Far too many small businesses and many larger businesses don’t really have a strategy. They don’t operate all that differently from the other firms in their industry. As a result, their ability to compete, to make profits, and even to survive is totally dependent on working hard every day to execute their non-differentiated business.
Then, even after working hard day in and day out, trying to out-produce, out-service, out-market, and out-sell their competitors, they are likely to be stuck with range-bound mediocre profits and are likely to face subdued growth potential.
Far too many entrepreneurs don’t give much serious, dedicated thought to the most important strategic decisions for their business, the kinds of decisions that determine the important broad foundation for their enterprise. Instead they spend endless amounts of time and energy in the day-to-day execution of their business plan, all the while handicapped by its lack of differentiation from that of its competitors.
But it doesn’t have to be this way. You can develop a strategy for your business that does give it a true competitive advantage. You need a strategy that acts as a constant tailwind to the daily performance of the business; a strategy that truly differentiates your business from its competitors.
So Exactly What Is a Strategy?
A strategy answers these two questions:
- In what market are we going to compete?
- How are we going to compete differently than the other players?
These questions can be more complex than first meets the eye, so let me discuss them in more depth and give some examples.
In What Market Are You Going to Compete?
The most powerful strategy of all is to enter a market that has no competition, has strong barriers to entry, and yet is large enough to be highly lucrative. Such markets are, of course, hard to find but wonderful when you find one.
Sometimes you need to recreate or redefine the market to create a new market segment in which you might be the only player, or that you may be able to dominate.
Let’s say, for example, that you are thinking about starting a house painting business – typically a highly competitive field. How can you differentiate your service from others?
If you are highly experienced or perhaps have worked for a well-known and highly reputable painting firm in town, you might decide to focus on higher end, more complex, more demanding painting jobs. You could totally position your business towards this high end of the market with everything from the name, to the staff you hire, to the operations plan, to the marketing plan, to the pricing.
On the other hand, you could decide to go for a more middle-of-the-road strategy, placing an emphasis on offering competitive prices. Again, you could position your entire business towards this end of the market with everything from the name to the pricing.
Finally, you could focus solely on interior painting, or painting new houses for contractors, or industrial painting, or apartment turnover painting for landlords.
Your strategy does not have to be all or nothing. You could, for example, emphasize a certain kind of work, but could also accept more generalized work if you need more sales immediately. If you are a business consultant and your specialty is, let’s say, supply chain management, that might form the core of your business strategy. That might be what you primarily promote and what you strive to become known as, as well as the thing which you can use to differentiate and distinguish yourself and charge the highest rate. But until you have built up a full-time practice in supply chain management, you could continue to take other more generalized and lower paying consulting assignments that come along.
Finding a particular market segment or market niche to compete in – where the competition is not overwhelming – is the most common way to develop an effective strategy and is often the simplest.
Finding a Way to Compete Differently in the Same Market
Here’s my classic “compete differently” strategy example, from my first business:
When I was 19 years old, I decided to start a bicycle rental business on Cape Cod (with the incredibly creative name of Bob’s Rent-A-Bike), after I heard about a man earning $150,000 during the summer season renting bicycles (U Pedal It! Inc.). I copied everything he was doing: I bought 50 used bikes and lined up gas stations and motels to act as my rental agents. Then I waited for my profits to roll in. But no one was renting my bikes. The other guy’s strategy didn’t work for me because he had new bikes, while I had old ones. He had the best locations, while I had what was left.
In desperation, I tried something different. I put to use my competitive advantage – free use of my mother’s station wagon – and offered free delivery of bikes to campsites and motels. Now I had a strategy that differentiated my business from the competition. It didn’t matter that my bicycles were old or what price I was charging. I was the only firm delivering bicycles.
So in summary:
U Pedal It!, Inc. (Existing Market Leader) Strategy:
Rent high-quality, new bicycles at dozens of locations around Cape Cod by contracting with gas stations, motels, and other businesses to act as rental agents. Results: Highly profitable.
Initial Bob’s Rent-A-Bike Strategy (Trying to Copy the Existing Market Leader but on a Shoestring Budget):
Rent average-quality, well-used bicycles at three locations around Cape Cod by contracting with a gas station, a motel and a sporting goods shop acting as rental agents. Because the best locations are already taken by U Pedal It! Inc., use secondary quality locations. Charge lower prices. Results: Few rentals, disappointing profits.
New Bob’s Rent-A-Bike Strategy:
Deliver bicycles directly to campsites, motels or rental cottages. Results: Rentals surged and profits took off.
So Exactly What Is a Strategy?
A company strategy is the unique formula for success that forms the foundation of a business plan, as well as governs the day-to-day operations.
This strategy is not a business definition and summary of pertinent markets, but instead it is an account of the one or two key factors that distinguish the firm from its competition and are most expected to contribute to the firm’s long-term success.
A strategy may focus on the particular market niche you are going to compete in or it could focus on how you are going to compete. Or it could focus on both.
To be most effective, a company’s strategy should be no longer than one page, at most. For many businesses, a single sentence would be ideal. The strategy should be easily and frequently communicated to employees so that a cohesive business focus is always maintained.
Why Develop a Strategy?
All firms, from one-person startups to global conglomerates, should have a strategy. Following a good, distinctive strategy will ensure that a business builds, maintains, and continually strengthens a specific identity in the marketplace.
By serving as a jumping-off point for annual business planning, a strategy will become the nucleus around which an annual business plan is developed. It will also form a framework to help you consider mid-term deviations from the plan. In addition it will help set a consistent direction for key functional areas.
A good strategy should endure year after year, and, hence, will tie together one year’s business plan to the next. This will enable the company to easily build upon the accomplishments of the previous year.
Without a clearly defined or closely followed strategy, companies of all sizes tend to lose sight of their direction when they run into temporary difficulties, or when management just gets bored operating “the same old business.”
I have often seen startups have disappointing results right out of the gate, with the founder being not only frustrated (and often downright depressed), but also baffled. “Can’t understand it,” he or she says. “It seems like I’m running my business the same way the competition is but it just isn’t working!”
Well, guess what? That’s just the wrong way to run any business, and for a new business it can be the kiss of death. A new business that has to start from scratch, get new customers, build credibility and build momentum can’t depend on simply copying someone else’s business model. To insure its success, it must somehow be not only better, but different – different in a way that matters to some potential customers.
It is amazing to me to see so many very small businesses, after they’ve had a few moderately successful years, adding completely unrelated product lines or services to their offerings that quickly muddy their identity and positioning the marketplace. This tactic signals to customers that the management has no clue as to the nature of their business. What would you think if your favorite ice cream parlor began offering a full-service dinner menu literally overnight? Or if the local boat dealer suddenly decided to devote 50 percent of his floor space to lawn mowers? You’d think they were confused, right? I’ve seen real life examples of each.
No one business type is immune from this appalling lack of strategic discipline – not “mom and pops,” not large corporations. Not startups and not established businesses. But large or small, new or established, having a strong strategy and staying with it can make all the difference in the world.
“Strategy isn’t just a buzzword that MBAs at huge corporations use to sound intelligent! It’s something that can make all the difference in propelling your small business to success.”
How to Avoid Spinning in Circles
How important is strategy? Whether your business is a one-person startup or a huge corporation, a great strategy is crucial. Without a strategy, how is your business going to outperform against its competitors? How is it even going to survive? How is it going to attract customers? What is it going to stand for?
In my many different businesses, I’ve spun around in a lot of circles because of a lack of a solid strategy. While it seems hard to develop one, strategy is not that complicated. Basically, it’s just the few key factors that differentiate your business from your competitors.
But it’s easy to fall into traps. One of the most common traps entrepreneurs fall into is attempting to differentiate their business, but not doing so in ways that really matters to their customers. Key questions to ask are: “Is this strategic differentiation enough to attract a new customer? Is it enough to attract a customer who is currently doing business with a competing firm?” Ideally you should also ask some of your customers or potential customers what really matters to them.
For example, I see gas stations promoting “full service,” or repairs from an “experienced mechanic.” But I also see motorists taking their business across the street to a quick-change oil facility, even though the facility doesn’t offer a full array of repair service (services that are not usually done by a highly experienced mechanic), and even though customers don’t go there to buy their gas. So why do they go? Because the quick-change oil facility has successfully positioned itself as a place for a fast, quick, reasonably priced oil change service.
So How Do I Start Developing My Strategy?
Begin developing your strategy with an evaluation of the current state of the industry including such factors as the nature of the competition and how is the industry changing. Next, evaluate key competitors in depth, particularly focusing on what makes each one different from the others, how they try to distinguish themselves, how customers seem to perceive their differences (which is often quite a different story), what they do well and what they do poorly. Finally, evaluate each of their key products and services with which you might be competing. Compile a list of the strategy of each key competitor along with its effectiveness.
But don’t stop there. Resist the temptation to simply copy one of the competitor’s strategies and be done with it.
The next step is to brainstorm. What other strategies might work? What is it that matters to customers that existing competitors could be doing a better job of delivering? Is there a niche market that is not being well addressed by existing players? Is there a particular strength that your company brings to the market that other players lack?
I would spend a lot of time thinking about possible new strategies. I might look at totally unrelated industries and note if there is a company outperforming in some way. Could their strategy be used in my business?
Another way to come up with great strategy is to get out and talk with customers. Don’t just survey them or phone them, but get out and talk with them in person. Come up with some open-ended questions to get them talking, questions that allow them to give you their “top of head” feelings about what they like and don’t like about your competitors, how the competitors could be serving them better, and what an ideal product or service might look like.
Still another possibility is to talk with non-competitive industry suppliers who are regularly interacting with the current players. Often, sales people who regularly visit and talk with suppliers can come up with great ideas. And, of course, sales people love to talk and offer ideas.
But the textbook and most systematic way to think about strategy is to create a really solid business plan, examining, in depth, the market, the industry, and key competitors.
Coming up with a great strategy is probably not going to come easily. Even taking all the steps I have suggested is not necessarily going to immediately result in “Presto! Awesome strategy!” But it will help create a foundation for your thinking, a place and mindset for you to come back to later, where you can brainstorm creatively and think deeply about how you can best differentiate your business.
A Few Simple Strategies to Get You Started
How do you determine what your strategy should be? How do you weigh strengths and weaknesses?
Finding a true strategy – one that really differentiates your business from the competition – may take some energy, but believe me, it’ll be worth it.
Here are a few possible strategy variables to consider:
- High quality versus low price
- Narrow versus broad product line
- High-tech versus low-tech products
- Trendy versus conservative products
- Brand name versus generic
- Customized versus standard
- Niche market versus mainstream market
Leading consulting firms commonly advise their corporate clients to get rid of any business in which they are not one of the top market leaders. The truth is that you don’t need to be the market leader to successfully compete. But you do need to find some area of strength and some way to differentiate yourself from the competition to be successful.
Coming up with a great strategy may be the single most difficult step in building a business. But it may also be the most important.
I would caution you, however, that while it may be difficult, the winning strategy for your situation (and there are probably many, not just one) could very likely be a very simple solution. So don’t try to overthink strategy and be determined to come up with a complex answer if the simpler solution is staring you in the face. For strategies, simpler is usually better.
Finally, at the risk of being redundant, I will say once more that you may need to go back many times to think about possible strategies before you come up with one that really seems powerful. But believe me, it will be truly worth the effort.
Takeaways You Can Use
- Carefully choose the market in which you will be competing.
- Businesses without strategies tend to drift and grow slowly.
- Developing a great strategy can be difficult, but extremely important.