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Business Owners

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.
  2. The ability to move with speed.
  3. The closer relationship, trust and intimacy with customers.
  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

More Money More Fun Less Effort

What do you want from your business?

That’s a fundamental question to ask when thinking about your business strategy.

But how often do you stop to think about it?

The answer probably has two categories:

1) what you want for your customers;
2) what you want for yourself as business owner.

Much of this blog looks at what the business can give its customers in terms of unique customer value.

What should you get for your time, energy, ideas and money invested?

I think it comes down to more money, more fun and less effort.

The job of strategy is to make sure you get what you want while giving customers what they want.

in 2 – Your Inner Game, 3 – Your Strategic Positioning

What To Do If You Want To Start A Business

Many people dream about “being their own boss” and, perhaps, you’re one of them.

Others find them forced into self employment and starting a business because they were made redundant from what they thought was a secure job and either, are struggling to get another job or don’t want to go through their recent traumas again.

I started my consultancy/training/coaching business in 1995 and I’ve never regretted it even though I had a few nights where I’d wake up in a cold sweat, wondering what I was doing.

The Different Ways You Can Become A Business Owner

There are many different routes into becoming a business owner:

  1. Starting a business from scratch on your own.
  2. Starting a business with a partner.
  3. Buying a business on your own.
  4. Buying a business with a partner.
  5. Buying into an existing business, perhaps because the existing business owner either needs more cash or wants to reduce his or her hours of work.
  6. Buying a franchise.

[continue reading…]

in Business Problems And Mistakes

Why Is Strategy Important To Business Owners?

It’s easy to see why strategy is important for big businesses but why is it important for business owners as well?

What is Strategy?

In the article:

>>> What Is Strategy And Strategic Positioning?

I defined strategy as:

“How you achieve your own objectives by winning the hearts, minds and business of customers by out-thinking and outmanoeuvring competitors.”

This puts the emphasis on:

  • your objectives
  • winning and then delighting customers
  • whilst having competitors trying to stop you.

Hidden from view but still important is the fact that you have to do this in a wider economic, political and social environment that may help or may inhibit what you want to achieve.

Boom times make it easier to achieve your objectives. Recessions force you and your customers to up their game or risk finding that they can no longer afford to play it.

Why Is Strategy Important To Big Businesses?

Before looking at why owner-managers need to take the time crafting a strategy, I think it’s worth looking at the benefits of strategy to big businesses. [continue reading…]

in 3 – Your Strategic Positioning

3 Personality Traits For Starting A Business

I regularly read the Harvard Business School blog and many of the articles are for big businesses but one inspired me to give you my own thoughts.

If you are thinking about starting a small business, see how you measure up to these three personality traits:

  • Practical
  • Purposeful
  • Impatient

First, if you’re starting a business, you need to understand that the world is very different from being employed.

There’s no one to look after you and do the things you don’t like to do or the things you don’t know how to do unless you find someone competent to delegate to. The brutal truth is that there are plenty of jobs that must get done and you’re the person who is going to have to do them.

That’s why you must be practical.

You can’t have your head in the sky without your feet firmly planted on the floor.

Ask yourself the difficult questions you might have been avoiding and get yourself a plan.

Yes it might change.

That’s what a plan is for – to get your thinking down on paper so you can think about the implications and consequences. It also acts as a great record of what you are thinking because your ideas will change as you learn more.

The second point is to be purposeful.

This comes back to planning too.

Have a clear destination.

Clients know that I use a short quote from Chinese philosopher Confucius to them – “a man who chases two rabbits catches neither.”

It’s much better to decide which rabbit you want and focus your time, energy and money on getting it.

I believe that your big task as a new business owner is to find ways that you can create value for customers that’s different or better than your competitors.

The last trait is impatient.

I see two types of entrepreneurs.

The first is very patient and accepts that it takes time to develop a market, to make sales and especially to make money.

The second is impatient.

I prefer the second.

Focus your business on taking action and getting results.

You do need to do some thinking upfront. Otherwise, you can very quickly make expensive mistakes.

But you don’t know for sure that something is going to work until you’ve taken action and seen the response.

If it doesn’t work, check that you’re clear on the purpose and then change what you’re doing.

I like these three personality traits for starting a business. If you’d like to read the original article on the Harvard Business School blog, go to Three Traits of Successful Entrepreneurs

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