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 but is never spectacular, unless they possess a competitive advantage achieved through differentiation.

 Differentiation means providing a unique benefit to customers. Being unique means the benefit is not available elsewhere. If we do not differentiate our business then we are commoditized and no different from others, and the customer will search out the cheapest alternative.

 Differentiation allows for superior pricing, larger sales and stronger loyalty. The last item is particularly important to professional service businesses, where customers don’t really understand and trust the services being provided and frequently skip from one provider to another.

 Differentiation is the result of the value chain activities that we provide. It does not have to be about our product being better or our service being more competent. It may occur at any point in the value chain. It could be a result of our human resource policies concerning recruitment and compensation, incentives and training. It could be because of our infrastructure dealing with response time to customers, our having proprietary knowledge and software, or our financial strength and the ability to provide special terms to customers.

 Selecting where to differentiate should be based on creating value for our customers, and understanding buyer value means understanding the buyer value chain. Our products /services are an input to their value chain. A business creates value for a buyer that justifies their paying a premium price, or it creates value through lowering buyer cost or raising performance, thus creating a competitive advantage for the buyer.

 The buyer then acquires their competitive advantage through:

  • achieving a lower cost position
  • achieving a lower financing cost
  • our providing installation and support
  • our providing training
  • achieving a lower overhead
  • reducing direct labour
  • reducing failure rate

 Providing a competitive advantage for our customers provides our business with a strong competitive advantage. This competitive advantage will keep our business thriving in good times and healthy in lean years.

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.

  1. Changing operations to reflect the new environment.
  2. 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 save cash. Long term debt should be used to acquire capital assets and short term debt should be used to finance working capital such as receivables, inventory and trade payables. Often business owners improperly use short term debt to finance capital acquisitions.
  • Consider refinancing short term debt into long term debt to conserve cash.
  • Examine your cash cycle. A cash cycle begins with your purchase of raw materials, storing the goods in inventory, processing them into finished products and selling them. At sale time we have a receivable but only when we are paid can we pay for our purchases. Until we collect from the buyer we don’t have the cash, and so the cycle resumes.
  •  Shorten the cash cycle. The sooner we collect the receivables the sooner we pay off our debts. The lower our inventory, the lower our cash requirements.
  • Shorten the sales cycle. Speed up the time from acquiring leads to converting them into paying clients.
  • Shorten the marketing campaign cycles. Speed up the sequences from marketing decisions to advertising to leads and ultimately to customers.
  • Shorten the finance cycle. Shorten the time for finance approval, or the time from when an order is received to the time of merchandise delivery.
  • Speed up the credit approval cycle.
  • Speed up the billing cycle. Send out an invoice the same day the work is done or goods shipped.
  • Shorten the collection cycle. Review the terms of sale. Call the customer as soon as the bill is past due.
  • Deposit all payments daily.
  • Delay paying select suppliers.
  • Minimize the inventory on hand.
  • Consider deferring planned capital expenditures.

 None of the above strategies alone may be the answer to the cash flow problem, however when combined their cumulative result may make the difference between survival and insolvency.

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 most businesses that I’m familiar with, few have a cost advantage. They all have similar activities; they purchase the same raw materials from the same suppliers at the same price and have similar staff paid at the same rate. We do not see a real cost advantage.

However, a cost advantage may be secured through making different choices. A business may choose who it wants to sell to, how it wants to market its products or services, what products or services it wants to provide and which it does not.

For example, my own firm provides advisory services as opposed to compliance services. We service business owners that need assistance with their business. We do not provide tax services or bookkeeping although we collaborate on behalf of our clients with those that do. Similarly, Wal Mart targets customers who have a hard time making their paycheck last. This is not the clientele that patronizes high end department stores.

Choices don’t need to focus only on customers. Choices may be made as to the process in creating a product or to what extent to automate a process. A choice may be made between direct and indirect sales and the advertising media used. These choices create an individual value chain with specific costs.

Other choices may involve which product features to include or do without. A choice concerning the level of service one wants to provide will impact on the level of costs. It could be a decision concerning delivery or the level of wages to pay.

A cost advantage is also obtained by performing activities more efficiently than others. However, anyone with a cost advantage will soon have imitators, so a sustainable cost advantage can only be maintained if it cannot be imitated by others.

Some of the strengths possessed by incumbents that may deter new entrants from attempting to dislodge an existing low cost provider include:

  • Economies of scale- The incumbent has a scale advantage that is not easily replicable.
  • Learning- The incumbent possesses proprietary knowledge or rights not widely available, and/or a strong business intelligence capability.
  • Integration- The incumbent has high vertical integration and thus lower costs than a competitor that must use outside vendors, manufacturers and salespeople.
  • Discretionary policies- It may be a choice of location of the manufacturing facilities.


To determine whether one has a real cost advantage that can be sustained a proper analysis of the drivers and their impact on costs is necessary. The analysis will determine one’s cost position and that of its competitors.


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.

Your competitive advantage is what drives your customers to call you first instead of going elsewhere.

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 to generate a service or product at lower cost than others because of some cost advantage. Selling at lower prices without a cost advantage will fail in the long term. Others will lower their prices as well and everyone will go broke.

Cost advantage may be achieved through economies of scale, proprietary technology, etc. Cost advantage is of benefit in commoditized industries such as chiropractors, accountants, lawyers, window installers, car dealerships and basically anyone selling a product or service that has many competitors selling the same thing. Instead of claiming you are the best, offer the same value at a lower price.

In a differentiation advantage, the vendor provides some value or attribute valued by the consumer that is unique and not elsewhere available. For that unique value a buyer will pay more. As opposed to low cost advantage, there may be several differentiation strategies available to all industry participants. For instance, lawyers may specialize in specific crimes; accountants may specialize in wineries, etc.

Achieving a differentiation competitive advantage means deliberately focusing on serving well defined, specific markets and rejecting those that will not see value in the differentiation.  We all can choose our competitive advantage, assuming we have one.  Not having one compels us to be an average performer financially, and   our business will remain stuck like its many competitors, with everyone waiting for better times.

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.


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?

Sustaining Competitive Advantage


Basically there are three main ways in which you can compete in the marketplace:

On Price

By serving a niche market better than anybody else

On the individuality of your product or service

Which of these is the better long-term strategy? Undoubtedly a lower price than the competitor is an immediate advantage – but will it deliver a continuing competitive edge? Differentiating your products from your competitors will provide a much harder to match advantage for your business.

No because your competition will not roll over and die. They will lower their price. So you are both making less.

Differentiating your products from your competitors will provide a much harder to match advantage for your business.

Differentiating your offerings provides the business with a focus on who it wants to serve and it provides you as the address that your market will turn to.