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.
Doing Business From Your Home, What Are The Insurance Implications?
Whether you run a small business from home or have a secondary home industry to supplement your income, it is critical to consider all the risks that your home business is exposed to in order to ensure that it is sufficiently covered.
Besides the standard damage risks of fire, water, and theft, that all policies should cover, people who run commercial operations from their home need to consider a number of other risks that may not be covered by their personal lines policy. These typically include:
1. Business contents
While most home policies will cover basic computer equipment and home office furniture, these policies will usually not cover stock, tools of the trade or machinery. People running business operations from home also need to consider risks relating to their computer equipment (especially if they remove portable equipment away from the premises), and the software related to their business.
2. Manufacturing risks
Any business that involves manufacturing or requires the use of flammable or dangerous materials, must be specifically insured under a commercial policy.
3. Employee theft
While “theft” is likely covered by a personal lines policy, it is important for home business owners to be aware that any theft or fraud committed by their employees will likely not be covered by a home policy.
4. Liability risks
Liability risks that are not insured against, such as a visiting client tripping and falling at the private home from where you operate your business, can have a massive negative impact on your financial health.
5. Professional indemnity risk
Anyone who offers professional services or advice could be held legally accountable and it is therefore important to be covered for this risk under specialist commercial liability policies.
6. Products liability
If you make foodstuffs or manufacture cosmetic treatments from your home, you will likely require a commercial policy which is structured correctly to ensure that you have products liability cover.
7. Load shedding
Many home businesses need to consider the risk of business interruption due to interrupted power supply, as well as the potential power surges which can cause serious damage to any electronic equipment once the electricity supply is turned back on. Typically, these risks are limited under most home insurance policies.
8. Vehicle use
It is also important to read the terms, conditions and exclusions of your personal lines motor policy carefully to determine whether any vehicle you use for your business operations (to make deliveries or visit clients, for example) will be covered under the terms of your policy. It is extremely important to disclose to your insurer whether your vehicle is used for private purposes, or whether it is used for commercial purposes.
At the end of the day, when running any type of commercial operation from your home – regardless of the business’ size or nature – it is best to talk to a broker or your insurer to ensure that your policy (whether it is personal or commercial) covers the risks that you do not have the resources or appetite to cover yourself.
Home business owners that are looking to upgrade their level of cover should do their research and find a suitable product that can grow with their business. The Old Mutual Insure product provides a comprehensive package that can be tailored to the insured’s specific needs. The insured can decide how much they can afford and add cover as the business grows. While the product is not specific to small home businesses, the advantage is that the policy will remain appropriate as the business grows and the needs of the insured changes.
How Black Umbrellas Is Thriving Through The Challenging Business Landscape
Even against the challenging economic climate, it is very encouraging and impressive to see growth by our clients and their businesses growing to being sustainable businesses of the future, explains COO Emmanuel Mdhluli.
As an enterprise and supplier development incubation organisation, Black Umbrellas partners with the private sector, government and civil society to address the low levels of entrepreneurship in South Africa.
“The programme focuses on promoting entrepreneurship as a desirable economic path and nurturing 100% black owned businesses in the critical first three years of their existence through the provision of our nationwide incubators,” explains Emmanuel Mdhluli, Chief Operating Officer at Black Umbrellas.
“Our model is aimed at supporting emerging and existing black businesses through a three-year incubation programme, so that they are able to emerge as independent, viable businesses. By providing a structured and highly subsidised programme, using a national footprint of business incubation offices, clients are afforded the expertise, office infrastructure and resources to create the necessary foundations to achieve sustainable businesses.”
Currently, BU has eight incubators in Cape Town, Johannesburg, Pretoria, Mooinooi, Lephalale, Port Elizabeth, Durban and Richards Bay.
Client insights on Black Umbrellas’ tangible impact
Here are four examples of the direct impact BU has made to each of its selected clients including their turnover, net profit/loss, net asset value and number of jobs created:
Black Umbrellas currently has clients in various sectors, including:
- Industrial engineering
- Oil equipment
- Services and distribution
- Consulting and advisory
“Even against the challenging economic climate, it is very encouraging and impressive to see growth by our clients and their businesses growing to being sustainable businesses of the future,” says Emmanuel.
Black Umbrellas’ Collective Impact
The collective SME turnover grew by 33% year on year from R2bn to R2.66bn. Job creation and preservation also saw solid growth of 15% on a year on year basis from 10 137 to 11 687 total jobs created since inception. For the year under, BU was able to remain operationally efficient with the average cost per job figure deteriorating by only 12% on a year on year basis from R32 286 to R36 262 at the end of the financial year. Despite the drop, this figure is still extremely competitive and is testament to the continued operational prudence employed within BU to ensure that capital and resources are optimised for greater impact.
“Most enterprise development service providers focus a lot more on financing mechanisms, whereas Black Umbrellas focuses on all aspects of enterprise development that are inclusive of business management training.” – Client Testimonial
What’s next for Black Umbrellas?
Over the past 5 years, Black Umbrellas has observed a growing trend by corporates to develop their own ESD programmes internally in order to fulfil their requirements. Being that ESD is not core business for most corporates, these organisations have tended to reach out to Black Umbrellas to seek guidance and advice for their internal programmes.
This culminated in the formation of Nextgen Consulting which was officially registered in November 2017. Nextgen Consulting offers Advisory services focused on B-BBEE and Supplier Development at full market rates to corporates, Qualifying Small Enterprises (QSE) and generic companies.
This is an exciting project that will see our third year and graduate businesses benefit from an opportunity to expand their businesses.
Black Umbrellas Contact Details
Why You Need To Use NDAs To Protect Your Business
Don’t think of them as aggressive – instead, think of nondisclosure agreements as a fast-track toward trust.
I’m a small-business owner, and we’re in a stage of growth. Do I really need employees and potential partners to sign NDAs? – Chris P., New Jersey
There are many big-business practices that don’t necessarily apply to smaller companies. When you’re a start-up, you can cut a lot of red tape without worrying about repercussions. The use of NDAs – that is, nondisclosure agreements, which serve as legal contracts of confidentiality – is not one of those cuttable corners.
Chris, here’s a cautionary tale of my own early ignorance. When I started Pen Name Consulting, I used a basic NDA – just a file I found on the internet. I wasn’t blind to the importance of NDAs, but I was cheap and stubborn, even though my father is a lawyer and advised me against this move. (He eventually became my general counsel.) My NDA was flawed; it didn’t cover enough of the information at my company or place the right restrictions on how people could share it.
I discovered my error after a business meeting, where I mentioned a potential client and what they needed help with. The person I was meeting with (who signed my weak NDA) then went after that client themselves – ultimately stealing work from me. There was nothing I could legally do. It probably cost me $30,000 in potential revenue.
Don’t make my mistake. Creating a strong NDA for your business is simple and not that expensive. Even if you enlist the best lawyer, with a ridiculously high hourly rate, the value you’ll receive to protect your company and your ideas is arguably worth the potential value of the company itself. Or at least the value of one client.
Related: Understanding the Terms of Agreement
Now, I understand that it can be awkward at first to ask people to sign an NDA – it seems like you’re telling them you don’t trust them. But think of it this way: If you don’t value your IP, your thoughts and your inventions enough to protect them, then why the hell are you running a business in the first place?
An NDA doesn’t have to feel like a sign of distrust. Because of the scrappy nature of startups and small businesses, partnerships and strategic hires are the lifeblood of scale and smart growth – but they’re also rife with danger. Every potential partner is also potential competition. Every meeting for growth could be a leg up for the other guy. And every time you share your next big move, you need to know you can trust people.
NDAs are valuable because they force that trust. They make it legally binding. With the NDA in place, you can be vulnerable, open up and speak more candidly with potential partners. Rather than view the NDA as a barrier, it’s best to look at it as an exclusive invite.
This is a good thing – the NDA is the front door to learning more and being on the inside. The same can be said for hiring. The moment you have a signed NDA, you’ve connected with someone and you’ve closed the deal. It’s a sign of respect. And when you have respect, you have strong partnerships and hires. That is the foundation of growth for any business.
Pride and ownership are big parts of owning a company. If that comes across as a little “preachy,” it’s because you need to bear witness to a simple reality: Those who do not invest in protections for their business are likely to watch it fall apart. Or they will be too guarded with information to ever let others in. Either way, an NDA solves those problems.
This article was originally posted here on Entrepreneur.com.
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