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January 22,2021 Strategic Planning

Strategy For The Small Business

Strategy For The Small Business

Strategy For The Small Business

Strategy for the small business

Paul Hedrick combined a creative nature with a keen business eye to take the cowboy boot market by storm. He’s a Texan that found himself working private equity in Connecticut after a Harvard education. As an analyst his job was to find holes in the market and that was exactly what he found when he dove into the designer cowboy boot industry. He realized that quality boot prices were dependent on the retailers that moved the product.

Hedrick left the east coast and returned to Texas intent on revolutionizing the boot industry. His goals were simply to produce a quality cowboy boot and sell it at a lower cost to get a foot hold in the industry. After securing a design and partnering with custom cobblers in Leon, Mexico his entrepreneurial endeavor began and Tecovas was born.

Differentiation

This story mirrors many entrepreneurs, where Mr. Hedrick differs was his strategy. Seeking for a competitive edge, he knew that if he only sold his boot directly to the consumer, he could cut out the retail middleman. To enable that, he would have to become an online realtor himself. Leveraging e-mail campaigns, search engine optimization, and ad placements the first orders trickled in. Those first orders led to a strong word of mouth advertising campaign and the flywheel of sales began. Three years after Tecovas opened for business, it had already reached $30 million in annual revenue.

 Role Strategy Plays in Today’s Marketplace

If you are a for-profit or non-profit your organizations provides value. There must be a reason for existence. We do not live in a utopian state where there are meaningless jobs simply to support people. Each organization strives to produce value not only to justify its reason for existence but to make an impact on society. This explains change events as any corporate transformation is the pursuit of value, either in efficiency or growth.

Also, as a for-profit or non-profit organization there is competition. Non-profits compete against other organizations for finite resource’s being donors and grants or for your clients. For profit organizations are more direct where you have customers that your competition wants to take from you, and they have customers that you want to attract.

Competitive Advantage

The intent of strategy is to give a competitive advantage, to make yourself unique. A strategy is a multi-level process of how an entity can determine where they are in comparison to their competition, where they can take advantage, and how they can win the future. The process unlocks the mystery of what makes you unique and how you can leverage your own resources so that you can gain market share. Competitive strategy deliberately chooses a different set of activities to deliver unique value.

If we think back to the early marketplaces let’s use the example of running a fruit stand in the 14th century in an open-air market. In this large bazaar you are not the only fruit stand, but you are competing against six other stands that basically sell the same products. With each sale, your family gains a little more security as you’re better able to feed and take care of them and with each sale your competitor makes that represents money taken away from you.

On a micro scale, each sale makes an impact to your overall well being. As you compete against your six competitors you are all basically the same selling fruit of the same quality, for the same price, and at the same time and location. Strategy will be figuring out what makes you different from those other six and how to use that uniqueness to get customers to purchase from you instead of the other six.

Purpose of Strategy

Initial impressions can lead a person to believe that the open marketplace or capitalism is a cutthroat environment. An environment where paranoia thrives. This is all true. As a business leader your goal is to keep your organization alive if possible. Your customers and employees rely on this security of maintaining their achieved quality of life. This viability is earned through growing or maintaining market share, but it is achieved by winning each day. Winning is thinking before acting. It is being as efficient as possible with your limited resources and innovating solutions when trapped in problems.

As a small business owner, the first response that I typically hear is that I’m too busy for this. I’m in such a constant rush with running the business that I have no time to think. While I can’t debate them on why they are too busy I can only point out what the aftereffects will be. Caught in the moment like everyone else, with no ability to view the market with a long-time horizon. Business owner are then prone to overreact to competitor movements and follow the crowd of what everyone else is doing. Bad strategy follows the crowd and substitutes popular slogans for insights.

Annual Planning Fallacy

The second scenario that I run into is the annual planning fallacy. This is the belief that planning for the year is a strategy. Like how genius innovation doesn’t come packaged in 8 hour a day, 40 hours a week increment nor does a strategic advantage occur nicely in a year format. Strategic planning focuses on the broadest issues with the long-time horizons and not what can be accomplished in an annual financial plan. Annual planning exercises are not strategy, they cannot deliver what senior managers want nor what a business owner needs which is a pathway to higher performance.

Understanding Your Own Strategy

My intent is to help you develop your own good strategy. Good strategy grows out of independent and careful assessment. It is understanding the present situation and predicting the future. It is spotting the gaps in the market and knowing how to maximize your effort to exploit those spots.

This is not about tactics. Tactics are maneuvering around on a field to win the battle that day. Strategy is choosing the right battles to win the war. Strategy and tactics work in tandem together and not independent of each other. For tactics is the application of strategy on a lower plane. Strategy is the application of a grand strategy on a lower plane.

Competitive Dimensions

Running a business is about understanding the dimensions of your competition. Strategy helps you focus on these dimensions to learn more about yourself and your competitors. It is the cornerstone of how you can make yourself different clarifying why people want to use your services instead of someone else’s. One of the pioneers of strategy, Michael Porter points that there are ten approaches to separating from competition. Over the next few chapters we will explore further specialization, brand, push versus pull, channel, quality, technical leadership, vertical integration, cost, service, and how price relationship are the key elements of business uniqueness.

Small Business Strategy

Small business is the heart of a capitalist economy. They are also prone to the most attacks. These attacks come in the form of cyber security, customer fraud, and major pricing swings. The threats come from a resources element in that they typically don’t have the manpower or technology to sustain a battle as the major enterprises do. However, small businesses also represent the most potential because it is the market in which the combination of keen insights, decisive movements, and tenacity will result in a business being successful or collapsing.

Small business typically identifies a fragmented industry. This is where no firm has a significant market share. These industries are typically local, run by small businesses, and privately held. For examples think of landscaping or auto repair companies. The focus is on fragmented industries because there are low entry barriers to get into business. There is an economy of scales absence and high product differentiation. This makes the market ripe for being impacted, preferably by you.

Competition Focused

This work will be competition focused. Your competition may or may not be thinking about you as they plan, but you will be. Strategy is an integrated set of choices that uniquely positions the firm in its industries to create a sustainable advantage of superior value relative to the competition. Simply said, strategy enables your capability to attack.

Lastly, this book focuses on how to do strategy yourself. The large consulting firms charge up to $5,000 a day for this work and it can take up to a year to fully develop. Small businesses typically don’t have millions to spend on strategy. Some companies use small boutique consulting firms, some are good, some are cons. This book will give you the tools to create your own strategy or educate yourself when you bring in a firm to help your strategic process.

Esprit de Corps

Wars over European land is something historians could set their watches too.  However, in 1914 massive leaps in technology brought a new kind of terror to this world. Coming in the form of machine guns, chemical agents, and precise artillery. War had permanently changed. World War I brought something unique to the battlefield as both sides shared the same level of military technology and neither side held an advantage. This resulted in trench warfare of a five-year stalemate of countless casualties

The French philosophy was that willpower, spirit, morale, elan, and aggressiveness were the keys to success. They then sent their Army into machine gun fire expecting to survive on spirit alone. Each side was able to add new troops until the balance was broken with the infusion of American troops and the stalemate broke. The strategy of spirit alone can still be seen in corporations today. When asked what makes you unique people talk about their drive, motivation, and spirit. They have no strategy besides running headfirst into a hail of bullets.

Retribution

When thinking about strategy great forethought must be placed onto what the ideal end state should be. The goal is to win but to not back your competitor into a corner. War is to inflict the least amount of permanent injury for the enemy of today is the customer of tomorrow and the ally of the future. The more you ask of a defeated side, the more trouble you will get into in the future. For example, the reparations that the Allied forces placed on the Central Powers crippled the German economy and directly led to the second World War. As a small business owner know what damage you want to inflict and to what extent. Knowing that there will be causes for them to seek retaliation and that you will have to manage through those consequences.

References

A Way Forward For Small Businesses

Read More about Strategy

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