Why do so many companies languish and watch as their business turns into a zero profit zone, while others seem to thrive?
When you look at your business, whether it's a new venture or a company with a long history, can you answer the following questions?
Companies that fail to answer these questions, and don't believe they are of paramount importance, relegate themselves to marginal profitability at best and failure at worst. But companies that can answer these questions are able to raise the value bar for their customers and reap the benefits of success.
Of course, being able to answer 3 simple questions does not ensure success, but it is an important step in creating a strategic and focused operation which leads to a successful business. With today's business environment being so competitive, businesses need to re-invent the rules on which they compete in order to be successful. Companies like Wal-Mart have figured this out and have redefined competition in their market by delivering a unique value to a selected customer group. By maintaining a focus and discipline, they make it difficult for other companies to compete under old competitive terms.
Simply, competitive strategy has never been more important to success in today's business environment. It does not matter what type of business you are in or whether you are small, big or just starting out, a company can not survive without an adequate and focused strategic plan to best the competition. Yet many companies fail to execute a successful strategy; it is these companies that languish in the zero profit zone.
In simple terms, for a company to achieve success and enter the profit zone it must first decide where it will stake its claim in the marketplace and what kind of value it will offer its customers. A company needs a clear marketing thrust, a precise knowledge of its customer base, and a product or service with a niche or some competitive advantage to be successful. Unfortunately, many entrepreneurs and business owners get stuck in the process of defining their competitive strategy. They often have the idea and the product, but being the technician they are not sure how to define its market. Even worse, many entrepreneurs assume or guess their target market and often glaze over a competitive strategy, usually to the detriment of the business.
So what are the steps to laying out a competitive business strategy? While there are different methods you can follow, I have laid a series of 6 basic steps to help you.
1. Financial perspective
This step may not seem to have much to do with strategy, but it is important to determine the value of success quickly. Why? Because, in simple terms if the venture can't deliver significant returns, it may not be worth the risk, and you have to ask yourself if it is worth continuing with your business. In this scenario you complete a reverse income statement. You start by defining how much profit you want to see at the end of a certain time period, and then determine the amount of revenues needed to generate that profit and the costs to deliver that profit. Do the numbers add up and make sense? The goal here is to be objective, if the expected revenue is not sufficient to generate your required profit at the end based on an estimate of costs, don't simply fudge the numbers and assume you can reduce costs or increase revenue. Be diligent in your assessment.
2. Understand the industry and competition
In step 2 you are going to assess your industry and the competition. This basically comes down to assessing 5 factors:
3. Understand the Customer Perspective
In step 3 you assess your customer. This is a key step, get it wrong and you may not be able to recover. In fact, the customer value proposition and how it translates into growth and profitability for the company is the foundation of strategy.
Start by asking your self a couple basic questions: To achieve my vision, how must my customers look? Who are the target customers that will generate growth and a profitable mix of products/services?
Next, ask yourself what is the value proposition which defines how the company differentiates itself to attract, retain and deepen relationships with the targeted customers? There are basically 3 value propositions or disciplines that you can choose from:
In order to help you determine which of these value propositions you decide on, you may want to work through a value chain: 1. Determine your customer priorities 2. Determine the channels needed to satisfy those priorities 3. Determine the offering (products) that are best suited to flow through those channels 4. Determine the inputs (materials/knowledge etc) required to create the product 5. Determine the assets/core competencies essential to the inputs (ask yourself, in order to satisfy my customer at which processes must I excel? For example, product design, brand and market development, sales, service and operations and/or logistics).
4. Finish the business model
The business model shows how all the elements and activities of a business work together as a whole by outlining how the business generates revenue, how cash flows through the business and how the product flows through the business. By this time, you should understand the revenue capability of the business, how the industry works and your competition, who you customer is, what you are going to offer them and how you are going to offer it. By drawing a flow chart that shows how these activities are linked together you will understand how the business activities flow to generate projected profit, which you determined in step 1. This is also a good step to see if something is missing in your analysis.
5. Construct the business plan
By the time you get to this step most of your work is done. If you are looking for financing, a formalized plan will have to be completed. If you do not need financing, simply make sure the preceding tasks are documented so that they can be reviewed and changed as time progresses (strategy is an ongoing process, not a one time task).
6. Learning and growth perspective
In this last step, you ask yourself how/where the organization must learn and improve in order to become and remain successful. For example, determine the skills, capabilities and knowledge of employees needed, the technology needed and the climate and culture in which they work.
About The Author
Jeff Schein is a CGA and offers consulting and advice in the areas of business planning, business modeling, strategic planning, business analysis and financial management for new ventures and growing small businesses. Visit www.companyworkshop.com or www.companyworkshop.com
You have permission to publish this article electronically or in print, free of charge, as long as the bylines are included. A courtesy copy of your publication would be appreciated. Send to:www.companyworkshop.com
shuttle from Midway Glen Ellyn ..If you own the mid-size business and actively work in... Read More
Writing a business plan is an essential part of the... Read More
Many very successful business owners may never have had a... Read More
A recent conversation started with a typical question, "How's business?"... Read More
I read once that something like 30 percent of all... Read More
Business seems to drop, slow or even stop during the... Read More
Obviously, there will never be an actual water shortage since... Read More
The day you decide to take the plunge and work... Read More
One of the most powerful driving forces in human nature... Read More
What do Mark Victor Hansen, Robert Allen, Anthony Robbins, Andrew... Read More
Please take a moment before you read any further and... Read More
A focus group is a group of employees or current... Read More
Storytelling and writing a business plan actually go hand in... Read More
When someone mentions business planning we have been conditioned to... Read More
A menu is the foundation of any restaurant; Guests will... Read More
Imagine spending the same amount of money on marketing and... Read More
There is so much small business information available today that... Read More
One of the most important initiatives in the domain of... Read More
Experts estimate that 90 percent of Australian businesses are overspending... Read More
The decision to sell, or not to sell your business... Read More
Microsoft Great Plains fits horizontal markets clientele and in case... Read More
As a business owner, you've likely created a hurricane plan... Read More
I'm not talking about posting the HBO schedule on your... Read More
David E. Gumpert, author of Burn Your Business Plan, often... Read More
In 1997, David Steele was making the transition from a... Read More
shuttle from O'Hare North Chicago ..You have heard that there is extra money on the... Read More
One of the most important initiatives in the domain of... Read More
Does the competition drive you crazy?Are they relentless about taking... Read More
No matter what business you plan to start in your... Read More
I'm not talking about posting the HBO schedule on your... Read More
Here is an abstract thought on studying nature and the... Read More
Storytelling and writing a business plan actually go hand in... Read More
How important is a vision statement to your company or... Read More
After 128 years of business, a household word, Montgomery Wards,... Read More
If you own a mobile car wash business or auto... Read More
So you've decided to write your own business plan because... Read More
In Ohio: besides the 3-Cs you should look at Akron,... Read More
Business owners and entrepreneurs are, by nature, risk takers and... Read More
The current state of the available technology at the disposal... Read More
We all know that nothing runs without a plan, and... Read More
Possibly THE most frequently asked question of me is "What... Read More
All investors greatly desire and are motivated by a clear... Read More
There is a story, about a business owner who wasn't... Read More
One of the key challenges for any business is to... Read More
Every decade we seem to come up with a buzz-word... Read More
Diversify - to make diverse, give variety, to balance, to... Read More
These may sound like no brainers, but you'd be surprised.... Read More
Richard L. Daft one of the country's recognized academic leadership... Read More
If you own a pressure washing business one of the... Read More
Running a business, whether it be an offline multi-billion dollar... Read More
Strategic Planning |