We know that 2016 will be a difficult year. Entrepreneurs I speak to believe competitive pressures are increasing as businesses chase shrinking markets. Price cutting is common as competitors do anything to get a slice of the limited business available.
Some entrepreneurs may respond by cutting costs to remain marginally profitable. Others will look for new markets or slash prices, and some will simply hope to avoid catastrophe. The problem is that almost all competitors will do similar things, so competitive pressures will remain unchanged.
This is a good time to think strategically about positioning your business to get through bad times while increasing your competitive advantage.
I suggest you take a deliberate competitive position and I have listed three possible strategies for your consideration, and a fourth which you could fall into if you do nothing.
Companies adopting this stance will throw up defences, particularly around their customer base, and take very few risks. They will plan their cash flow carefully and monitor cash continuously. They restrict development of new products to those that will preserve their key customers.
They will increase customer service and communication, but ruthlessly eliminate waste and unprofitable products.
They will pamper key staff, look after suppliers and get rid of deadwood. This strategy is much more than cutting costs and prices, in fact some prices may increase to preserve margins.
If you adopt this strategy you will need to protect everything that allows you to defend all that is yours. When the economy improves you will be stronger than competitors and able to attack them in their weakened state.
This is a high-risk high-reward strategy that is not for the faint hearted.
Companies following this aggressive strategy go on the offensive when times are tough, growing the company by acquiring new customers and markets, usually at the expense of more cautious competitors who are caught unawares.
If you adopt this idea you would have aggressive pricing offers, great incentives for new customers and extensive marketing. You would also lure away key sales and technical people from competitors.
This is an expensive strategy, so you need more sales to pay for it, but that means you could negotiate with suppliers for better terms in return for increased volumes, and attract high performing people, both of which make you more competitive.
We think of the innovator as inventing new technologies or products. This is only one type of innovation; pricing, packaging, manufacturing, delivery and customer response can all form the core of an innovation strategy.
Think of the way the motor and cell phone companies price products; a mix of products and services expressed in monthly payments. The fast food industry has many successful innovators from creative marketing to new ways of getting their products to customers.
If innovations have never been tried before they may not work, so there is risk. The company must be agile, creative, motivated and excited.
Good internal and external communication is needed to convey excitement and creativity. Those who get this strategy right become difficult to compete with and are able to grow quickly.
Some entrepreneurs will drift along as usual. They risk being vulnerable to the predators and innovators, they will be weak compared to the defenders, stranded in the worst of all worlds.
I call this the ‘drifting along’ or the ‘potential victim’ strategy. Think carefully before you stagnate into this one.