Tag Archives: entrepreneurship

Entrepreneurship, Marketing, Owning a Business

Competitive Advantage is a Moving Target

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Smart business owners have their competitive advantage front and centre at all times.

“Competitive advantage” answers the question, “Why will customers buy from you instead of your competitors?” It’s the starting point to positioning your products and services in the mind of your customers, the key to setting yourself apart from other businesses, and critical to the success of any enterprise.

Here are a few competitive advantages and examples of their use in the marketplace.

1.    The First. Being the first to offer goods will be an advantage over other businesses. The downside of this advantage is that it rarely lasts for long, because others will soon get the scent of success and jump in to compete for a piece of the action.

2.    The Best. One way to distinguish your business from the others is to offer products and services of higher quality. Being the best is an enviable place to be, because everyone wants to deal with and be associated with the best.

3.    The Cheapest. The Dollar Store business model has parlayed this advantage into a highly successful chain of establishments. Interestingly, the franchisor’s website claims to be “Canada’s largest franchised dollar store chain and the fastest growing concept in retail.” “Largest” and “fastest growing” are advantages designed to tug at the heart strings of potential franchisees, while the basic business case is built on offering goods for a buck.

4.    The Fastest. Fast food services and drive through lineups are visible evidence of this competitive advantage at work. Everywhere you look something claims to be fastest: fastest car, fastest computer, and fastest weight loss program.

5.    Convenience. Small corner stores in high profile locations turn convenience into profit, while pizza delivery drivers turn it into part-time self-employment. This competitive advantage commands higher margins for making customers lives easier.

6.    Technology. Newer, better or faster technology can lead to savings or a superior experience for customers. Technological advantages can position a business ahead of competitors, at least for a few blinks, until the next miracle blasts its way into the marketplace. Have you tried to get your VCR fixed lately?

7.    Secret Formula. The Coca Cola Company is still a surefire example of leveraging a “secret formula” to massive gain. According to Wikipedia, the business offers “more than 400 brands in over 200 countries or territories and serves 1.6 billion servings each day.”

8.    Exclusivity. An exclusive agreement with a manufacturer will provide a competitive advantage over other retailers. Winning a contract from an established organization, such as a government agency or a larger corporation, can also be a competitive advantage. A pitfall for this business strategy is the tendency to drift into being a one-legged pony, relying on one or two contracts for survival. Unless the owner is diversified, the business can evaporate when the contract ends.

9.    Qualifications. Work experience and education are commonly used to advantage, both in business and when competing for jobs. A handsome set of credentials sweetens the deal for any potential buyer.

Competitive advantages don’t last forever, they evolve. For example, a business that is successful by being first will almost immediately find competitors on its doorstep, vying for a piece of the market. Being first might be an advantage for a while, until someone else offers a more enticing deal to customers, like lower prices, a faster service, or higher quality products.

In business, you don’t have the luxury of creating your competitive advantage and then forgetting about it. Smart business owners continuously innovate to stay at the forefront.

Business Killers, Owning a Business

Business Killers Part 3

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caution-tapePreviously I posted Business Killers Part 1 and 2, and discussed such challenges as not staying on top of accounts receivable, falling behind on paying the bills, persistent low-bidding, and getting buried in debt. Here are four more business killers.

Lousy Customer Service. While most business owners are motivated to provide excellent customer service, problems creep into the workplace when the business starts to grow, requiring that the owner take on hired help. It should be the goal of every business to provide top-notch customer service for every person that comes through the door. No small business can afford to have employees chasing away customers. Owners need to provide training for employees and monitor customer service ongoing.

Financial Illiteracy. There are five financial reports that are critical to managing a business: the balance sheet, the income statement, the aging accounts payable, the aging accounts receivable, and the cash flow forecast. Too often, business owners who get into trouble don’t even know they’re insolvent until they’re turning the keys over to the landlord. It’s not enough to get financial reports and pop them into a file folder—you need to get them shortly after the end of each month and you must learn to read them and use the information to make business decisions. In order to be able to calculate prices and put together bids, owners need to know the cost of producing products and services, as well as the true cost of making sales.

Fumbling the Hurdles of Growth. Business start-up requires a certain set of skills, but owners who get through that early scramble are in for an even bigger challenge—expansion. Growth blows the doors off the micro-business model and invokes different threats, demanding a whole new set of skills. The path to growing a business from zero to several employees never seems straight or clear. It’s always cluttered with difficulties that exact critical decisions along the way, many of which can propel you forward or flat backward, depending on the quality of each decision. The keys to growing a business are: a clear vision, courage, passion, perseverance, a dash of good luck, and the ability to make more good decisions than bad.

Burnout. It’s fun and exhilarating to get caught up in a new business. The realization that you can build an enterprise and achieve financial and other dreams, the ability to chart your own path and sustain your family without having to punch a time clock or report in to a boss every day, the thrill of working at something you love to do—these are all wonderful things. But for some entrepreneurs, the real enemy is the inability to shut the business off. Working for others, you usually have welcome restrictions on the amount of time you can work—weekends, holidays, regular work hours—those restrictions all go out the window once you’re self-employed. When burnout overtakes a person, it usually comes at a high cost: unable to enjoy the work, too tired for leisure or family time, health issues, and limited energy to serve customers. The best time to battle burnout is before it happens. Set your work and personal boundaries early, exercise regularly, eat healthy foods, and take time each day for your family, friends and you.

Stay tuned for Business Killers Part 4 where I will cover such business killers as the cash flow crunch, fingers in too many pies, trying to be all things to all people, and knowing when to fold ‘em.

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Business Killers

Business Killers Part 2

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Watch out for these common business killers! Here is the second part of the series, with 4 more business killers.

Cobwebs on Accounts Receivable. Avoid extending credit to customers if you can. The problem is, in businesses for which customer credit is the industry standard, the owner gets drawn into play now pay later because all the competitors do it. The model works well for many businesses, but owners who do extend credit have to stay on top of collecting monies owed to them. A good bookkeeper will provide an aging accounts receivable report a few days after each month-end. Receivable collection is not always the most enjoyable part of owning an enterprise, but effective owners understand that cash flow is the lifeblood of the business and that a cash-starved venture has one foot in bankruptcy court. If you must extend credit, make collections a regular practice, factor the cost of an operating loan into prices, and be prepared to ditch customers that persistently make collecting difficult and costly.

Not Paying Bills. When business is going well, owner’s work long and hard; make hay while the sun shines. In a perfect world, business brings in more money than needed to pay the expenses, with a bit left over to call profit. However, the marketplace occasionally throws nasty curve balls that tilt the financial ratios the wrong way and cause businesses to lose money. Business finances are like a house of cards; weak sales or high costs can trigger a wicked chain of events resulting in unpaid bills, from trade accounts to bank loans to taxes. Once the house of cards starts to tumble, an owner has to work even harder to get back on top of the bills. A protracted financial crisis brings on burnout, disillusionment and eventual abandonment. The cure is simple, not always easy; stay on top of your bills and have a rainy day fund ready in case you need it.

Persistent Low Bidding. Any fool can go out and get a lot of work by undercutting competitors. It’s true that most businesses will occasionally slash prices to get a foot in the door with certain customers. However, low-balling is a strategy best left to those with deep pockets. Businesses with solid bookkeeping systems in place will be able to spot low-bid issues early. In the absence of a good bookkeeping system, owners are left to discover low-bid problems at the end of the year when they can’t pay their bills. The simple solution to the low-bid challenge is to increase prices high enough to produce a bit of profit; those who don’t are relegated to struggle or face the eventual penalty of insolvency.

Debt Heavy. Some entrepreneurs grumble about how difficult it can be to get funding, or that lenders are too tough. It’s true that lenders can be a bit tight fisted, but they know the risks involved, and they know first-hand how difficult it can be to squeeze loan payments out of a dying business. Bank loans cost money and create stress on business finances; the larger the loan, the higher the cost. Smart business owners recognize that not all problems are solved with debt and continually seek ways to innovate solutions to problems without increasing debt. They also take care not to run the debt up to more than the business can comfortably repay.

In the next part of the series, we will cover such business killers as bad customer service, financial illiteracy, fumbling growth, and burnout.