≡ Menu

Intentional Business Owners

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.
    .
  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

Small Business Strategic Planning

Small business strategic planning is a cut down version of the strategic planning techniques used by big businesses to help improve competitiveness.

It’s that last word that is the key.

Strategic planning is about helping you to improve the way you win profitable business from customers instead it going to your competitors.

It’s Even More Important For Small Businesses To Compete Effectively

Big businesses can sometimes succeed through sheer brute force marketing. TV advertising is expensive but constant exposure to an advertisement can move you through the Attention Interest Desire process which may lead to a buying Action.

Small businesses don’t have the resources to waste so it’s even more important that they:

  1. Only fight competitive battles they stand a good chance of winning.
  2. Know how to apply the strengths of the business against the weaknesses of competitors

Small businesses get the same benefits from strategic planning as big businesses.

The Small Business Strategic Planning Process

Small businesses can benefit from the same five steps of strategic planning

The strategic planning process is based on five steps:

  1. Strategic analysis – using some famous strategic planning models
    .
  2. Finding new strategic insights  identifying opportunities and threats. Finding new ways to compete more effectively.
    .
  3. Developing a strategic action plan
    .
  4. Taking effective action
    .
  5. Comparing the results with expectations and feeding that back into the strategic learning process since it will either confirm previous analysis or encourage you to find out why things didn’t work as expected.

To this extent, effective strategic planning is the same in a small business as it is in a big business.

Small Business Strategic Planning Is Simpler And More Limited In Scope

Where small business strategic planning differs from that done in big businesses is that it is usually smaller and simpler in scope.

First, there aren’t the resources to do the full strategic analysis work.

Secondly there isn’t the need to do it all based on the particular circumstances of the business. That’s why I take clients through a business health check that I call a Strategic Snapshot.

The Scope Of The Business

First, small businesses often benefit from concentrating on a narrow geographical area.

As a business expands outwards, it gets more complicated, brings into consideration many more customers, potentially with different needs and more competitors.

Second, a small business often works in a tightly defined niche market which again helps to limit strategic issues as well as providing focus and a stronger sense of identify for the business.

The Four Types Of Competition

Economists identify four different types of competition which also impact on the extent of strategic planning needed for a small business:

  • Perfect competition – this is where many small firms provide identical products. Businesses can’t make a big profit because the market is self-regulating but through sales and profit performance, it sends a very clear signal to the management of the business.
    .
  • Monopolistic competition – this is where many small businesses sell differentiated products and therefore have some freedom from destructive competitive forces which reduce profitability.
    .
  • Oligopolistic competition – this is where there are only a few sellers of a product which may be a commodity or differentiated but the actions of one competitor directly impact on the other competitors in the market.
    .
  • Monopoly – there is only one supplier the customer can buy from.

The strategic planning priorities differ:

  • In perfect competition, there is little to gain from strategic planning because no advantage can be sustained. While perfect competition is a theoretical rather than practical concept, it’s bad news if the market heads in this direction.
    .
  • In monopolistic competition, the priority is establishing and maintaining differentiation so that the business keeps its own private market space although it will also be concerned with the future prospects of the specialist market.
    .
  • In oligopolistic competition, the focus is on competitors, how you can gain an advantage and how they will react plus what your competitors are trying to do and how you should react.
    .
  • In a monopoly, the focus would be on threats to the monopoly coming from outside the market.

Your situation will depend partly on how you define your market and the barriers between market segments – when you go to buy a new car do you look at everything, a tightly defined price range or a particular category of vehicle?

It also depends on your share of the market. Having a  60% share of the market means you need to monitoring the prospects of the market because your business is so dominant, it will rise and fall with it. Having 0.1% of the market makes you much less dependent on what the overall market does or what other small share competitors do.

Practical Implications of Small Business Strategic Planning

Strategic planning for a small business should be designed around the particular needs of the business.

While I have a differentiation strategy process, it is customised to the business situation.

I want to understand the key success factors and key factors of difference that apply in the market and think about how those are likely to change through the environmental pressures revealed by techniques like PEST analysis.

Consciously or unconsciously we’ll prepare a SWOT analysis to focus on the important things.

The focus of the small business strategic planning work then turns to what will be changed to improve the competitiveness of the business.

in 3 – Your Strategic Positioning

The Theory Of Constraints For Small Businesses

The Theory of Constraints (TOC), as originally developed by Eliyahu Goldratt and introduced to the world in the business novel “The Goal“, has produced some remarkable successes in big companies, showing huge improvements in the three main measurements:

  1. More Throughput (T) – this is effectively increasing sales less the direct cost of sales without any questionable apportionment of shared costs.
  2. Lower Operating Expenses (OE) – reducing the other costs of the business.
  3. Lower Inventory and Investments (I) – reducing the money tied up in the business whilst also improving due date performance and cutting lead times.

This has been achieved by focusing improvement efforts on the main constraint or the weakest link in the chain. Quite simply, this is where you can get the biggest bang for your buck.

Just to be clear, a constraint is something that stops you from reaching your goal. For example, consistent customer service problems may stop a business from reaching its goal to increase profit. [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