:38) our prices, our margins will suffer, right? Here's another example from Amazon. Amazon strategic (6:45) problem may sound like this. We have differentiated our way to the top.

However, as e-commerce has (6:51) evolved, we are facing increased competition. That's their problem. If we do not respond to the (6:57) aggressive attempts of disruptive rivals to siphon market share, our profitability will be impacted, (7:03) all right? So there you go.

That's the formula. First, you're going to define the number one (7:08) constraint the company is currently facing, include if then in between, and then define the (7:14) consequence if the constraint is not solved. There you go.

Those are the ingredients of a strategic (7:20) problem, right? I wish you all the best as you work with your team this week and next on defining (7:26) your strategic problem. It'll be well worth your time to get very clear on this, and then you can (7:31) move to step two, which involves revisiting your initiatives and making sure you're focused on the (7:37) right things that will have the biggest impact on your firm's value, right? If you need any help (7:42) with this at all, if you ever want to connect, if you want to talk strategy, you can connect with me (7:46) at coltivar.com, and until next episode, take care of yourself. Cheers.