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August 16,2021 Strategic Planning

Strategy For the Small Business Chapter 1

Strategy For the Small Business Chapter 1

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Strategy For the Small Business Chapter 1

Strategy For the Small Business Chapter 1

Paul Hedrick combined creativity with a keen business eye to take the cowboy boot market by storm. He’s a Texan who found himself employed in 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 retailers that moved the product.

Hedrick left the east coast and returned to Texas with the intention of revolutionizing the boot industry. His goal was simply to produce quality cowboy boots and sell it at a lower cost to get a foothold in the industry. After securing a design and partnering with custom cobblers in Leon, Mexico, his entrepreneurial endeavor began and Tecovas was born.

This story mirrors that of many entrepreneurs; however, strategy was where Mr. Hedrick differed. Seeking a competitive edge, he knew that if he sold his boot directly to the consumer, he could cut out the retail middleman. To accomplish that, he would have to become an online realtor himself. After 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 Played by Strategy in Today’s Marketplace

If you are a for-profit or non-profit, your organization must provide value and there should be a reason for its 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 also to exert an impact on society. This explains change events, as any corporate transformation constitutes the pursuit of value, either in terms of efficiency or growth.

Moreover, as a for-profit or non-profit organization, there is competition to face. Non-profits compete against other organizations for finite resources, namely donors and grants, or for 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.

The intent of strategy is to offer a competitive advantage in order to make your organization unique. Strategy is a multi-level process wherein an entity can determine where they stand in comparison to their competition, where they can take advantage, and how they can win the future. The process unravels the mystery of what makes you unique and how you can leverage your own resources so that you can gain market share. In competitive strategy, a different set of activities are deliberately chosen to deliver unique value.

Early Marketplaces

Thinking 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 each sale your competitor makes represents money that is taken away from you.

On a micro scale, each sale impacts your overall wellbeing. As you compete against your six competitors, you are all basically selling the same fruit of the same quality, for the same price, and at the same time and location. In this scenario, strategizing will constitute 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 presents a cutthroat environment—one where paranoia thrives. This is all true. As a business leader, your goal is to keep your organization alive by all means possible. Your customers and employees rely on the security of being able to maintain their achieved quality of life. This viability is earned through expanding or maintaining market share, and 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.

Finding Time to Strategize

As a small business owner, the first response that I typically hear is that I’m too busy for this and in such a constant rush with running the business that I have no time to think. While I cannot debate them on why they are too busy, I can only point out what the aftereffects will be. The business owner 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 trends of what everyone else is doing. Bad strategy follows the crowd and substitutes popular slogans for insights.

The second scenario that I run into is the annual planning fallacy, which is the belief that planning for the year is a strategy. Like how genius innovation does not come packaged in 8 hours a day, 40 hours a week increment, nor does strategic advantage occur nicely in a year format. Strategic planning focuses on the broadest issues with 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 strategy. Good strategy stems from independent and careful assessment. It involves understanding the present situation and predicting the future. It includes spotting the gaps in the market and knowing how to maximize your effort to exploit those spots.

Strategy is not about tactics. Tactics involve 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 are not independent of each other. Tactics is the application of strategy on a lower plane. Strategy is the application of a grand plan on a lower plane.

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 by clarifying why people should use your services instead of someone else’s. One of the pioneers of strategy, Michael Porter highlights that there are ten approaches to separating your organization from your competition. Over the next few chapters, we will explore further specialization, brand, push versus pull, channel, quality, technical leadership, vertical integration, cost, service, and price relationship—all of which are elements of business uniqueness.

Strategy for the Small Business

Small businesses are at the heart of a capitalist economy. Small businesses 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 in the manner that 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 results in a business being successful or going out of business.

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

Focusing on the Competition

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 a firm in its respective industry, in turn creating a sustainable advantage of superior value relative to the competition. Simply said, strategy enables your capability to attack.

Finally, this book focuses on how to strategize yourself. 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 of which are good and 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 to. However, in 1914, massive leaps in technology brought a new kind of terror to this world in the form of machine guns, chemical agents, and precise artillery. War had permanently changed. The German invasion of France brought this uniqueness to war in the sense that both sides shared the same level of military technology and neither side held a technological edge. This resulted in trench warfare that reached a stalemate for five years with countless casualties

The French philosophy was that willpower, spirit, morale, elan, and aggressiveness are 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, which led to the breaking of the stalemate. The strategy of spirit alone can still be seen in corporations today. When asked what makes you unique, people mention their drive, motivation, and spirit, but they have no strategy besides running headfirst into a hail of bullets.

Optimal End State

When thinking about strategy, great forethought must be paid to 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. These crippled the German economy and directly led to the Second World War. As a small business owner, determine what damage you want to inflict and to what extent. It is critical to understand that there will be causes for them to seek retaliation. You must manage through those consequences.

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