10 Strategy Tools For Smaller Businesses

I come from a background in large blue chip businesses, where I spent a fair amount of time helping predominantly large clients with strategic issues and during the last ten years I’ve started and built a couple of smaller businesses. SME owners and directors need to think about strategy, but they need to concentrate upon those elements that are going to produce the most impact – by all means read the business strategy tomes from cover to cover if you want, but this article aims to give you, a busy SME director, most of what you need to know about strategy and analysis in order to make a start.

1 – 3 Types of Excellence. Many commentators would agree that a company has the option to excel (that means really excel so that the market recognises that excellence) in one or two of three possible areas:

Operational excellence – which means doing things really efficiently and therefore probably being able to deal with higher volumes and therefore passing on cost savings to customers (although it is possible to think of examples where operational excellence was so valued by the customer that she would be prepared to pay a premium for it alone). An example might be EasyJet.

Customer intimacy – which means that you have systems and staff who treat customers as royalty (or at least good friends) and they feel loved and valued by your business. An example might be John Lewis.

Product leadership – which means that your product (or service) is highly differentiated from alternatives and substitutes in ways that customers value. An example might be Apple.

2 – Do a McKinsey. As a start-up or small business you may not be able to afford a McKinsey assignment to address your strategy issues, but you can apply one of their most powerful weapons to your advantage. MECE stands for “mutually exclusive, collectively exhaustive” – apply it to your problems and you could see great results. MECE is a useful model for analysing a business problem because it aids clear thinking by ensuring that categories of information do not overlap, and by reducing the possibility of overlooking information by requiring that all of the categories of information taken together should deal with all possible options. Information should be grouped into categories so that each category is separate and distinct without any overlap (mutually exclusive), and all of the categories taken together should deal with all possible options (collectively exhaustive). A “major issues list” should contain no less than two, and no more than five issues, with three being the ideal number. Let’s say that Acme Widgets Ltd use a MECE tree diagram to help them locate the source of declining profitability. The diagram as a whole represents the problem at hand; each branch stemming from the starting node of the tree represents a major issue that needs to be considered; each branch stemming from one of these major issues represents a sub-issue that needs to be considered; and so on. The problem to be addressed in this case is “how can Acme Widget Ltd increase widget sales?”.

You will hopefully find that analysing issues down to the constituent parts using this technique will clarify where the real issues lie and they will now be in more “bite sized chunks” and so be easier to handle.

3 – Markets & Industries. The expressions “What’s your market?” and “What industry are you in?” are thrown around pretty well interchangeably – what exactly do we mean when we say “market” and “industry”. If you use the definitions that I suggest then a great deal more clarity will start to appear around the potential strategy that you should adopt.

I suggest that market should mean – a group of people / organisations who have the desire & ability to buy products to satisfy a certain need or want ie buyers & their needs. Market therefore is not about your product or service (although of course related). I suggest that you spend a reasonable amount of time thinking about who the buyers of your products or services are / could be and what traits or characteristics they share. By being able to describe your market(s) accurately and precisely you will subsequently be able to focus your sales and marketing efforts far more effectively.

When thinking about markets (ie buyers) you should also consider:

* How attractive are your products and services to these buyers
* And how attractive is the market to you – is it clearly defined, growing, shrinking, are external influences going to affect its size in future, are they easy or difficult to persuade to buy, and so on.

I’d suggest that industry should mean – sellers that offer products or services that are similar or substitutes. Sellers sell into markets. So let’s say that you have founded a business offering disposable paper place mats for university canteens where businesses can advertise themselves to students. The classic Dragons Den question is “so what competitors do you have?”. Of course you would be wrong to say “none – we are the only people doing these advertising place-mats”. Rather you need to think about what industry you are in, and the answer is likely to be “the provision of advertising to target students” industry so your competitors would include – Facebook, local radio, advertising hoardings, Google Ads, free magazines etc. The key thing when defining your industry is similar or substitute offerings – you may think that you are unique but if your potential customers consider something else then that something else is in the same industry as you!

When thinking about industry (ie other sellers you should also consider:

* Can you sustain any advantage (indeed do you have any advantage?)

* How attractive is your industry (more on this below)

4 – Attractiveness of an Industry. Of course different industries have different levels of attractiveness and you should be aware of that right at the outset. But it isn’t necessarily the case that you should only operate in attractive industries and disregard unattractive industries. Good business can be created in “unattractive industries” and it is perfectly possible to fail within what would be viewed as an attractive industry. The analysis that you perform to establish that an industry is “attractive” can be carried out by the rest of the business world too, so others might stampede into the industry and change its attractiveness quite quickly. Industry analysis doesn’t ensure that you have picked a winner, it just means that you are well informed about your business environment.

The defining work on industry analysis was carried out by Professor Michael Porter of Harvard Business School and published in his 1979 book “Competitive Strategy” – Porter’s Five Forces.

Porter’s Five Forces

Competition: How strong is the rivalry posed by the present competition? The various factors, include: the number of firms in the industry, rate of market growth, economies of scale, customer switching costs, levels of product differentiation, diversity of competition, level of exit barriers.

Barriers to entry: What is the threat posed by new players entering the market? The various factors include: capital costs of setting up,highly specialised equipment, level of protection of necessary intellectual property, scale and branding of existing competitors, government regulations.

Substitutes: What is the threat posed by substitute products and services? The various factors include: the cost to customers of switching to a substitute, buyer propensity to substitute; relative price-performance of substitutes, product differentiation.

Supplier bargaining power: How much bargaining power do suppliers have? The various factors include: number of possible suppliers and the strength of competition between them, whether suppliers produce differentiated products, importance of sales volume to the supplier, cost to the buyer of changing suppliers, vertical integration of the supplier or threat to become vertically integrated (ie the degree to which a firm owns its upstream suppliers and its downstream buyers).

Customer bargaining power: How much bargaining power do customers have? Factors that will effect the bargaining power of a customer include: volume of goods or services purchased, number of other customers, brand name strength, product differentiation, availability of substitutes.

5 – Spider diagram. Understanding how your business compares to the competition and to customers perceptions of value is a really key element of strategy. A great way to form a better understanding is to establish the key important dimensions (by asking the people who matter, customers) and then representing them graphically using a “spider diagram” such as below. You can map how your business measures up and how the competition measure up and then it will be readily apparent where areas of competitive advantage / disadvantage lie.

6 – SWOT. Dear old SWOT (strengths, weaknesses, opportunities, threats) – it hardly needs any introduction

Strengths weaknesses opportunities threats

After a business clearly identifies an objective that it wants to achieve, SWOT analysis involves examining the strengths and weaknesses of the business (internal factors); and considering the opportunities presented and threats posed by business conditions, for example, the strength of the competition (external factors).

Don’t fall into the trap of SWOT becoming two lists – one of “pros” and the other of “cons” and make sure that you use it critically and with clear prioritisation. So for example, weak opportunities shouldn’t balance strong threats.

7 – The Sales Funnel. Strictly speaking this isn’t a pure strategy tool but a very powerful sales strategy analytical tool nonetheless.

If your problem is with generating interest and awareness, then look at your PR – where are your target market seeing you talking about what you do? Are you engaging with your target market? If your problem is with generating leads, then how well are you explaining how you meet your target market’s needs with your products or services? If your problem is with converting leads into serious buyers, how well are you encouraging your buyers to take action? How well are you demonstrating your credibility and expertise to solve their problems? If your problem is with closing the sale, what objections are you hearing from your potential buyers? How are you overcoming these objections?

8 – The 4 P’s. Again the purist might argue that this is marketing strategy rather than pure business strategy – but we don’t mind what you call it because it all helps to being a more successful business. There isn’t the space here to do justice to the 4 P’s of marketing but to skim the surface they are a framework for evaluating the marketing strategy for a product.

Price: the pricing strategy employed by a firm for a particular good or service will have a significant effect on profit.

Product: differentiation is a source of competitive advantage. Product differentiation creates value in the mind of the consumer.

Position / Place: the physical location of a good or service can be a source of competitive advantage.

Promotion: is used to enhance the perception of a good or service in the minds of customers. A promotion will draw peoples attention to any features of a product that they might find attractive.

9 – Strategic Advantage. Following on from his work which resulted in the “Five Forces”, Michael Porter suggested that businesses can adopt one of four generic business strategies, as represented in the diagram below.

Generic strategies

The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments. By contrast, the differentiation focus and cost focus strategies are adopted in a narrow market or industry.

I will write about this more fully in a strategy for smaller businesses booklet soon to be published, but for now it might be best just to suggest some example companies that might fit into each quadrant:

Cost Leadership: Tesco
Differentiation: Mercedes Benz
Cost Focus: Instore
Differentiation focus: The Perfume Store

Generic Strategies Example Companies

10 – Product & Service Life Cycle. The product lifecycle curve was originally the brainchild of another great management thinker, Theodore Levitt and was first published in the Harvard Business Review in 1965. Again space here does not allow for a full description.

Product Life Cycle Curve

Introduction: As a new product much time will be spent by the organisation to create awareness of it’s presence amongst its target market. Profits are negative or low.

Growth: If consumer clearly feel that this product will benefit them in some ways and they accept it, the organisation will see a period of rapid sales growth.

Maturity: Rapid sales growth cannot last forever. Sales slow down as the product sales reach peak as it has been accepted by most buyers.

Decline: Sales and profits start to decline, the organisation may try to change their pricing strategy to stimulate growth, however the product will either have to be modified, or replaced within the market.

What Strategy Is Best for Safegaurding Capital When Using Foreign Business Units?

Recently I had a friend that has moved from Texas to India. This is not the first time she’s been there, mind you. She visited India a few years ago over the summer so that she could see what the culture was like. She was there at one of those camps where she was helping to feed people or something of that sort. She then returned to the US and moved to Texas where she assisted on some of the sheep farms out there. I got to thinking about what it was like to actually do international business with India, and what benefits that even has to the US.

So then I began to research how international business benefits the US. I found out a lot of things about doing business with international entities. First of all, it is only beneficial to do business with foreign entities if the strategy is implemented properly for opening up business that way, and then it has to be maintained economically in both regions for such business to prosper. If one region suffers a dramatic recession, then this could flow through the ladder to the other region, especially if the main region is the one suffering the recession.

So then, how much should be invested between nations, how much should be interlaced and to what extent should accounts for both businesses be channeled so that they do not effect each other?

I obviously read into it a little more and found out a few simple facts. First of all, most financial institutions recommend the 80/20 rule. This is a simple rule that states that the investors should invest 80% in US sock and then 20% in foreign stalk for a well rounded, diversified portfolio. Some have argues that fact because of the growth of foreign GDP and market equity. This growth gives foreign GDP 77% with the US at 23%; market equity is slightly different where the US was at ~42% and foreign was at 58%. Many people think that with this ratio, the international percent should be higher, maybe closer to the equity ratio, than the 20% allotted by the rule.

However, with the research stating that when one company goes under, business units in the other country may also suffer, I figured there’s not to be a lot more than just stock portfolio to play into account here. The lower percent of the stock is probably there as a safeguard. Besides,other people that support the 80/20 rule spoke about what might happen if there were too much investment led outside of local stock and too far into foreign stock; it would bring down US stock levels because not as many people will be spending towards them to make them grow. Then I realized, there’s a little more to the capital that has to be kept safe.

When recession occurs in one place, others things also suffer in quantities; including supplies and labor for services that may be traded to the other nation. So then, I thought, maybe the solution is in specialization. Instead of asking one country to provide all of the services while we export all of the supplies to them, maybe it is important to find what type of resources the company specializes in and then base the services that are outsourced there around the resources that are already located in that region.

For example, a lot of car companies that base their dealerships in California have found it convenient, through NATO, to pay for the cars to be built in Mexico, across the US border, because Mexico is now known for its ability to specialize in aluminum. Many of today’s cars are now built out of a heavy form of aluminum because, although it is a heavy form of the metal, it is still much lighter than steel and much more elastic when there is an accident.

This was the dinger, it appears. Research supports that service is an important commodity for trading; however most investors want to see a product for trade. Many times when it is only the service that is traded, there are a ton of NGO’s that begin to dig into the business and find ways that the service is being bought out of abuse. Hence they claim that the other countries are lax on labor laws and that these big money corporations are making the workers run shifts that are more than one day long, sleeping overnight in factories. They claim that they are hiring children to operate the shops and produce the goods from the materials shipped to them and that the health and environmental factors in those shops are inhumane. The main issue is that they do not understand the benefits of taking the materials from our own regions, sending them to another, and then allowing people in a whole different nation to get paid to do the work for us when there are many of us out of work.

However, to find resources in another region that could be used for some product that we are already producing, then contract the labor with the resource, then we would be helping to control the risk of the inability to supply the other region should a recession occur, and we would be showing a clear reason to ask the other country to contract services for us. Rather than to extract the goods to our region, then build a shop and then ask someone to attempt to use a resource they are not a familiar with the help manufacture the product, we are leaving the resource is it region, contracting labor, and allowing that region to use its own facilities to manufacture the product for import. We may be building the system, maybe even sending our own people from here to there, but most of the production occurs right next to the resource, where the supply is the size of the resource rather than dependent upon the economy the supply is coming from.

While this sound like the perfect solution, it is not always so. There are many laws between nations that could provide a conflict to that method. Once a business unit gets caught up into the equity market, it is important that this unit continues to be fed into the system and growth continues to occur. Otherwise, either nation, or all nations the concurrently begin to invest in the unit; will take a fall if the stock fails. This sort of system encourages different nations to work towards peace for one another as they are becoming interdependent on the profits of each other.

Sometimes it’s not just one strategy that could affect the overall capital, but the entire portfolio of strategies. Of course, if we contract manufacturing to Mexico because of the aluminum, we still may have to provide other supplies, such as steel to support the base of the body. Maybe the service doesn’t require other materials, but the possibility remains. Furthermore, both sides of the border will need technologies for communications and for making and tracking orders. It is important to consider the workings of both nations before deciding which method is more prosperous, more controlled for accidents, than the other.

Some things to consider when making a portfolio:

Emerging vs Dominant economies
Volatile vs Growth markets
Exact specialization vs product stats
Laws of both nations
Trade boundaries for each nation
Current international treaty regimes: will this effect ability to trade outside once product is complete

And other considerations.

Getting a Business Degree

In today’s rapidly expanding world and economy, a business major gives one the competitive edge needed to succeed. The demand for business-savvy individuals is increasing and knows no bounds. For those who are willing to commit, the rewards can be exceedingly beneficial.

Given that the range of opportunities is infinite I will narrow my focus to international business. International Business allows you to use your skills in a global context. Not only are you dealing with the issues and affairs of your country, but with countries around the world. In this field you learn the logistics of international trade, government policy, and the basic principles of foreign markets. As technology continues its forward movement, students who decide to major in business are on the cutting edge of this advancement. Compared to a short ten to twenty years ago our world is completely different. We have globalized and developed in a number of ways. The people behind these changes are those that took advantage of what a business major offers. These are the same people who brought us cellphones, the internet, and computers. Not only did these innovations change the face of communications, they also stimulated improvements in healthcare, medical research, and disease prevention. Those less fortunate in other countries now have better access to these tools. A degree in business teaches you to think outside the box. The techniques and skills that you learn enable you to provide solutions to mind-boggling obstacles.

International business provides a basic foundation with a lot of hands on training. This valued experience produces a swell in career options and leadership roles. Roles such as these can take you to a variety of places such as Japan, Germany, South Africa, and England. Almost any place you can imagine. You are able to immerse yourself in new cultures, languages, foods, and traditions. Foreign travel to a country entirely different from your own can give you new insight that you would not be able to get anywhere else.

This is what makes this field so unique. There is no set method for success. Everyone is different. Everyone reaches the top in a different manner, but almost anyone who has the drive, passion, and motivation can be triumphant. They just have to take the proper steps in the right direction.

In summary, I believe that a major in business is the best place to invest one’s funds and savings. It is a versatile field that is forever revolutionizing itself. In the long run, this is where you will get the most for what you pay for. Each new destination and new experience only adds to your extensive list of credentials and references. You will have worked with some of the most influential people of our time. All of this makes you a highly prized contender in the world of business. Employers will seek you out, and know that you have the potential to be one of those very few who inspire and bring about change.

Better Business Direction With Strong Strategies

After completing the Vision and Mission Statement portions of a Business Plan, the next step is to come up with strong strategies that will make the business successful.

Along with setting the direction of the creation and maintenance of your business, strategic planning establishes a guide for evaluating the important business decisions that must be made. With a clear set of strategies it is much easier to keep a business on track.

These strategies are sometimes thought of as “industry practices.” If you are new to an industry, you can learn more about these practices and the challenges and opportunities you will face by reviewing industry trade association journals. This information is critical for you to build and manage your business successfully.

Another helpful resource for identifying and selecting crucial strategies are those who support your business. These include your banker, accountant, attorney, various vendors, and even your employees. They can all contribute valuable insight into your business.

Why reinvent the wheel by running into problems blindly when you can benefit from the experience of others?

Usually there are four to six core strategies that businesses follow in any industry.
They are easy to understand and are fairly stable over time. Naturally if there are significant breakthroughs or shifts in your business, you will need to reconsider your strategies. An example of this in the financial services industry has been the shift from commission to fee-based income structure.

There are both internal and external influences that are either affecting your business now or may affect your business in the future. We’ll use Certified Financial Planners as an example as we look at external and internal concerns and possible strategies for handling those concerns.

External strategies capitalize on opportunities present that can help the company grow. They also look at possible outside threats.

Concerns:
Fee-based planners are living in the shadow of the commission-based brokers who often have conflicts of interest in the products they sell to their clients.
There is a lot of prejudice among the public that perhaps the client’s best interest is not the major concern of any financial services person.
Some large firms have developed a negative reputation that can work against individuals working for those firms.

Strategies:
Education for consumers both individually and in the mass media is important for them to understand the difference between commission-based and fee-based practices.
Planners write articles for the local newspapers and state journal.
They do speaking to organizations and on the radio.
Their websites inform the public as to how they do business.

Internal strategies are those that relate to the company itself. They look at the culture of the business, its strengths, efficiency, and profitability.

Here are some examples of concerns faced by Certified Financial Planners that require some internal strategies.

Concerns:

Advisors who fail to identify priorities for their best productivity may not have good work/life balance.
Understaffing can prevent accelerated business growth.

Strategies:

Analyze how time is being used and what tasks can be delegated.
Hire support staff either to work onsite or virtual assistants that can take over simple tasks.
Develop a system for various operations of the company so that others can take over tasks that you normally do.
Consider partnering with another business to offer more value to your clients.

Both external and internal strategies are critical for prudent planning.

Market leaders use strategies to achieve desired growth and profitability.
Even though the statements can be quite broad, they still create definite focus.

The bottom line of strategies is an answer to the question, “What will it take to sustain success in this business for the long haul?”

Get some strong strategies in place for better direction in YOUR business!

Important Tips to Consider for Your Import Business

For the new entrepreneur interested in building a career in shipping and distribution, importing goods from around the world gives you the advantage of having unique products on hand to sell to domestic retailers and drop-shippers. Whether your interest lies in dealing with one specific area or working with a larger region, you will find the demand for imported products remains strong regardless of the economy. If you are just starting out with your import business, there are a number of factors to consider in order achieve success.

First, decide exactly what it is you plan to import into the US to sell. The more unique the better – like specific gourmet items and foodstuffs, electronics, and home wares that are not immediately accessible via domestic channels. Find a product that is in great demand but short supply and seize the opportunity to sell it.

To build your import inventory, you will need to connect with distributors and manufacturers. Working through online global trade portals is one step in the right direction, for you can forge real-time contacts and negotiate costs and shipping while keeping track of your business. When you have settled upon the resources, costs and other considerations, the next tasks fall easily into place:

  • Storage: do you need it, and how much? Research your options for warehousing – if you need one central place for shipping or satellite warehouses around the country.
  • Retailers: do you intend to sell nationally, regionally, or locally? Find out which stores are most likely to accept your goods.
  • Transportation: how many trucks do you need to carry your products? Is it more economical to hire a shipping company or buy your own truck and hire workers?
  • Employment: lastly, how many people do you believe you will need to hire to keep your business active and successful? Budget for salaries and expenses to make sure you stay financially solvent.

When you are prepared, you can turn your simple import business into a growing trade empire.