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Business Planning

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

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.
  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

How To Find Your Niche Market

In this article, I will look at the issues involved with finding and selecting a niche market that will help your business to attract, convert and keep customers.

What Is A Niche Market?

A niche market is a small segment of a bigger, more general market that you can specifically target in your marketing and sales efforts. Done right, niche marketing goes even further because it completely affects the way you design and operate your business.

Defining a niche market needs me to define a market.

A market is a group of customers with specific wants and needs who decide to buy particular products and services for what those items can do for them.

By definition, the car market is the big group of people who buy cars.

That’s self evident.

But you need to go further.

The car market is the group of people who buy cars because they want or need flexible, personal transport that puts them in control of where they go and when they go.

That definition helps you to understand why people buy cars rather than use public transport as a viable substitute product or service.

Two seater sports cars is a niche within the car market for people who only need to worry about transporting themselves and possibly a passenger and want to do it in a certain style. Buying a sports car says a lot about the person and what he or she values. Even this niche can be to big which is why there is a one seater sports car (the Briggs Mono).

Why You Need A Niche Market

In some ways it makes sense to think that you want to target a big market rather than a small one. It gives you more customers who could buy your product.

There are two flaws in this thinking.

  1. You should be more interested in the balance between demand and supply in a market. A huge market where there is already more supply than demand is going to be extremely competitive and it’s going to be difficult to make a profit. If demand is much bigger than supply, then prices and profits can be high and customers have little choice than to buy (although this may change over the long term as new competitors enter the market).
  2. A smaller, more focused market means that your product can match the wants and needs of the customers while a bigger, more general market has more diverse needs and you can struggle to convince possible customers to make the buying decision, which means you miss the marketing bullseye.

Effective marketing is all about getting the right marketing message or offer in front of the right customers in the right way at the right time or as often as necessary (the 4 Ms Of Marketing).

Having a niche makes it much easier to:

  • get the message right
  • get the choices about marketing media right
  • keep putting the message and offer in front of the eyes and ears of possible customers.

I can’t emphasise enough how important it is to see marketing as a process where through a series of contacts you turn someone who has a general problem, want or need into someone who trusts you enough to give you money for the product or services you can provide. It rarely happens in one contact or touch unless the problem is urgent.

The Three Big Issues To Confront When Choosing Your Niche Market

In my article, Will Your New Business Succeed? I talked about the three big risks:

  • Demand risk
  • Competitive risk
  • Capability risk

All three need to be considered when you are looking to choose your niche market.

Thinking about the demand risk for your niche market:

  • is the demand real? Will customers pay enough money to solve the problem or to meet their wants and needs? You only need to watch a TV programme like Dragons Den to see would be entrepreneurs trying to solve a problem that few other people care about.
  • is demand big enough to support your business? This is a particular problem for businesses who find that demand is restricted by location issues. Conversely the Internet has made many more niche markets viable because it can bring customers from all over the world to a business.

Competitive risk means facing up to issues like:

Capability risk looks at the issue of whether the business has the capabilities and competences needed to deliver on the promises made in marketing to attract and convert customers.

Niche Marketing And Differentiation

Are niche marketing and differentiation the same concept?

No I don’t think they are but the ideas are related.

When you select a niche market, you cut down the number of competitors and customers who will be attracted to that niche.

Perhaps there are 50 competitors in the general market but only 5 in the niche. Think about moving from looking at small hotels to 5 star luxury hotels in a small city for example. The differences between the two groups is much bigger than teh difference within the groups.

When you’re differentiated, you create a market of one. If the customer wants the value proposition you offer, he or she has to buy from you.

Some times, selecting a niche automatically differentiate you from your competitors because no other business has chosen to target that particular niche. Going back to the hotel example, perhaps there is only one 5 star luxury hotel in a small city.

How To Find Your Niche Market

At its core, your niche market defines:

  • Who your customers are:
  • What they want and need to buy

Occasionally it can also involve some of the other big questions that can be used to differentiate your business – where, why, how, how many and how much.

I think it’s useful to draw a customer value map of the market you are working within or thinking about entering. This will encourage you to think about the different price points that customers buy at and the different customer value alternatives.

Many people find it difficult to think abstractly about a market and what customers want and need and persuades them to buy. It’s easier to compare two offerings at a similar price point and to see how they are similar and different. This lets you focus on the factors of differentiation.

You can do the same exercise at a different price point (it can be useful to look at economy, mid-market and premium prices) to get a better idea of the dimensions of differentiation.

Let’s think about cars again as the brands are meaningful worldwide.

A Rolls Royce and a Lamborghini may have very similar prices and they both meet the need to combine personalised transport with status but the attributes of the customer value proposition are very different and aren’t in the same niche market.

The customer value attributes of these cars are very different in some ways but similar in others. Both are expensive, offer massive prestige and status (who says “he only has a Lamborghini or Rolls Royce”?) and have big powerful engines that make the cars much faster than the average car.

The Rolls Royce emphasises comfort, space, ride quality. The Lamborghini has head-turning looks, incredible performance and astonishing road-holding and handling.

It can be worth looking at where customers have to make compromises and how readily the customers accept the problems. Anyone who can afford a Lamborghini or Rolls Royce probably doesn’t need to care about fuel consumption but perhaps the person has green views and would prefer lower emissions and more miles to the gallon. Depreciation may also be an issue if the person wants to replace the car every twelve months. These issues can help to explain how products can be differentiated within a niche market.

Once you’re clear on the main dimensions of differentiation, you can look at the different combinations that already exist in the market.

It can be useful to map two dimensions on an x-y graph so you can see how the competitors fit together. A 2×2 or 3×3 matrix can give you enough detail or you can increase the number of categories along each axis.

Think about the car market and the number of seats and price for example. To my knowledge, there is only the Briggs Mono that has one seat, so whatever price point it occupies, there is a potential niche to either side in price. In the mass market sectors, there will be a lot of cars with four and five seats around the main price points. These niches already have competition.

However, if you take one of those differentiation dimensions (e.g. number of seats) and then combine it with another (fuel economy) you may find that what looked like a busy niche has an opportunity gap.

Remember, if you’re looking at a niche market without any existing competitors, you need to consider demand risk very carefully. Perhaps there’s a good reason why this niche market is empty. If there are already competitors and the niche doesn’t subdivide nicely on another factor of differentiation, you need to think about whether you can survive competition by having low costs by producing at the minimum efficient scale.

By this stage, you should have a few ideas for the niche market you want to target in terms of the who and want (and possibly the other big questions).

At this stage your niche can have competitors because you’ll be looking at how to differentiate it within the niche later on.

The concern is whether the niche provides the opportunity for profit over the longer term. You don’t want to target a niche and find that it disappears after a couple of years.

The two main strategy models to think about are:

Many people are familiar with these two techniques but they are often done badly and therefore provide little of the long term insight that may be available about how the niche market can develop.

The SKEPTIC Model combines them together which can be useful if you’re jaded about the two individual strategy techniques.

As you look forward, you may find yourself looking at different potential trends and perhaps a few either/or situations. If these look to offer significant strategic risk, you may need to use scenario planning to develop a clearer view of the future.

Once you’re satisfied that your proposed niche has a good future, you can start looking in more detail at your strategic options. This will usually involve summarising the strengths, weaknesses, opportunities and threats in a SWOT chart.

If you’ve got an established business, you need to look at how well it can serve the chosen niche market. The value chain is a useful technique for looking at internal capabilities and resources and how everything you do ties together to form your competitive advantages.

If you’re starting a new business in a niche, you have the luxury of designing your business model from scratch.

Either way, you need to try to avoid the mistakes made in differentiation and not let your mind fall into any of the niche marketing myths.

Summary Of How To Choose Your Niche Market

Choosing a niche market can be easy for some people. The answer is obvious based on their past knowledge and experience or a huge gap in the market that is crying out to be filled.

Other people find it much harder. It is scary to choose a niche market or to differentiate a business within a niche.

Selecting a niche means saying Yes to some combination of customers and products/services.

More importantly it involves saying No to many more alternative combinations.

The strength and big advantage of niche marketing is that it gives the business focus, hopefully laser focus on a particular set of customers, products and services and the underlying capabilities needed to deliver customer value at a fair price. It gives the business a strong vision and makes it easier to ignore opportunities that arise outside of the vision.

How Did You Select Your Niche Market?

I’d like to collect a series of stories about how businesses decided on particular niches so if you’ve got a niche, please leave a comment.

in 3 – Your Strategic Positioning, 4 – Lead Generation

One Day Strategy Workshop – Is It A Good Use Of Your Time?

Is it a good idea to have a one-day strategy workshop or planning workshop?

Why You Might Want A Strategy Workshop

Let’s imagine that your business performance has dipped or you fear that it might because of recent changes in environment conditions, customer needs or competitors.

And you get approached by a firm of strategy consultants, marketing consultants or even your accountants and you get offered the opportunity to have a one-day strategic planning workshop, either at your offices or at a nearby hotel.

Is A Workshop A Good Use Of Your Time?

Should you commit to a one-day strategy workshop? Is it a good idea? Well that depends.

It’s certainly a good idea to think about your business and how it can face up to the new challenges.

It’s a good idea to get your management team together and to shift their focus from the urgent:

  • Can we get this order out tonight; what can we do now that Bloggs has told us they can’t deliver for two weeks;
  • Can we still make our payroll payment if Jones doesn’t pay us…

to the important – how can we compete more effectively in the foreseeable future.

But whether a strategic planning workshop is a good idea depends on how big your issues are, how much things have changed since your last detailed review of strategy, how many options you have for the future and the differences of opinion in your management team.

The Problem Of A One-Day Strategy Workshop

The problem is that a one-day strategic planning workshop is by definition, done in a day.

I suppose you could see that as 24 hours but since you’re talking about the big, important issues for the future of your business, you need peoples’ brains to be in tip-top condition.

And one day strategy workshops can be frantic and frenzied.

To cover the subjects needed, they can gloss over the surface and give little comfort that you’ve really got to the bottom of the big dilemmas that you face.

A Typical One-Day Workshop Agenda

I’d expect you to have an agenda that looks pulls together some topics from the  following list:

  1. Your current business and the issues you face
  2. Your objectives for the business, family (it is a family business) and personally
  3. What’s happening in the wider environment
  4. Your customers, what they want and how their needs will change in the future
  5. Your competitors, how they’ve changed since your last strategic planning workshop and how they are likely to change over the next year or two
  6. A performance review of your sales, margins and other important financials
  7. Your current strengths, weakness, opportunities and threats
  8. Your strategic options
  9. Selecting your preferred strategies
  10. A financial forecast of how the actions are likely to impact on your business to make sure that your business objectives will be met
  11. A gap analysis and further actions that need to be taken to close any gap between what you expect and what you want
  12. An action plan that identified what needs to be done, by whom and by when
  13. A communication plan for how you can share your intentions with the staff who will be involved in implementing the new strategy but haven’t been involved in the planning process.

I don’t know about you but I think that’s a scary amount of work to get done in one day.

Especially when we are talking about business strategy – the most important responsibility for a senior management team.

It may even be tough to cover the strategic planning workshop agenda in three consecutive days if you want proper debate rather than going through the motions and rubber-stamping the current popular ideas on how the business should be developed.

The Strategy Process In The Real World

Strategy isn’t a nice, linear process where you do step 1, then step 2 and then 3.

Strategy is about learning, reflecting and gaining insights.

It’s about building a shared vision of the future and what it will take to win.

It’s about change and that could mean moving in favour of one customer group  rather than another.

You may not be able to agree on current customer needs because it is surprising how different people see different things as important, even if the customer segments and niches are tightly defined.

And if you can’t agree on what’s most important to customers now, you have little chance to agree what will be the critical issues in one or two years time.

You need time to check with customers and understand their issues and problems.

But you can’t do that if you’re in a frenzied one-day or three-day workshop.

But it’s not just customers you need to think about.

A workshop can highlight just how little agreed consensus there is about all the important issues in a business.

I was talking to a friend who held a planning day, and he asked each of them to think about what they wanted for the business and themselves in five years time. Two came back and said that wanted to retire well before then but it had never been discussed before. Inevitably the meeting went off-topic but it surfaced issues that had to be resolved before the business could refocus.

The Advantages Of A One-Day Strategy Workshop

I’m not against one day strategic planning workshops because they can be exciting, dynamic, invigorating sessions that move you away from the urgent to the important.

A strategy workshop can your management team involved in thinking about the overall business and away from narrow functional positions.

I just don’t want you to have unrealistic expectations.

A one-day event is about tweaking your current strategy or getting the team reconnected with it.

If you face more fundamental challenges, then you’d be doing your business a grave disservice if you think you can plan its future in one day.

What is The Future Of Your Business Worth To You?

I read somewhere that you should spend 5% of your time thinking about the future of your business and working on your plans.

I think that’s about right.

It works out at one day a month and not one day a year.

A plan and strategy should be a living thing that adapts as conditions change.

Helmuth van Molke, a German field marshall in the first world war said

“No plan survives contact with the enemy.”

That’s certainly true and explains why Dwight Eisenhower said

“Plans are nothing; planning is everything”.

Have You Held A One-Day Strategy Workshop?

Have you done a one-day workshop in your business and if so, did you find it helpful?

Did it help you to put together a strategic plan which you then followed through and implemented.

Please leave a comment and let me know about your experience of a strategic planning workshop.

in 3 – Your Strategic Positioning

Peeling The Strategy Onion

The idea of working on your strategy and the entire strategy planning and management process can be daunting.

So daunting that it can put many business owners off.

And that leaves them stuck trying to get improved profit performance from implementing tactics.

I believe they are missing a big trick and it’s a trick that keeps running a business as hard work.

I first mentioned the idea of the Strategy Onion in my post Strategy From The Outside In or Inside Out

Strategic analysis can be extremely time-consuming as you look across the time periods – past, present and future to understand what’s happening, why it’s happening and how things are likely to change.

That’s why I like to think of strategy as an onion crossed with an orange.

You can think of it in terms of the different layers and segments.

You could go from top to bottom (i.e. down all the layers) in all the different aspects of your business (the segments).

Or can screen it by identifying what’s important and essential and what’s minor and trivial.

That way you spend your time investigating, analysing and thinking about what matters and skimp on the minor and the trivial.

Some industries are in chaos after major new discontinuities which have changed the basis of competition, some can see the threat coming and need to prepare and others are nice and stable.

Some customers are changing their needs and wants, some are stable.

Some markets are disrupted by a scary new competitor, some are ripe for disruption and some are stable and unattractive to new entrants.

The work you need to do in strategic planning and differentiating your business will depend on what is happening and what could happen.

You may be lucky and trade in a nice placid, protected harbour or you could be caught in a small dinghy 500 miles away from land and in the middle of a huge storm.

Your strategic planning process needs to reflect your world.

You can waste many hours looking for threats that aren’t there – or you can skimp over a clear and present danger.

That’s where the idea of peeling the strategy onion comes in.

A quick check on what’s happening and the likely consequences for the generic strategy models.

It’s not strategic planning but it is a strategic business health check or what I call a Strategic Snapshot.

And it’s the first stage in my process for differentiating your business.

in 3 – Your Strategic Positioning

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

Strategy From The Outside In Or Inside Out

As a business owner you have a simple choice.

You can:

  1. Run your business opportunistically, jumping from one thing to the next which looks as if it could make you money; or
  2. You can develop a strategy to create success in your market and then which guides your actions and decisions.

The first may work but the second increases your chances of success.

But where do you start?

Strategy (and business management) is about:

  • using your resources and capabilities to create products and services
  • which are bought by customers in preference to competitors
  • to meet their wants and needs and
  • make you a profit
  • while at the same time your business is being affected by the wider business environment.

That’s five things that have to be lined up for a winning strategy:

  1. Your resources and capabilities;
  2. Your products;
  3. Your customers’ wants and needs;
  4. Your competitors; and
  5. The wider environment.

The first two are internal and the remainder are external.

Where Do You Begin In Your Strategic Thinking

Do you start with your products and ask yourself who else may buy them?

Or with your resources and capabilities and ask what else can you make which customers will want?

Or do you start with customers and decide first who you want to serve and then find out what they want to buy?

Or should you focus on competitors to spot weaknesses where you can defeat them and capture their customers?

Or do you recognise that your strategy is not about today’s markets but those of tomorrow and you need to understand how things will change in the next 2 to 5 years so that you are better prepared than your competitors for what is most likely to happen?

It’s tough to know where to start in your strategic thinking.

I laugh when I see business strategy advisors present a wonderfully linear process – first you do this, then that and then third…

Effective strategy in the real world isn’t like that.

It’s messy.

Yes strategy is messy

You’ve got to cover all five factors and perhaps a few others as well. (For example a subsidiary may be constrained by what its parent company management want to do, a family business may have to think about the retirement of the founder and the transfer of ownership within the family or outside it.)

But what you learn in one area affects what you think in another.

You can button down what you think customers want and then when you do the business environment research, you realise that customer needs are likely to change. And you look at your competitors and see who is strong for today and notice a small competitor who seems well positioned for the future. The competitor who you thought you had to beat has been replaced by another who is already ahead of you in the race to the future markets.

Make Strategy By Peeling the Strategy Onion

I encourage you to think of peeling the strategy onion (but with segments like an orange).

Start to see strategy as a process where you can go down to different levels in the different areas depending on what looks relevant and interesting (i.e. it is a source for competitive advantage and increased profit).

Strategy can seem very daunting if you think you’ve got to get all the way to the middle in each area. It’s time-consuming and mentally exhausting.

But it doesn’t have to be like that.

Some strategy is better than none

A direction gives you guidance, even if you don’t have it planned in great detail.

As an analogy, think of it as going on holiday.

Until you decide key factors like when and where, it’s very difficult to focus your thinking.

Pinning it down to June and Spain makes the number of choices much more manageable.

Deciding a budget and what you want to do on the holiday (go to see the sights, lie on the beach or a bit of both) again narrows down your options until finally you have a choice of a few alternatives and you can pick the one that feels best or offers the best value for money.

Some people will leave their holiday planning at that level while others will go to the next level and start scheduling out their days – what they will do and where they will go. Some will even create a schedule for each day based on what’s open when, so they don’t leave anything to chance.

The important thing is that you start and finish your holiday planning by doing enough to have the kind of holiday you really want.

It’s the same with business strategy which is designed to help you to get the business you really want.

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Why Are Some Companies More Profitable Than Others?

There are two fundamental questions that business owners and managers ask all over the world:

  • Why are some companies and businesses more profitable than others?

It’s a great starting point for the second, and even more important question.

  • How can we this business or company more profitable?

Profit Or Sales

We know some people focus on the wrong issue.

They look to grow the top line rather than the bottom line in the mistaken belief that high sales revenue automatically leads to high profits.

That’s nonsense of course.

The biggest corporate losses in history come from giant businesses with huge sales revenues.

There’s a famous saying, sometimes called the Banker’s Mantra:

“Turnover is vanity, profit is sanity but cash is reality”

My advice is to forget all the ideas about mergers and acquisitions that create big businesses unless a very strong case can be made for much bigger bottom line profits.

Why Are Some Companies More Profitable Than Others?

This is the question that Professor Michael Porter set out to answer in his book, Competitive Strategy in 1980.

His answer was surprisingly simple although the answers led to some very cl;ever thinking on complicated subjects.

The most profitable businesses:

  • Operate in industries that are particularly profitable; and
  • Have big competitive advantages that mean they can capture a bigger share of the available profits than their competitors.

Businesses can make a good profit by meeting one of those conditions.

The weaker the performance in each dimension, the worse the business will perform so the most unprofitable companies:

  • Operate in a horrible industry; and
  • Have big competitive disadvantages which make it difficult to win business from customers or to service any orders profitably.

That’s why strategy is concerned with both the inside and the outside issues of a business.

It’s only by looking at both aspects that a business can map out the most likely route to profitable success.

What Can You Do To Make Sure You Have A Profitable Business?

Do you have a business or are you thinking about starting a business?

If you’re starting, you need to think about?

  • Is the market niche you’re thinking about entering an attractive one that can provide you with good profits or is it a potential profit trap? The Five Competitive Forces Analysis and STEP Analysis are good starting points.
  • When you enter this market, will you have a competitive advantage in terms of a differentiated value proposition or lower costs?

If the answer is No to both questions, don’t waste your time and money.It’s better to find another business opportunity that excites you.

If you have two Maybe’s or a Yes and a No, I think you need to think very carefully. Consider your options. Is this a market that you’re really committed to? Can you find a better niche? Can you find a business proposition and model that offers you the chance to have a competitive advantage?

A useful article to read is Will My New Business Venture Succeed Or Fail?

If you already have a business and it’s not performing very well, I think you need to ask yourself three questions:

  1. If the market is bad, can you find a more profitable niche or segment that you can move to with confidence? This is easier if you’re a general business who needs to specialise rather than a specialist who has a reputation in one field and needs to jump to another specialism.
  2. Do you have a competitive advantage that you’re not making the most of (it happens) that you can promote more extensively or can you development a competitive advantage (differentiation is usually easier than cost leadership)?
  3. Are things so bad that you need to leave this market by selling or closing the business? Sometimes a business that isn’t commercial viable on its own can become a profitable sideline in a better established business through synergies and shared costs.
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The Benefits Of Strategic Planning

I’ve been writing about differentiation in particular and strategic planning in general and I’ve just realised that I’ve not gone through the benefits of strategic planning.

I’m planning to fill that oversight now.

The Big Benefits Of Strategic Planning

  1. You should make more profit for a longer time if you regularly use an effective strategic planning process. You’ll be in a better position to take advantage of profitable opportunities and you’ll be able to defend yourself better against the damage that comes from threats to your profitability.
    Without a strategy, you may miss opportunities, see opportunities but not fully exploit them, miss damaging threats or inadequately defend against the threats.
  2. Your business makes a stronger connection with customers because you build in their problems, issues and frustrations into what you do. This creates a stronger commitment back from the customers to your business on the basis that “we care about those who show they care about us.”
    Without a strategy which aligns the interests of the customers with the interests of the business, the customer can be treated more as an enemy who has got money you want than a friend you can help.
  3. Your business will have a stronger, clearer purpose which helps to unite your team and guides all the decisions made in the business towards achieving your strategy.
    Without a strategy, your business purpose may become vague and different parts of the business may set their own priorities which conflict.
  4. You can set goals for each and every part of the business which drives forward continuous improvement and keeps the business competitive.
    Without a strategy, you may not set goals because you’re not clear what improvements you want.
  5. You’re able to concentrate your resources on the best opportunities. Every business has more things that it could do than it can do.
    Without a strategy, you may mis-allocate your resources and waste time, energy and money.
  6. Capture a summary of your best thinking and an assessment of what’s happening in your business environment at the moment. This helps you to identify changes from year to year.
    Without a strategic plan that captures what you think now, your mind plays tricks on you as it continuously adjusts to the new realities. This creates the “boiled frog syndrome” which can mean you miss major changes until it’s too late.

Why the Benefits From Strategic Planning Can Go Missing

Personally I think that’s a compelling list of big benefits from strategic planning but even I – a strong advocate for developing a strategy – have to admit that sometimes the benefits go missing.

Strategic Planning takes time and effort and when you work with an external strategy coach, consultant or facilitator – which I think you should – the costs can mount up too.

To get the strategic planning benefits, you need to pass through each stage of the strategy process – analysis, insights, planning, actions and results

You do the strategic analysis using popular strategic planning models like:

Unfortunately – and particularly if lip service is paid to the strategic analysis techniques – you can build up your SWOT Analysis with no real insights.

This lack of insight into competing more effectively in the future may stop the development a strategic plan or the strategic plan that is created is bland and uninspiring.

And a bland plan doesn’t create the energy, enthusiasm and commitment to implement the actions outlines in the plan and without effective action, results don’t get better.

If the strategy process is followed effectively and the insights are true and are followed by purposeful action, the results provide confirmation that the strategy is right, confirming the analysis. If the results aren’t as expected, then the organisation can learn more about its competitive environment with further analysis. and modify its plans.

This is how benefits from strategic planning work through in the real world as intentional strategies are modified by real world feedback.

The Small Benefits Of Strategic Planning – What Should Change In Your Business After You’ve Been Through Your Strategic Planning Process

The Benefit Of The Strategic Planning Process

To get the benefits of strategic planning,  the process must:

  1. Give you more confidence in tentative decisions you’ve been thinking about.
  2. Help you to make decisions where there has been uncertainty.
  3. Help you and your team to focus on the few things that you need to focus on, your key success factors.

The Benefits Of Strategic Planning Choices

Strategy is about making choices. You should be able to see the impact of your strategic planning work and how it will benefit the business through the following issues:

  • Who you will sell to – and who you won’t.
  • What you will sell – and what you won’t.
  • How you will beat competitors and win customer preference.
  • How you will encourage customers to keep buying.

This clarification of the big issues will translate into specific actions that you expect to deliver an improvement in results, the tangible element of the benefits of strategic planning.

The Benefit Of Strategic Planning Actions

Your strategy analysis, insights and planning need to translate into specific actions – where I’ve written products, it includes services:

  • Products where you will increase prices or reduce prices to improve margin or competitiveness.
  • Products where you will increase customer value by focusing on delivering a better customer experience and more benefits.
  • Products you will stop selling and products you will introduce.
  • Markets you will stop competing in and markets you will either start competing in or develop.
  • Areas in the business where you will concentrate on improving effectiveness, however you define it.
  • Areas in the business where you will reduce costs and improve efficiency.
  • How you communicate your strategy to your key stakeholders – employees, customers, suppliers
  • How you translate the big strategy goals into specific but consistent objectives and goals that ripple down throughout the business
  • The specific performance measures and targets you set that provide the feedback for your results.
  • How you will review the progress you are making in implementing your strategic plan and update it based on real world feedback and responses from customers and competitors.

Strategic Planning is Important

The benefits of strategic planning can be big if the business thinks about strategy in the right way.

Like many things, if you don’t commit to doing it properly, then you don’t get the full range of benefits.

For more thoughts on these ideas please see Why is Strategy Important?

Can You Get Some Benefits From Strategic Planning If You Don’t Do The Full Process?

I believe you can get benefits from strategic planning, even if you don’t do a big strategy project.

The important thing is that you follow the strategy process loop:

  • Analysis
  • Insights
  • Plan
  • Actions
  • Results… that then feed back into further analysis and reflection based on the real world battles with competitors.

Take one analysis technique as an example, PEST Analysis.

As you work through the difficult categories of political, social, economic and technological changes you may spot an opportunity or a threat much earlier than you would have done normally.

This gives you a chance to think deeply about it, decide how it will potentially impact on your business and then decide what you will do about it. As you take action and watch the situation unfold, you see your competitors scrambling to catch up.

How much of the full strategy process you need depends on your situation, both the business and its competitive environment and also on the time and resources you have.

When I’ve spoken to turnaround experts, they believe in the strategy process but often there is only time for a limited amount of work before the big decisions have to be made.

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The New 7 S Model For Business Strategy

Richard D’Aveni argues that in Hypercompetition, the opposition can use the old 7-s framework against the firm because it makes the business predictable, so he came up with the new 7 S model.

The New 7 S

  • Superior stakeholder satisfaction
  • Strategic soothsaying
  • Positioning for speed
  • Positioning for surprise
  • Shifting the rules of competition
  • Signalling strategic intent
  • Simultaneous and sequential strategic thrusts

The first two create a vision for market disruption, the third and fourth are key capabilities to use across markets and the final three are disruptive tactics in a hypercompetitive environment.

My Thoughts On The New 7 S Model

The New 7 S model gains attention because it uses the same alliteration as the original but I believe Richard D’Aveni makes an interesting point. When competition become intense, the easiest competitors to beat are those who are predictable because you understand where they are going and how they will try to achieve their aims. You can have appropriate offensive strategies and defensive strategies in place to reduce the effectiveness of what they do.

in 3 – Your Strategic Positioning