How would you explain the term “strategy” to a child?

Once I heard that if I couldn’t explain what I do for a living to a six-year-old child, I knew nothing about that. It made me think about…

Once I heard that if I couldn’t explain what I do for a living to a six-year-old child, I knew nothing about that. It made me think about how I would tell kids about business strategy, and then I had a couple of chances to test my ideas. So that’s how I do this.

Pottery factory

Imagine that you decided to earn some money, so you buy some clay, make a pot, and sell it. You sold the pot for a higher price than you bought the clay, didn’t you? You can do it because you have added value to the clay. Nobody needs clay, but many people need pots.

You see it as a business opportunity. So you buy more clay and make more pots. You create value for your customers, and they are ready to pay.

But then you notice that people need more pots than you can make alone. So, you hire workers to help you. You pay them a salary and provide good working conditions, so now you create value for them also. If you don’t, they will go to make pots somewhere else.

Then you notice that people don’t want to buy simple clay pots anymore. They want lovely, painted pots. They want to buy beautiful cups made of glass, etc. You would like to offer them these things, but to do so, you need to build a big factory full of machinery. But it requires a lot of money, and you don’t have it. So, you look for people or organizations (banks, for example) who can lend you enough money to build the plant. And if you find them, you need to create value for them. They want to get more money back than they lend you.

Other kids look at your success and build their own factories. So, now you have competition, which means you must create even more value for your consumers. For instance, you may want to offer them better products for a lower price.

Now you are an owner of a large factory manufacturing different kinds of pottery. To make it run, you need many suppliers of clay, sand for glass, paints, etc. You need reliable suppliers, so you have to create value for them also. For example, you may promise them to buy their materials regularly and for a reasonable price.

Then your neighbors come to you and complain that your factory pollutes the river where they fish and wash their clothes. You respect your neighbors, so you buy equipment that cleans the river. Now you create value for the environment as well.

So, business is creating value for many groups of people. We call them “stakeholders,” and among them are customers, investors, employees, suppliers, neighborhood, etc. Your business must create value for you, too — otherwise, it isn’t worth doing. You may make a lot of money and are proud of the value you create for so many people.

But the laws of nature are such that all these stakeholders (including you) would like to have more value yearly. So, a strategy is a long-term plan on how to provide more value for all of them in the future.

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