Too many companies, they just list out a bunch of initiatives to do, but they're not connected. They're not solving the number one constraint of the business. And guess what? The company stays stuck year after year.

If you're running a construction company and you're trying to wing it, eventually this is going to catch up to you and you can find yourself in bankruptcy. That's why it's so important to have a strategy, but you may be wondering what the heck is strategy. It seems so nebulous, like a black box, right? And strategy is so much more than mission, vision, and values.

I don't know what happened to the construction industry, but I think the strategy fairy walked around and sprinkled dust on all these companies and said, mission, vision, and values is all you need to have a strategy in construction. And that's absolutely false. What's also false is SWOT.

The SWOT analysis is not strategy. SWOT stands for strengths, weaknesses, opportunities, and threats. Sure. That's a good exercise to do with your team, right? To understand what's happening internally and externally with your business and in the market, but that doesn't give you a clear strategy to compete on. Also, here's another thing that's a big misnomer in the market. Strategic planning is not the same thing as strategy.

I don't know where this happened. Somebody thought planning wasn't sexy enough. So they decided to have the term strategy to it or strategic. So now everybody says strategic planning, strategic planning. And it's like, you can sit down with your team and you can create a plan, but if you don't have a strategy, you just have a plan, right? How do you know your plan's even right? How do you know if you're putting your team in the right position of focus and direction, that's where you need to have a strategy. So you'll see through my content, I'm a big believer that strategy plus finance combined together drives value, especially in the construction industry.

I'm going to give you a real quick story, and then I'm going to walk you through the actual framework that I've used over and over again to turn around and grow both million and billion dollar construction companies. So here's the deal. When I was working in public accounting, I was working at Ernst & Young and one of our clients was a multi-billion dollar financial services firm.

And this is when the light bulb went on for me here. The company was, they had a ton of debt because there was a leverage buyout where a private equity firm bought this company. And with all this debt, the CEO was under a tremendous amount of pressure to earn cashflow to service the debt, right? So they put in place a strategy for their company and the strategy seemed good on paper, right? It was very aspirational. It had the vision, it had the mission, it had the values listed out, but it was incomplete in the sense that it didn't give the team the clarity as it related to where they were going to compete, how they were going to compete, and ultimately how they were going to win. And that's the thing with strategy. Strategy is a set of interrelated choices that you make regarding these three things, where you're going to compete, how you're going to compete, and how you're going to win.

Now on the other side of the equation with this company, you had the finance team and the finance team, they were building these spreadsheets with all these budgets and these budgets would roll into these projections with targets, et cetera. And basically what was happening is the CEO would say, we need to grow by 20%. So the finance team, right, they'd be in the back office computing all these numbers in the spreadsheet and show, voila, you know, here's the profit, here's the cashflow that you're anticipating, but there's no strategy behind the spreadsheet.

You just had numbers over here. And then you had an aspirational list of things on a piece of paper over here. There's no connection between strategy and finance.

And that's when the light bulb came on for me. And I was like, oh my gosh, if this is missing in a multi-billion dollar sophisticated company, it's probably happening all over the place. And since I had deep roots in the construction industry, that's when I realized I was going to create a firm called which means to grow through labor and attention. It's an Italian based word, cultivare. I just dropped the E, but nonetheless, I started Coltivar because I realized that if you have a strategy and if you have a financial spreadsheet and they're not connected together, then you're just doing a bunch of random things and you're wasting a ton of time, energy, and capital. And in the construction industry where margins are already thin, guess what? There's no room for error.

There's no room for it. So I'm going to walk you through the strategy framework that I've used over and over again to turn around and grow companies. And there are multiple components. And I'm going to give you just the high level view of how this works now in business. I don't follow a business approach to strategy. In fact, I follow the scientific method when it comes to strategy development and execution.

Let me explain with business. You can read a ton of articles, right? There's Harvard business review, there's Sloan management, there's all these other frameworks that are floating around regarding strategy, right? And you can get lost in the sauce and everybody's going to have a new flavor of the day and a new approach. But if you just keep things really simple and you follow the scientific method, well, guess what? It has it all laid out there.

Number one, you're going to define the problem, right? That your company is facing. And we call this the strategic problem. This is the number one constraint that's holding your company back from achieving its full potential, right? It's the constraint.

So you identify your strategic problem. Then next, you are going to generate a hypothesis of how you think you're going to solve the problem, right? We call those initiatives. Initiatives do four things.

Number one, they help you to solve the problem, the strategic problem. They help you to foster innovation. They help you to enhance the customer experience, and they help to build competitive advantages.

So those initiatives right there serve as your hypothesis. You say, I'm going to pursue this initiative because I want to solve this problem. See, too many companies, they just list out a bunch of initiatives to do.

This is where strategic planning goes rogue. They're like, let's implement technology. Let's implement Procore or BIM or whatever it is.

And because I heard at a conference, we should be doing it too. And let's do this and let's do this and let's do this and let's do this. And they list out all these initiatives, but they're not connected.

They're not solving the number one constraint of the business. And guess what? The company stays stuck year after year. So you have to identify your initiatives. Those are the hypothesis, like I said, to solving the problem. Then you go run experiments. That's the scientific method.

In the experiments are actions, right? Those are actions you're going to do to advance your initiative forward and to test out your hypothesis and see if you could overcome your problem. Then finally you have to measure, right? How these experiments are going and the results that you're getting from these actions. We call those results, your key results.

And then you will evaluate how you did, and you will just do this over and over again. So that's the high level framework when it comes to strategy development and execution, you identify your strategic problem, you set initiatives, then actions, and then key results. We call those IARs.

That's what we call them here. I called for, I wrote about the IAR framework in my second book called outsizing, but that's what we follow. Now going back to strategy, because this is really important strategy starts with identifying your strategic problem, right? But then you have to identify what does winning actually look like? We call that the shared aspiration.

Next, you have to identify where are you going to compete? We call this market focus and position. Are you going to go after residential or commercial high-end mid-market? Are you going to go after data centers or retail or hospitality or healthcare, whatever it is, but where are you going to compete and how does that position align with your capabilities and your resources and your geography, et cetera, right? So you want to find a market where you can dominate, where you can do really well in. Then you're going to want to define how you're going to compete.

We call this competitive behavior. Are you going to pursue differentiation? Are you going to be a low cost leader? Are you going to go after a niche, right? These are the three generic strategies that exist out there. What about your operating model? How about your technology? What type of activities are you going to pursue? All these decisions are made in that section called how to compete.

Then finally, you're going to evaluate how you're going to win. And this is where we look at resources and returns. And this is where strategy and finance come together.

So when I'm helping a company think through these different parts of strategy and we get to resources and returns, I build out a model and I show them, look, here's the financial feasibility of this certain option. And here are the returns that you can expect, right? And we'll model it all out. And then you determine number one, is it desirable? Number two, is it practical? And number three, is it economical? And when you follow a strategy framework like this, then you're not guessing.

You're not putting a bunch of things up on the wall. And sure, it's good to have a vision and a mission and values for your company, right? That's good. Just don't stop there.

Make sure you get very clear on your strategic problem and you identify your shared aspiration, your market focus and position, your competitive behavior, and the resources and returns that it will take to win in the marketplace. Then when you're done with that, define your initiatives, actions, and results, use the scientific method as the framework, and you will be very successful. The key is though, strategy is not a one-time activity you do with your team at the end of the year or the beginning of the year.

And it's not something you write in a notebook, or it's not a PowerPoint presentation that you create. It's a set of interrelated choices you make about your business. And then you go out there and execute and guess what? You have an intended strategy, but then when you go execute, things are going to come up and then you'll have an emergent strategy.

And then that's where you build, measure, learn, and adjust. And you do this over and over again with your team and you'll start driving really good results. And you'll strengthen the financial performance of your business.

And that's how strategy and finance connect together to increase value. If you ever need any help with this, or you want a second set of eyes on your strategy, you could go to Coltivar.com. We offer a free 20 minute strategy call. So you could book that just by clicking a button.

It's super easy. And that's what I have for you. All right.

So until next episode, take care of yourself. Cheers. I'm a big guy. It's an Italian base word. It's an Italian. It's you could book that. All right. Let me see that again.