Strategy

Opportunities not Problems

 
Opportunities not Problems
 

Too many of my clients and prospects reach out to me for help only when their problems become overwhelming. As long as there are no problems they think that all is good. Well, it’s not true.

We are all in business to achieve results. A business does not achieve results by solving problems; it does so by exploiting opportunities. Solving problems brings the business back to a normal state. Solving problems enables the business to function as it was meant to do.

Results come from exploiting opportunities. Consequently, resources must be allocated to opportunities, and not to problems.

Any new and existing business must focus on opportunities. Often, listening to our customers will point to these opportunities. Sometimes we can find opportunities by studying our competitors, and other times by studying those who are not consumers of our industry.

Searching out and finding an opportunity comes from being attentive to the market’s needs.  Making a meaningful contribution to that select market will lead to profits.

Competitive Advantage through Differentiation

Competitive Advantage through Differentiation

 

For a business to achieve earnings superior to the average in the industry it must have a competitive advantage. Without possessing a competitive advantage a business is doomed to depend on the economic fluctuations in the markets. When the economic conditions are favourable it does well, and when the economy is poor it suffers. I suggest that depending the economy is looking for scapegoats. The real weakness is commoditization of the business. In good times and in bad times having a competitive advantage will earn superior returns.

 Last month I discussed the importance of achieving a competitive advantage through having a low cost advantage. In today’s post I discuss differentiation as the source of competitive advantage.

 Without differentiating a business we will earn the average income in its industry. For some high paying industries like cardiac surgery or specialized dentistry the average industry income may be satisfactory, however that is not the case for most businesses. The average lawyer, accountant, dry cleaner, renovator, wine grower, or graphic designer will make an average living for their industry. Their income may be at times satisfactory […]

By |December 23rd, 2014|Growth, Strategy|0 Comments|

Running a Business for Cash

Running a Business for Cash

 

When faced by a financial crisis a business owner must focus on the following three important areas:

 Reassessing the business model.

Changing operations to reflect the new environment.
Ensuring that enough cash is available.

In my last two posts I discussed the importance of a business model, and addressed the need for a business to make operational changes. Today I will focus on the topic of running the business for cash.

 No matter how profitable a business, running out cash will lead to insolvency. Keep in mind that unless you have a successful business model and the business is run effectively the business will eventually fail. Assuming the first two criteria exist, how do we manage a business from a cash perspective?

 Understanding the various elements of a balance sheet may be helpful.

 

If we carry debt it may be wise to convert debt to equity. Equity is more expensive but does not require repayment and is therefore cash saving. This is easier said than done because a bank will not ordinarily agree to this arrangement, but another type of lender might.
The proper use of debt may […]

By |December 23rd, 2014|Growth, Strategy|0 Comments|

Value Chain -Cost Advantage

Value Chain -Cost Advantage
 

Last month I introduced the concept of the value chain. I emphasized that a successful value chain can provide a competitive advantage by creating either cost advantage or a differentiation advantage.

Today’s post focuses on the importance of creating a cost advantage.

At the outset let me say that creating a cost advantage is not merely about charging lower prices than the competition. Any price reduction is likely to be matched by others in the industry, and unless a business has a real lower cost position then lowering prices has merely created a benefit for the consumers but lower profits for the industry. Consequently, it makes little sense to lower prices unless the competition is unable to match the reduction or will be unable to match the lower price for a long period. However assessing the competitors’ value chain is definitely not a trivial matter, and I will address it in a future post.

A firm’s cost position derives from the activities that the firm performs to provide value for its customers. Provide these activities more efficiently and you have a cost advantage. For […]

By |December 1st, 2014|Strategy|0 Comments|

Attaining Competitive Advantage

Attaining Competitive Advantage
A business owner who wants more than just a job for life must design the business to attain some form of competitive advantage.

Competitive advantage is the excess value that a customer will pay for your product/service instead of going elsewhere. Buyers will pay more for value and value may be viewed as lower prices for similar quality, or a unique benefit that offsets a higher price.

Competitive advantage leads to above average performance in one’s industry. Lack of competitive advantage implies at best an average performance, or being the same as the rest of the industry. I often hear from business owners that “business is slow, but it’s the same for all of us”.  As a result, they all tend towards the average profitability for the industry.   Actually, this means that business is slow for all who do not have a competitive advantage. Those with a competitive advantage do better in good times and in bad.

All businesses have their unique strengths and weaknesses, but there are two types of competitive advantage available to every business; low cost and differentiation.

Low cost means the ability […]

Small Companies and Dangers of Growth

Small Companies and Dangers of Growth
In general, the owners of small businesses that I meet with believe that growth of sales is the solution to all problems. On the surface this makes sense. We sell more and our bottom line is improved.

What is not usually understood is that overhead grows along with sales, and that too goes to the bottom line. Growth requires additional sales and administrative staff, capital investments in machinery and buildings, and working capital that requires larger lines of credit. Growth also introduces complexities not considered previously, such as a larger and stronger management team. Our exposure to competitive forces is also increased as we are taking business away from our competitors. They will retaliate by lowering their prices, and so will we if we want to retain our customers.

As much as we desire growth, it needs to be part of an overall strategy that insures the growth will be well managed and ultimately successful.

Industry Profitability

Industry Profitability
 

What determines the profitability in an industry?

 

Michael Porter provides several answers to this important question.  Today we will deal with one of the answers, the threat of entry.

 

Threat of entry

 

When examining the threats of entry into an existing or potentially new market, the following questions need to be raised:

 

How easy is it for newcomers to break in?

Can anybody enter?

Think of the example of another pizza parlour opening up in your neighbourhood. All of a sudden the market has more vendors than before, with everyone fighting for the same size of the pie .

 

Do  newcomers need to fear sharp retaliation from incumbents? Can the incumbents drive the newcomers out?

 

Is a minimum size required for entry? Does this provide the incumbents with a cost advantage that the newcomers cannot match?

 

Do incumbents possess  a strong brand identification? Have they created powerful customer loyalty, or will the newcomers have no difficulty taking customers away?

 

 

Whether you are already in an industry or contemplating entry, consider the above, and evaluate the threats.

 

You may need to re-examine your business model.

 

Considering New Markets?

Considering New Markets?
 

 

When considering new markets answer the following questions:

 

Does the market have high potential?

Is the market dominated by strong competitors or is it fractured among many small businesses?

Is the market easy to enter or are there strong barriers to entry? Will fresh competition find it easy to attack you ?

What is the profitability in the market? Is  it dependent on raw material costs that you have no control over and that cannot be passed on to the customer ?

 

Right  answers to the above will greatly enhance a successful entry into a new market.

 

Choice of Market and Choice of Competition

Choice of Market and Choice of Competition
 

A competitive strategy shows how a business intends to compete and succeed in the markets it chooses to serve (George S. Day, Market Driven Strategy).

There are two elements in this statement that every business must consider:

Choice of competitive strategy.  A business does not simply start on a whim. It must assess its competitive environment and it must determine why it will succeed.
Choice of markets. No business can be the solution for all customers, and therefore it needs to clearly select whom it wants to serve. The choice should be based on its strengths and its competitive advantage.

To select its competitive arena and its customers every business must answer the following questions:

What markets do we want to serve?
Which segments of these markets are we best suited to serve?
What is our competitive advantage that allows us to serve them better than anyone else?
How are we going to reach this market?
What activities will we perform that add more value to the consumer?

Making these choices forces a business to limit its customer base. It forces […]

Competing Today: Part 2

Competing Today: Part 2
In last month’s blog  I wrote that competing today means having the ability to provide the goods or services faster, helping buyers achieve their needs by providing new benefits, and building a mutually profitable long term relationship. This month I’m providing current examples of strategies used by various providers.

 

Strategy
Details of strategy
Applied by

Be cheaper than the competition
Be more efficient than the competition
Food Basics,IKEA,DollaramaCostco

Provide a higher quality product or service than the competition
 Provide a no hassle refund policy
Bed Bath and Beyond

Appeal to the social conscience of the target market
Fair trade products
Starbucks,Body Shop

Provide a unique experience for the customer
Enjoy the visit, know what you get, always find something new
Costco

Create a new business model
Appeal to customers’ unstated needs
Amazon,Apple,Charles Schwab

Discover and appeal to a niche
Eliminate the middleman
Property Guys

What can you do in your industry? Which strategy may work for you?