Large IT companies spend millions on market research to see how they stack up against their competitors, and use this information to figure out how to differ from them and be better.
Automotive manufacturers and importers watch every move competitors make; being first-to-market with a new fashion trend can mean the difference between a clothing brand outselling its competitors or disappearing.
Even cities position themselves against other cities to attract tourists and businesses. Why should competitive strategy (a vital part of marketing strategy) only be relevant to very large organisations? Why not your business?
Being competitive is a core requirement for all businesses irrespective of size. Not-for-profit organisations like charities, schools and religious organisations compete for funds, members and media attention.
Very small businesses and start-ups must wrench business away from competitors or alternatives just to survive. Without a compelling message about the advantages they offer over others, many of these organisations will fail as consumers take the easy route of buying the most popular, the most accessible, or the most familiar.
More than 30 years ago, Michael Porter defined competitive strategy as: “The plan for how a firm will compete, formulated after evaluating how its strengths and weaknesses compare to those of its competitors.”
This plan should be focused on getting a sustainable advantage over competitors so it’s much more than simply reducing price or having a special offer.
Implementing competitive strategy means taking actions to improve the firm’s market position by gaining a competitive advantage over the organisation’s rivals. The competitive advantage can either be delivering better customer value, or operating more efficiently than competitors, or both.
A lot of start-ups are born because the entrepreneur has an idea for an innovative new product or service that isn’t available from competitors. This doesn’t mean there’s no competition or need for competitive strategy. Customers who buy the new product or service take money from other expenditure, and if the idea is successful it will attract many imitators.
Higher efficiency lowers cost
Better value for customers can mean more offering for less money, higher functionality, a more convenient way of buying, faster delivery, better warranties or a host of other possibilities like making the buying experience more attractive or fun.
The Hooters chain of restaurants uses attractive and outgoing waitresses in hot pants; tyre fitment centres offer filter coffee and sport on a big screen; FNB boasts credit card delivery to your door.
More efficient operations can mean having lower costs of operations, higher quality for the same cost, less administrative overhead from making fewer mistakes, and faster turnaround time.
This last one is equally important for pizza delivery and those who make tooling for car manufacturers, which indicates just how across-the-board the requirement to be competitive is.
Putting together a competitive strategy in four steps
- Identify who your competitors are
- Find out about the strengths and weaknesses of your competitors’ companies and products
- Plan how to compete against them and then implement that
- Monitor their reaction to your actions.
This may sound complicated, difficult to do, and hugely time consuming. You may think you only need to improve your offering, but that’s not good enough; you should be doing that continuously anyway.
Competitive strategy can be intense and time consuming but can easily give you opportunities to grow in size and profit far beyond your current forecasts.
Microsoft, Facebook, Nandos and Discovery all started as small operations and grew to dominance in their sectors because they had great competitive strategies. Will your business be a giant of the future?
Who are your competitors?
Many business plans I see list companies selling roughly the same product with or without their strengths and weaknesses, but make no attempt to show how you will compete with them.
This is meaningless. To identify your competitors I suggest you acquaint yourself with Porter’s Five Forces: The bargaining power of buyers and suppliers, the threats of substitutes and new entrants as well as traditional competitors. Then list the four or five most worrying competitors; those that could hurt your business if they chose to.
Many entrepreneurs claim their business is so unique that there really are no competitors. If this is you, ask yourself: “Why am I not yet a billionaire?” It’s likely that your competitive threat comes from customers using their available funds to buy something totally different but equally satisfying or better known to them. There are always competitors or imitators.
Once you have a prioritised list from any of the Five Forces, go and research the companies. There is an amazing amount of information on the Internet, in their publications and in news articles.
Talk to experts in your industry, have someone call them to see how they are treated, get profiles of the management team, identify their suppliers and major customers. Form an opinion about their size and financial and marketing strengths, identify their sales channels.
Investigate how they handled competitive situations in the past. Some companies are relentless litigators, others bully new entrants with price wars or threaten customers and suppliers to stop them from trading with you.
Now list their major strengths compared to your business, their style of operating and competing and look for areas of weakness. However powerful they are they will have weaknesses, search for them, think creatively. Their own size and power may be working against them, slowing responses, being arrogant or management being unaware of how staff treat customers.
Working out how you can compete with the identified companies may seem like a daunting task, especially if they are larger and ruthless. On the other hand not working out how you can compete is likely to lead to extremely unpleasant tasks like winding up your business, so take the plunge.
You have two broad opportunities to compete – you can have lower costs or you can be distinctively different in the eyes of the market.
Focus on how you can compete in areas where the competitors are weak. If they are large bullies get the community on your side, if they are bureaucratic be responsive, if they have quality failures make sure you have none, if they are arrogant be especially receptive to customers and their issues.
To be distinctively different means much more than just doing things differently. The difference must be desirable for customers. They must get more value when buying from you; lower prices or higher performance.
Higher performance is not only of the product or service, it may mean higher quality, faster or easier availability or better financial terms. You need to think creatively; look at successful marketers. Motor dealers have service plans, cell phone companies bundle free and paid calls into packages, countries offer tax free ‘holidays’ to encourage industrialists to set up new factories.
Barack Obama used social media to effectively deliver his ‘yes we can’ message to the electorate. Nandos and Kulula made it fun to deal with them. Small businesses can borrow and use these and many other ideas.
While you are planning, you may find that competitive strategies which look as if they would work against one competitor may not be the same for other competitors. Devise the best compromise of actions, focusing on the most threatening competitors.
If your competitive strategies are implemented it is likely you will take business from your competitors. They will not sit back and let you eat their lunch, they are going to react, possibly intensely or viciously. Be prepared.
Keep monitoring their style, strengths and weaknesses at regular intervals. Do the same to your own organisation; you do not want to fall into the same traps they did. This takes time, money and effort, but it is one of the easiest ways to grow your business significantly, and become stronger than competitors.
You will need to adjust your strategies as this happens, but you may now be able to afford formal competitive market research. Have fixed times set aside for competitive strategy focus and monitoring how your strategies are working. It’s well worth the effort.
If you have read to this point you presumably are thinking seriously about competitive strategy. A percentage of you will be thinking that this is something you and your team really should do, but with the workloads of managers of entrepreneurial small and medium businesses, doing it may be a challenge.
You may be thinking, “How do we find time to do all this work? How do we find the money?” It really is a question of priorities. Would it be worth your while to not respond to a tender, to postpone the product development, to again delay the company profile that should have been done months ago?
Only you can answer these questions, but while doing so remember that good competitive strategy may mean you are creating a much better and bigger business over time, but gaining significant short-term advantages. Competitive strategy gets my vote as the priority.
Related: What Exactly is Strategic Planning?
What’s The Worst That Can Happen With A Disgruntled Silent Shareholder?
Whether a shareholder brings capital to the business, experience or connections, you need to ensure everyone has the same vision and values.
While we often hear that it can be bad to have a silent shareholder that does not want to play ball, it is not often that we make enquiries about how the governance of a company can be hindered by a disgruntled shareholder.
Most of us assume that as long as they own more than 50% of their own company, they are entirely in control of all aspects of the company and how it is governed. This is not true: Even if you are a majority shareholder, holding less than 75% of all the shares in your company can still result in headaches if a minority shareholder, holding at least 25% of the company, becomes disgruntled and neither participates in the decisions of the company, nor consents to the decisions being made.
What is set out below highlights, among others, why it is so important to give shares in a company to prospective shareholders over a period of time, rather than from the outset. This allows for shareholders to prove their worth without you potentially placing your company in a position where it could be held at ransom for many years.
The illusion of holding more than 50% of the shareholding in a company
- Many people assume that by holding more than 50% of the shares in a company they are free to do with the business as they please. This generally only holds true for basic decisions of the shareholders, such as the removal and appointment of directors. The most important decisions of a company are based on special resolutions. A special resolution requires that shareholders, either individually or collectively, holding at least 75% of all the shares in a company, vote in favour of a specific decision.
- Examples of decisions that require a special resolution include:
- Amending a company’s Memorandum of Incorporation
- Approving the issuing of shares or granting of other similar rights
- Authorising the basis for determining directors’ salaries
- Disposing of company assets
- Mergers and acquisitions.
So, what does this mean for you and your company?
- If you are a start-up looking to raise funds, apart from some exceptions, you will not be able to issue further shares to new shareholders or anyone other than existing shareholders if there is a shareholder that is effectively dead weight.
- Should you manage to vote a new director to the board, you will not be able to determine the basis on which they are compensated (their salary) without a special resolution.
- If you intend to merge with another company, you will not be able to pursue this without a special resolution.
- If you plan to raise money by disposing of or selling most of the assets of your company you will, once again, be prevented from doing so.
Accordingly, it is always best when starting a venture to vest your shares over a period of time. This means that, for example, shareholders are only entitled to have their shares allocated to them after a certain period of time to avoid a situation where you have a dead-weight equity shareholder hindering the governing of your company, and requiring possible litigation to remove them.
There’s More To Team Management Than Leadership
When you’re running a business you need to ensure that your employees are on your side, helping you to make profits. Giving them job security, taking them seriously and treating them with respect, will go a long way in enhancing loyalty and productivity.
The staff that work for you determine:
- How happy your customers are with your business
- The quality of the things that you sell
- The costs that you incur to sell your products and services
- Your risks – the things that can go wrong and how much it costs you
All of these things determine your profitability and how competitive your business becomes. How do you ensure that everyone is on the same side and helping you to make profits?
At work everyone believes that they are getting something (such as money) and are giving something in return (such as time and effort). They are weighing up in their mind “how much am I giving, how much am I getting in return and is this fair?” If they believe that they are:
- Giving too much or
- Getting too little
- Then this is unfair, and they won’t work well (poor productivity – how much they produce).
The manager needs to:
- Know what people are thinking about what they are giving and getting and
- Manage the giving or getting side
- So that people become more productive
In a smaller business you sometimes cannot afford to pay more or provide the sort of benefits (pensions, medical aid, bursaries etc.) that larger firms can and so the staff may be unhappy, not be productive and be on the look-out for something better.
How do you increase happiness without money?
- Job security – knowing that you will still have a job next year – and that you will get paid on time.
- Contributing to the success of the business. If you train staff to have the knowledge and skills to do a better job and you then encourage and support them to do this then they are happier, and you increase profits. If you then share some of these profits with the staff that helped you to make them then everyone wins!
- To be taken seriously and treated with respect. If you do this then staff are happier, and they will also treat your customers with respect.
- To be part of the team. You can often do this by having a regular briefing on what your plans are and discussing ideas. Because staff are doing the actual work they will often have good ideas and then will be motivated to implement them – it was their idea after all!
Staff leaving you all the time is a can destroy significant value. If you implement the strategy above, you will have happier staff that are more productive and a more profitable business.
Jeff Bezos Reveals 3 Strategies for Amazon’s Success
One of the richest men in the world shared his leadership tips for running a company.
“It remains Day 1.” That’s how Jeff Bezos, founder and CEO of Amazon, signed off in his 2018 letter to shareholders. He’s been propagating the “day 1” mantra for decades, and it’s meant as a reminder that Amazon should never stop acting like a start-up – even though the company now boasts more than 560,000 employees and more than 100 million members of Amazon Prime, the company’s paid service for free shipping on select items.
Here are some of the most useful nuggets of wisdom Bezos shared in his letter and during a recent onstage interview:
1. Standards are contagious
Bezos says he believes high standards are teachable rather than intrinsic. “Bring a new person onto a high standards team, and they’ll quickly adapt,” he writes. “The opposite is also true.”
If a company or team operates with low standards, a new employee will often – perhaps even unwittingly – adjust their work ethic accordingly.
He also says that high standards in one area don’t automatically translate to high standards in another – it’s important for people to discover their “blind spots.”
Try making a list of your duties, then ask trusted colleagues to tell you which responsibilities are your greatest strengths. If certain things from the list don’t come up during the conversation, it might be useful to think about how you can up your personal standards in those areas.
2. Set clear, realistic expectations
If you’re looking to raise your standards in a particular area, the first course of action is to outline what quality looks like in that area. The second is to set realistic expectations for yourself – or for your team – regarding how much work it will take to achieve that level of quality.
Exhibit A: You won’t find a single PowerPoint presentation at an Amazon company meeting. Instead, teams write six-page narrative memos to prepare everyone else for the meeting.
Bezos says the quality of the memos vary greatly because writers don’t always recognise the scope of the work required to reach high standards.
“They mistakenly believe a high-standards, six-page memo can be written in one or two days or even a few hours, when really it might take a week or more!” Bezos writes.
3. Stay involved with the people you’re serving
Whether you’re selling a product or service, it’s a good idea to make sure you never lose touch when it comes to the people you’re serving – no matter how high up the ladder you climb.
Bezos says he still reads emails from his public inbox (email@example.com) as a way to keep his finger on the pulse of what’s happening with Amazon customers.
He says he believes focusing on what customers are saying is much more important for success than focusing on what competitors are doing, and he often compares customer feedback to company data to see where they misalign.
“When the anecdotes and the data disagree,” Bezos said at a recent leadership forum at the George W. Bush Presidential Center, “the anecdotes are usually right.”
This article was originally posted here on Entrepreneur.com.
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