How Do You Evaluate Tradeoffs Between Strategic Options?

A company's primary objectives this year are to hone their business model and establish their first satellite office as a model for future company expansion. An opportunity has arisen from a trusted friend that could rapidly expand the business and opening of satellite offices by providing service to a single national client. However, this opportunity would shift time, focus and resources from the company's current focus. How do you evaluate the tradeoffs between these options?

Advice from the CEOs:

This is appealing because it presents an opportunity to rapidly build the company's satellite office system on someone else's nickel. However there are several factors to consider.

What is the impact of this option on client diversity? One of Porter's fundamentals of strategy is to not have too much of your business dependent on any one customer. The risk level is high if you invest too much in this effort and the large client decides to walk away.

What is the impact of this opportunity on your personnel, time and resources? You may risk your overall strategy if this opportunity consumes too much time and resource. Are there areas in which this opportunity will save time and resources, for example by consolidating some back-office functions like billing and accounting? If so this may offset some of the effort that you will expend setting up the relationship.

If you feel that this opportunity will take an inordinate amount of time and focus, consider starting a new company to take advantage of this opportunity, or form an LLC with a partner to do it.

Use a decision-making grid to evaluate the new opportunity versus your present strategy. Identify the most important factors of both your current strategy and the new opportunity.Weight the importance of each factor as a percent of with the total adding up to 100%. Rank each opportunity against each factor. Multiply the factor ranking times the weight for each ranking. Sum the weighted rankings. See whether the summed rankings support of contradict your gut feeling, and further analyze depending on the result.

Once you have identified the risks in this proposition, determine contract provisions that will reduce these risks to acceptable levels. If the potential client is unwilling to yield enough of these points in the contracting stage to acceptably mitigate your risks, then walk away from the deal.

Don't risk your entire company for one opportunity. Financial rewards are only a scorecard. Consider the impact of this opportunity on both the business and your overall quality of life.