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Business Start-Ups

Small Business Design – Is It Necessary?

I’d better make it clear what I mean by small business design. It has little to do with website design or graphic design.

What I mean by small business design is carefully planning out:

  • Who the business will serve.
  • Why the business exists.
  • What benefits the key stakeholders of the business will get – how customers will benefit, how employees will benefit, how suppliers will benefit (including finance providers) and how the owner will benefit.
  • What the business will do.
  • Where the business will operate.

And then building a business that turns the design into reality.

Perhaps less obviously business involves a similar group of negative answers:

  • Who the business won’t serve.
  • What pains and penalties you won’t allow the key stakeholders to suffer.
  • What the business won’t do.
  • Where the business won’t operate.

Business design is about focus and clarity and that’s particularly appropriate in a small business.

Nearly all small businesses have limited resources and like sunlight through a magnifying glass, great power comes from concentrating energy in one small area.

Quoted failure rates for small businesses are terrible and while I feel these are often exaggerated by business advisers and consultants to sell their services, the fact remains that many small businesses fail in one of two ways:

  • A public failure when the business goes bankrupt and creditors and investors lose money.
  • A private failure when the business is closed by the owner after an unprofitable struggle. Third parties don’t lose money but a business owner often loses his or her life’s savings, suffers a huge blow to their pride and is forced into a job they don’t want.

Why does this happen?

Often because the business is managed in a haphazard manner.

There’s no clear business design which focuses attention on the right things and avoids distractions that don’t fit.

Without a clear small business design, the owner is likely to jump from one nice sounding initiative to another, either at their own whim or that of marketers with a new shiny money-making button.

If you’re an email inbox victim and you find your agenda set by what you read first thing in the morning, you’ll know exactly what I mean.

It’s the difference between one housebuilder working to a clear set of architect plans and another who makes it up as he goes along, on a whim and influenced by what he saw each morning on his way to work.

The second is pretty scary if you’ve got a financial interest in that house. It may turn into a masterpiece but the odds are that it won’t and it will take much longer to finish since the builder keeps knocking down what he’s done and starting again.

It’s the same with a small business.

As the business owner, you have a huge financial stake in its success but if you don’t have a clear business design, you’ll keep undoing the progress that you made yesterday because you’ve changed your mind.

My advice is to get clear on the business design you want and what it takes to build it. Be intentional.

When should you start working on your small business design?

First choice, yesterday, second choice today.

Not tomorrow… because there’s a danger that tomorrow never comes and your business design is much too important to leave as one of those “nice to do when I can find the time” activities.

Business design is easiest when you’ve got a blank page to work with – when you’re thinking about starting a business and all the options are in front of you.

It’s harder – but still essential – when your business is up and running.

Yes change has to be managed and yes some people involved in the business may not like the change but many more will love it because their jobs are more secure and enjoyable if your business is well managed.

A business designed to fill the needs of a particular group of customers will be able to develop special expertise, skills, products and services which raise it out of the ordinary and into the extraordinary.

I asked at the start, “is small business design necessary?”

I believe it is critical if your business is going to be as successful as you want it to be.

in 2 – Your Inner Game, Business Start-Ups

A Small Business Can Have A Competitive Advantage

I’m shocked when I talk to business owners who are under the mistaken belief that only big businesses can have a competitive advantage.

It’s not true – you can have a small business with a strong and compelling competitive advantage and in many ways I think it’s much easier to develop a competitive edge in a small business.

Why Business Owners Think Competitive Advantage Belongs To Big Business

First I think there’s “the grass is greener on the other side” problem.

If you believe that you need a big business with a big bank balance to create a strong competitive advantage then it absolves you of the responsibility to develop one. Superficially it makes life easier although I believe it actually makes things much tougher. You get stuck as a commodity seller with low prices and that usually means that profits are low and hours worked are high.

The grass is greener problem usually comes because you see the advantages that come from being a big business but not the disadvantages. You may be surprised to know that the CEO of the big business you envy is probably very aware of the advantages that you have and hopes that you never apply them in the market.

Second there are some advantages that do come with size.

Economies of scale from purchasing, marketing and product development usually create significant cost savings when spread over a large volume. Big businesses often have well known brands precisely because they are big businesses, even if the brand doesn’t come with a clear positioning or meaning.

Economies of scale for production and administration fall as volume increases and then start to rise as dis-economies set in. A large production plant is more likely to have a strong union presence. Administration is replaced with bureaucracy and endless meetings about whether you should change the rules and if so, how.

Big businesses often create a lot of their own problems because they are big businesses.

The Competitive Advantages Of Small Businesses

  1. The ability to niche and differentiate.
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  2. The ability to move with speed.
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  3. The closer relationship, trust and intimacy with customers.
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  4. The closer, relationship, trust and involvement of the team of employees.

Let’s take a look at each.

The Competitive Advantage For A Small Business In Niching

Niching or bullseye marketing lets you develop a particular solution for a particular group of customers with a tightly defined problem to solve. The closer to the customer’s bullseye solution your offering is, the more likely the customer will be convinced to buy.

This is much easier to do in a small business which can prosper in a small niche while a bigger business may need volume that only comes from several market niches.

While bigger businesses can operate in multiple niches, it increases the complexity of the business, reduces focus and increases costs. Competing across several niches may force larger businesses to make compromises in what they offer, forcing their products away from the bullseye.

There are only two main ways to create a competitive advantage and that’s by either having a cost advantage or by differentiating your products and services in ways that are meaningful to your target customers.

The diagram above is the summary of the generic strategies from Michael Porter and his classic strategy book Competitive Strategy. Businesses that fail to choose risk being “stuck in the middle.”

Niche marketing and differentiation are related concepts and rely on you accurately matching the key success factors of suppliers and customers.

The Competitive Advantage That Comes From Speed

Speed is good in business for a number of reasons.

Speed in supplying customers and helping customers to get the benefits of what you sell is a major advantage which is often of vital importance for buyers. We live in the age of “I want it now”. This is why faster is one of the main dimensions in my ABCDEF Model for advantages.

Speed of decision is also vital. I used to work with corporates but there always seemed to be somebody with a reason to delay taking action – another approval stage, another presentation to a committee, the wait to do it out of next year’s budget… Much of it was nonsense and involved people playing with office politics.

This has been a tough year and all indications are that they are going to get tougher as a recession bites. The huge increase in personal and public debt that has been the underlying growth for the last 20 years needs to first be stopped and then repaid. Austerity is likely to be the theme for many years as we see the effects of the artificial bubble.

In these situations the speed to start, to stop, to do more or to do less will make a huge difference in performance. These are management judgements where facts and decisions have to be closely interlinked. Big businesses with long chains of command and company policies will struggle to adapt quickly to what is happening.

The Competitive Advantage For A Small Business In Closer Customer Relationships

Work with a small business and you’re talking directly to the owner and chief decision maker or someone who is close to them.

You can have more faith that they will do what they promise and if they don’t, you have an easy channel to follow to get things fixed.

But deal with big businesses and it’s very different. I hate it when I have to deal with my bank or any utility and go through call centre hell, explaining the problem to person after person. It’s extremely frustrating and time-consuming and where possible, I will choose to work with a small business.

The Competitive Advantage For A Small Business In Closer Employee Relationships

Unless you work as a one man band – like I do – you will rely on your staff to attract, convert and keep customers.

Small businesses have a huge advantage in being able to create a strong connection between the business owner and the employees and with a clear focus on the purpose of the business. In a small business, staff feel more involved in what is happening but in a big business, they normally feel isolated.

This makes it much easier to develop themes and high customer service standards in a small business. The staff feel happier, customers feel happier and you feel happier.

Most Big Businesses Used To Be Small Businesses

Getting bigger is usually the reward for success.

If a small business performs well, then it will usually grow but as it gets bigger, it may be losing the very factors that made it successful.

That’s why I like business owners to focus on profit rather than turnover.

There’s an old saying – sales is vanity, profit is sanity – and it’s very true. You just have to look at the dreadful results of many acquisitions to see that getting bigger is often an illusion for getting better.

There are traps to business growth but, forearmed is forewarned.

in 3 – Your Strategic Positioning, Business Start-Ups

I’m often approached by start-up entrepreneurs and asked to write their business plan.

I won’t do it.

I think it’s a rotten idea.

So does Dragons Den entrepreneur Duncan Bannatyne. I read his book Wake Up And Change Your Life – it’s very good for any aspiring entrepreneur.

In Chapter 4 he says “You’ll find several people offering to write your business plan for you – and charge you an arm and a leg for it.”

Duncan then gives two exceptionally important reasons why you should never get someone else to write your business plan for you:

  1. The first is about the money. He argues that it is poor judgement paying someone else to do something that you can easily do for yourself.
    .
  2. The second is that you’ll understand your business much better if you write your business plan yourself.

I’d add a third reason.

You’ll be much more committed to putting the plan into action if you’ve done it yourself. You’ll have thought through your actions and whether you really intend to do the things you need to do to succeed.

Let’s dig deeper into each.

Spending Money You Don’t Need To On Having A Business Plan Written For You

Very few business start-ups are done with a big pot of cash which lets the entrepreneur splurge and even if there is plenty of money, I recommend you are very careful.

It’s much easier spending money than it is earning it.

Researching and writing a business plan takes a significant amount of time and professional time is expensive. It’s also an area where price and quality are closely related so if you penny pinch and find the cheapest source, you can expect the quality to be poor.

Paying to have your business plan critically reviewed and to get feedback on it is different. You’ll find that family and friends are either very encouraging (you can do anything you want) or very discouraging (you’ll never make it work, it’s much better to stay in your safe job). A professional will tell you what you need to hear and challenge your thoughts and assumptions. You may not like it but it will help you to develop a stronger, more robust plan.

You’ll Understand Your Business Better If You Write The Business Plan Yourself

As a general rule, the more you think, the better prepared you will be for action. You can go too far, and spend all your time thinking and planning but often people leap into action with little thought and hit major problems which were all too predictable.

This thinking and planning is invaluable and it can be very useful to work through a structured thinking process.

If you’ve picked a market that ignites your passion, you should find the research interesting and if you don’t, it may be a warning that the business isn’t right for you.

You’ll Be More Committed To A Business Plan You’ve Written Yourself

Do you work better when you’re told what to do or when you are clear on your objectives and decide what you need to do yourself?

If you want to be told, you may not be cut out for life as an entrepreneur.

If you decide on your own actions, then you’re not going to stick to a plan written by someone else. It’s just words on paper with no meaning.

But if you decide you need to do A, B and C and you commit to it in writing and promise other people (like a bank or investor) then you’re likely to follow through unless you get a better idea. If you don’t, you lose credibility with your financial backers and even more importantly, with yourself.

If you can’t trust yourself to deliver on promises, then who can you trust and why should anyone trust you?

Writing A Business Plan Is Easy

Perhaps easy is the wrong word. It does take time and effort but it’s not complicated. This isn’t brain surgery.

You can do it, words and numbers.

There is business planning software to help you that you can get for a low cost or even free.

What Help Should You Get With Your Business Plan?

I don’t believe you should pay anyone to write your business plan for you but I do think there are services which will help you to get a better business plan. Generally I think it’s a good idea to have a mentor or coach for your business start-up.

  1. Helping you to think better – start-up entrepreneurs can feel overwhelmed by how much could be done so it can be useful to get advice and help on how to focus your thinking on the critical issues. There will be plenty of distractions and people selling bright shiny buttons which promise a lot.
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  2. Reviewing your business plan – you’ll be very lucky if you get constructive criticism of your ideas from family and friends unless they own their own small businesses. Even then, they may struggle to take what they know and apply it to your business idea.
    .
  3. Help with the numbers – the profit and cash flow forecasts are particularly important if you need to raise finance and you don’t want to make errors which show your inexperience. The business planning software certainly helps because trying to model your business in a spreadsheet is complicated.
    .
  4. Polishing up your plan – if your plan is going to third parties to raise finance, it needs to sell your business idea realistically. If your plan is poor quality because you struggle to express your ideas in writing, then it is useful to get someone to tighten up your language and make your business case more persuasive.

Each of these are likely to cost money, but they should be working from a business plan you’ve drafted. You’ve done your thinking and tried to produce a business plan and you recognise that it could be better.

That’s very different from saying to a professional business plan writer, “Can you write my business plan for me please?”

in 2 – Your Inner Game, Business Problems And Mistakes, Business Start-Ups

Differentiation & Business Start-Ups

Is differentiation and how you will attract and convert customers a vital issue that needs your attention while you are thinking about starting a business or is it something that you can afford to leave until your business is more established?

The Role Of Differentiation In Business Start Up Planning

This is one of those irritating questions where the answer is “it depends”.

Differentiation is about establishing positive reasons for customer preference in the buying decision.

In my article, Will Your New Business Start-Up Succeed? I looked at the three big risks that every business must face and conquer.

Differentiation is a key issue in the second risk – can your business survive the competition?

If You Don’t Have Any Competitors?

If you’re selling into a very clear need or want and you are in the very lucky position that you don’t have any competitive rivalry or threats from close substitutes, then differentiation isn’t a core issue that needs to be tackled in your initial business start-up planning.

You can focus more on the demand risk (and whether there is enough demand for the business to be viable because there might be a good reason why this opportunity has been ignored) and the capability risk.

However, your success might attract competitors and at that stage differentiation and defending your market share become critical issues.

If You Do Have Competitors

If you are competing against competitors then there’s only one occasion when differentiation isn’t a critical issue for your start-up business planning. That’s if demand is much larger than supply and you confidently expect that situation to continue for the foreseeable future.

Few of us are in that situation.

Usually we have spare capacity and so do our competitors. Winning a customer increases our profits and losing an opportunity reduces their profits. If competitive rivalry is intense, then price wars can easily develop unless customers’ bargaining power is reduced by forcing them to make a choice between products and services that aren’t commodities.

If you’ve got competitors, you need to be thinking about target marketing and about what it takes to win business rather than just get in the game.

That means that you’ve got to have a very clear differentiation strategy from the very beginning.

And as you’re clear, you can build it in to everything your business does, inside and outside its boundaries. Your differentiation strategy has a big impact on what you say in your marketing and in how you structure and manage your business.

in 3 – Your Strategic Positioning, Business Start-Ups

It is very tempting when you are starting a business to cast your net too widely and to try to appeal to many types of customer.

The problem is that by being so general, you finish up talking to no one.

I think it’s easier to see how crazy this is by stepping out of the business world.

Who To Date?

Imagine that you are a lonely man looking for a date.

The problem is, you don’t seem to meet many women in your everyday life so you decide to do what many others do and write a personal advertisement in your local newspaper. (Or go through one of the dating websites/apps.)

You could take the easy way out because you’re not sure what you want.

“Woman wanted – any age”

That’s pretty clear and you’ve not ruled out anyone because they are just outside any artificial criteria you set.

Not many words either so it won’t cost much.

You advertise.

Nothing happens.

Why?

Because the advert is from a desperate man.

You may as well have said

“I am a desperate man. Any woman will do.”

And that’s not a very attractive proposition.

So you stop to think what you want and narrow it down a bit.

If Cheryl Cole is your ideal woman, you identify the following characteristics:

Beautiful

Slim

Wealthy

Successful singer and personality

Geordie

Aged 37 (she was born 30 June 1983)

That’s given you something to work with.

Now Cheryl Cole probably doesn’t read the personal ads in your local paper so your ad has to say more than “Cheryl Cole call me” but someone like her may.

Which characteristics are most important to you?

Does a woman have to be beautiful, or the less exclusive “nice looking” or perhaps looks aren’t important to you.

Does she have to be a Geordie or just support Newcastle United?

The more you refine what you are looking for, the more you can write a personal ad which will attract the type of woman you do want to meet. Of course, you need to tell the truth but you’ll want to emphasise certain things your ideal woman finds attractive.

The alternative is, you are so desperate any woman will do.

It’s the same in business.

Holding your arms out and shouting “Any customer will do” won’t attract anyone.

You want to attract those customers who are right for you.

Those who give you an opportunity to do your best work. You need to define your marketing bullseye.

in 3 – Your Strategic Positioning, Business Start-Ups

Will Your New Business Start-Up Succeed?

Have you ever seen the TV programme Dragons’ Den where entrepreneurs and inventors pitch for real money from multi-millionaire investors?

The Dragons only have a short time to decide if they are going to invest based on whether they think the business that is being pitched to them will succeed or fail.

How do they do it?

How can the Dragons or any other experienced entrepreneur or investor decide if a business is going to succeed so quickly and especially if the new business start-up has little or even no track record?

Or how would you do it if you were in their place, listening to an eager and persuasive pitch from an ambitious entrepreneur eager for your cash?

I look at three major risks for new business start-ups and any business that hasn’t really established its position in the market:

  • Market risk – is there demand from customers and clients? Does the product or service solve a pressing problem? Will people be willing to pay for this solution to a problem?
  • Competitive risk – can the business survive competition? How is  the business or the product differentiated and is that differentiation sustainable?
  • Capability risk – can the business owner and business deliver on the marketing promises? Is he or she prepared to do whatever is necessary to make the business succeed?

Which factor is most important?

They are all vital and you need to make sure that you’re getting three Yesses.

Preferably three loud, proud Yesses.

Demand Risk – Will Customers Buy The Generic Product or Service?

A business operating in a weak market – either with a solution to a problem that no one really cares about or with an unconvincing solution to a real problem – will struggle to first attract attention and second to convert some attention into paying customers.

This is the focus of step 4 your customers and step 5 the future are so important in my differentiation process. It gives you the understanding of what customers want and what frustrates them about the current solutions as well as looking at how those needs are likely to change in the future.

Competitive Risk – Will Competitors Offer A Product Which is Preferred By Many Customers Because It Is Better Or Cheaper?

A business which is uncompetitive or too similar to existing competitors in a strong market will be ignored. If competitors are better and cheaper, then you’ve got huge problems. What are the economics of the business like? Are margins high or low? Is the break even point realistic?

This is the main focus of my differentiation process, from step 3 on your competitors, step 4 customers, step 5 the future, step 7 your differentiation options and step 8 the differentiation strategy you choose.

Capability Risk – Can You Really Deliver On The Promises You Make To Customers?

A business may have a great market and appear very attractive but if it can’t deliver on the marketing promises, then unhappy customers will create chaos and ultimately destroy the brand.

Negative word of mouth can be even more powerful than positive recommendations and the big number of Internet searches for scams shows that buyers have learnt to be wary.

Step 2 of my differentiation process looks at your existing business (or your underlying skills if the business hasn’t started) and step 6  delves deeper after you’ve done the work on looking at customers, competitors and the future.

Putting It Together

Finally, your business may score three big Yesses but if you’re not prepared to do what it takes to be successful because of hang ups about sales and marketing or building a team to do the work necessary, then the business is never going to grow to its potential.

Steps 9 and 10 of my differentiation process are concerned with communicating with staff and the market.

If you’re going to invest your money – or your time and energy – you need to check the market risk, the competitive risk and the capability risk.

One risk can cause your business venture to fail. If there are problems in all three areas, then you’re best not to start.

What Do You Think?

What do you look for when assessing a business idea?

in Business Start-Ups

Will My New Business Idea Succeed?

Entrepreneurs often suffer from having far too many business ideas rather than too few.

It’s something that sets them apart from the rest of the world.

These people see a problem and their imagination fires up with clever solutions that could be big moneymakers.

These serial entrepreneurs need to carefully filter these ideas. [continue reading…]

in Business Start-Ups

What Should I Do Before Starting A Business?

It’s very exciting to think  or even dream about starting a business but you need to get down to practicalities very early on in the process if you’re going to turn your dream into a successful reality. Mistakes made early on can prove to be very expensive to correct.

What Should I Do Before Starting A Business?

1 – Start Your Own Business Diary

It’s a good idea to start a business diary to record your thoughts, feelings and beliefs as you begin the process.

There are two good reasons for doing this: [continue reading…]

in Business Start-Ups

Buy Then Build by Walker Deibel

The full title of this book by Walker Deibel is

Buy Then Build: How Acquisition Entrepreneurs Outsmart the Startup Game

In my review posted on Amazon.co.uk, I gave the book a Four Stars rating. This means it is Good to Very Good.

Here is my book review.

Very well written guide to being an acquisition entrepreneur

Can you succeed by buying a business? [continue reading…]

in Best Business Books, Business Start-Ups

The Lean Startup by Eric Ries

The full title of this book by Eric Ries is

The Lean Startup: How Constant Innovation Creates Radically Successful Businesses

In my review posted on Amazon.co.uk, I gave the book a 5 Stars rating. This means it is Excellent.

Here is my book review.

An essential essential book for start-up entrepreneurs

I read this book years ago but never got around to reviewing it. I’ve just read it two more times in the last year. It is that good.

I see it as an essential book for start-up entrepreneurs. It is packed with important truths. [continue reading…]

in Best Business Books, Business Start-Ups