Preparing for the Rollercoaster Ride
Standards and Poors has downgraded America’s AAA credit rating, local and international markets are volatile and easily spooked, picking changes in interest rates is more akin to crystal ball gazing, the carbon tax is coming, consumer sentiment remains tight and no one is feeling particularly confident. Welcome to the 2011/2012 financial year.
Over the next 12 months business will be working with a range of domestic and external influences that will cause uncertainty. But these swings can be a benefit as well as a headache – but only for strategically sound businesses.
Most SMEs are well downstream from major economic triggers. We don’t cause the problems but are affected because of what is happening to larger businesses, the economy, and consumers. Some industries are more impacted than others.
Expecting business conditions to be ‘more of the same’ over the next 12 months is wishful thinking. If your business strategy is simply to turn up, work hard, and expect business to come to you then you are likely to be disappointed. If you have not already, it’s time to do something different. When business gets tougher, ‘me too’ businesses come under pressure. A ‘me too’ business is one that simply replicates what everyone else in their industry or sector does. You work on the basis that there is a consistent and proven formula and if you follow the formula everything should work out. Sounds ok in theory (and says a lot about human nature) however the problem is that you are doing nothing to differentiate yourself in your market. This lack of differentiation may leave your customers with no compelling reason to continue doing business with you.
Business, and in particular small business, needs to be more strategic. The objective needs to be more than carving out some market share but to create a sustainable business. This is where your business strategy comes in. Your strategy should set the direction for your business and allow you to carve out a sustainable position in your market. In a buoyant market you can survive without a strong business strategy; there is plenty of business for everyone. Turn up, work hard, and you will pick up some market share. The challenge in the good times is generally supply rather than demand.
In a volatile market, demand can be patchy and in some cases depressed. Everyone is chasing business and if you don’t have a clear business strategy then it is likely that you are trying to win business by chance or competing on price. Most SMEs are not equipped to compete on price. You don’t have the capital reserves or the economies of scale to compress your profit margins. Go too far and you can trade yourself out of business.
Developing a business strategy takes time and hard work. You need to understand your industry sector, your market, where the opportunities lie, and how you can differentiate your position in that market. It’s not easy but get it right and it will pay big dividends. As a starting point you need to identify what your current business strategy is. You should be able to clearly articulate it and write it down (in your head is not good enough). If you don’t have one then accept reality and start working on one. Your strategy should flow into your business plan and then be reflected in your operating and cash flow budget for the year. Typically, your business strategy will contemplate your end game – be it a sale of the business or some other exit event.
Good businesses always have a clear strategy in place. For the coming year it will be more important than ever; it will separate the successful from the strugglers.
Talk to us today about how we can help you refine and improve your business strategy.