Strategy is an important part of a small business’ growth plan because it helps establish the business’ competitive advantage, laying out how the company’s resources will be used to achieve its goals. The strategic planning process touches almost every area of a small business, asking the questions, “What are the goals? What resources are available? And, what are the steps for using those resources to meet those goals?” This article provides fundamental advice that every small business should understand about the role strategy has in growing a business.
When thinking about strategy, one should think of the childhood game of checkers or its more sophisticated version chess. In both games the victor is the one who out navigates their opponent by planning out multiple moves. The stronger competitor analyzes the board’s overall landscape, understands the strengths and weakness of the board pieces and then advantageously positions their pieces in relation to their opponent’s.
How small business owners position their products or services in the marketplace is similar to those board games and how well they do it will greatly determine their success. They assess the strengths and weaknesses of their company, as well as their products or services, against their competition and then lay out the steps to execute. SWOT Analysis that stands for Strengths, Weakness, Opportunities and Threats is a very helpful tool for setting strategy.
Another element influencing small business strategy is the structure of the industry in which a company competes. The strategy to compete against large companies differs from a strategy for competing against smaller companies of similar size. Large resource rich companies are able to outlast small businesses when solely competing on price. However, when the industry is comprised of many small or mid-sized competitors, the strategy is typically a combination of price and other factors such as offering higher quality products or services—that enables a company to separate itself from its competition.
Once the analysis and positioning is done, it comes down to the company’s business operations to deliver what has been laid out in its business strategy to establish their competitive advantage. That is important because competitors seek windows of opportunity and when a company has variable or poor operational performance it gives competitors a way into their customers and prospects. Customers seek vendors who offer the combination of price and quality that fits their needs.
When small businesses are in a market dominated by large competitors, a common strategy is to find a market segment or niche that their larger competitors pay less attention to or just outright ignore. This allows the small business to place a premium in their pricing because they are focusing on an underserved market and/or they are providing an added value for which some customers will pay more. Quantifying the target niche as to the size of the revenue opportunity is a key part of a business plan.
When small businesses are competing against companies of like size, knowing the price points of competitors is important. Next is knowing the priorities and preferences of their target customers and then delivering their product or services in a way that meets customers’ needs and surpasses their competitors. Operational excellence is achieved by establishing a competitive advantage, something that is not easily accomplished.
Here are the fundamental questions in setting up a business strategy:
- What are the strengths and weaknesses of my own business’ products or services relative to my closest competition?
- Am I able to add something of value that distinguishes my company’s products and services from competitors that some customers would value enough to pay more?
- Have I identified a segment of the market where there are sufficient potential customers to purchase my products or services at the price point I established?
- What series of steps will I take and resources to use that builds a momentum in finding the right customers at my set prices?
- Are their alternative pathways to achieve my goals and understand why one may be yield results sooner than the other?
- How should steps taken be evaluated against their expected outcome to sufficiently validate that the next steps should be taken?
- What are the hurdles in gaining customer acceptance of my company’s products and services over a competitor?
- What resources does my company have to execute the strategy for the market I am in versus my competitors?
Obtaining a testimonial client is a key part of a startup’s go-to-market strategy. Testimonial clients—those who are willing to give an endorsement— are very important because they advocate for their vendor, sharing insight about a product or service that potential customers would like to know before purchasing. A startup’s first client may be very hard to land, but once accomplished they will tout it to others to make further sales much easier. This is discussed at length in the book “Crossing the Chasm” by Geoffrey A. Moore, which explains how disruptive products are sold to mainstream customers.
A well devised and well executed business strategy is critical for any business to grow. The best advice for a small business is to have an ongoing assessment of the marketplace that includes knowing their competition and identifying how best to position their own products or services. Most importantly, small business should shy away from competing solely on price. Their strategy must be executed in well-defined steps that includes building strong business operations aligned with the established strategy.
Jeanne is the Publisher of American Entrepreneurship Today, a web site dedicated to helping entrepreneurs and small business owners to succeed. She consults via AEP LLC., as a growth strategist, steering entrepreneurs through start up pitfalls, while identifying resources and opportunities that catalyze a venture to a greater level of success.
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