Small Business for Dummies. Veechi Curtis
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instead? (Almost anything that’s mostly labour and can be done on a computer is vulnerable to offshoring.)
Service offered online: Could the service you provide be sold online and, therefore, open to international competition? (Even some things that I would never have imagined could go online have done so. I don’t go to my local yoga class any more, but instead log onto a yoga website that offers hundreds of pre-recorded classes to fit any duration, level or style of yoga.)
When you’re checking out competitors, you may come across lots of factors that make it tough for you to compete with the big guys in town, such as high capital costs, expensive IT systems or huge distribution networks. These factors are called entry barriers.
The flipside of entry barriers can be exit barriers. Sometimes competitors have invested so much in expensive rentals or specialised equipment, or sometimes competitors can be so management top-heavy, that they can’t get easily out of the less profitable parts of their business, and also can’t act quickly when opportunities arise.
For smaller businesses, these exit barriers sometimes point to opportunities. Maybe you can distribute product much more cheaply using the internet, while the competition is wedded to expensive retail rentals. Similarly, maybe you can act quickly in response to new fads or fashions, creating and promoting products in a fraction of the time a big company takes to do the same thing.
Choosing Your Competitive Strategy
Any business, including yours, is faced with these three possible competitive strategies.
Pick one, and only one, competitive strategy
Don’t try to be all things to all people. Pick one of these strategies, and only one, and run with it:
Be the cheapest. With a cost leadership strategy, you’re not necessarily the cheapest across all products you offer, or the cheapest for every service but, in general, you’re aiming to compete on price. Price leadership can be a tempting strategy — after all, customers are always looking for a bargain — but is risky over the long term. Unless you have a strategic advantage that enables you to deliver your product or service more cheaply than your competitors, competing on price can mean weak profitability. (On the other hand, if you’re just getting started, choosing to be cheapest may be a good strategy for gaining clients and building up experience.)
Create a point of difference. With a differentiation strategy, you set out to differentiate yourself in some way other than price. For example, an electrician could seek to make response time and punctuality a point of difference (‘We’ll arrive within 30 minutes of the agreed time or the first hour is free’), or could make availability a point of difference (‘24-hour call-out service, 7 days a week’.) Ideally, if you choose differentiation as your competitive strategy, you want to find a synergy between this differentiation and the strategic advantage you identified earlier in this chapter. For example, maybe a strategic advantage for this electrician is that his partner also has a trade license. Between them, they can offer a 24-hour service without worrying about leaving the kids unattended at home, and they don’t have to pay the penalty rates that other businesses would normally have to pay if sending an employee out on a job in the middle of the night on a Sunday.
Find a particular focus or niche: With a niche strategy, your aim is to serve a specific market segment rather than deal with the whole market. In We Are All Weird, written by Seth Godin and published by Brilliance Corporation, Godin argues that people are seeking choices more than ever, and that this competitive strategy is an increasingly smart pathway for business.
DON’T BE AFRAID TO PIKE OUT
I sometimes find that when people do an honest appraisal of their business idea and the competition, the resulting business proposal is found to be quite weak. Sometimes this is because the person starting up in business has limited skills or minimal capital; other times, the demand for their proposed product or service may not be strong enough. Other times again, it can be too hard competing against established players.
If you’re starting to question the strength of your business idea, don’t be afraid to pike out. Stopping at this stage might save thousands of dollars, not to mention months or even years of your time.
If you’re unsure whether your business idea is as strong as it could be and whether you should continue, what becomes relevant is measuring up the risks. If starting (or continuing with) this business means little capital outlay and a few lost weekends and holidays, you don’t have much to lose. On the other hand, if this business involves your entire retirement savings and/or the threat of a failed relationship if things go wrong, the risk may well be unjustifiable.
Connecting your competitive strategy to your strategic advantage
You may be feeling a little muddled as to how the concepts of strategic advantage, competitor analysis and competitive strategy interrelate.
But interrelate they do, with each concept triggering off one another. As shown in Figure 2-1, the process of identifying your strategic advantage, comparing yourself against competitors and choosing a competitive strategy is a continuous cycle of honing your business idea.
The trick for you is to pick a competitive strategy (focusing on cost, differentiation or a particular niche) that complements both your strategic advantage and any opportunities you’ve identified in the competitive landscape.
FIGURE 2-1: Using your strategic advantage, competitor analysis and competitive strategy to continually improve your business idea.
SO WHAT’S SO SPECIAL ABOUT YOU?
Are you ready to take the challenge? Imagine you’re stuck in an elevator and someone has just asked you what your business is all about. You reckon you have about 30 seconds to convey what your business concept is, what you do, and what makes you so damned special.
Click the Record button on your computer or smartphone, have a quick look at the clock, and record your reply in 30 seconds or less. Tick, tick, tick … stop. How did you go? Listen back and rate yourself out of 10.
Did you remember to include your name, your business name, what you do that helps others, and what makes your business different from others?
This 30-second ‘elevator pitch’ is surprisingly demanding. In this first stage of getting your business off the ground, keep in mind that practice makes perfect. Say your speech aloud when you get in the shower, turn the ignition of your car, or make yourself a cup of tea. Your family may think you’re a little bit potty, but that’s a small price to pay.
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