1. Small Business Strategies:7
Small Business Strategies:
Imitation with a Twist
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Chapter 7
Objectives:
Learn the decisions needed to establish a foundation for strategic planning
Learn the forms of imitative and innovative businesses
Articulate the benefits that win over customers
Use SWOT analysis to identify strategic options
Under the major strategies of business-differentiation, cost, and focus
Use value chain analyses to apply strategy throughout the firm
Learn how to sustain competitive advantage through attracting customers and discouraging competition
7-2

3. Chapter 7 Focus on Small Business: Mindnautilus.com
Nick Tostenrude met Dennis Moulton in 1999
Both wanted to go into business for themselves
PC/Internet-based programs to help recovering brain trauma victims
People with brain trauma did not have access to needed equipment
Enablemart.com, selling assistive devices
Customers in 50 states and 20 countries
10% of profits to charitable causes from customers
Nick and Dennis had the desire to go into business for themselves without knowing what kind of business they wanted.
Being technologically gifted they wanted to work with a software designed to help recovering brain trauma victims.
Ironically, the victims could not use “normal” or standard computers and thus enablemart.com came to meet the unfulfilled need.
In keeping with their socially conscious company, 10% of profits are donated to charities voted upon by customers.
7-3

4. Chapter 7 Strategy in the Small Business
Strategy: the ideas and actions that explain how a firm will make its profit
Good strategy leads to greater chances for survival and higher profits for small businesses
What makes a strategy “good” is its fit to the particulars of your business and the resources you can bring to it
Think about strategy in terms of football.
The plays you run depend on the down, yards to go, strength and skills of your players, current score, time left in the game, and how you think the competing team will react.
A strategy which works for one team will not necessarily work for another.
However, a strategy is important.
No good coach would show up to a game without his playbook.
7-4

5. Chapter 7 The Small Business Strategy Process
Each stage is discussed in further detail.
7-5

6. Chapter 7 1. Prestrategy: First Step of Strategic Planning
Goal is deciding on product or service you intend to offer and the general nature of your intended market
Industry: general name for line of product or service being sold, or the firms in that line of business
Your first step is deciding what you are going into business to do.
For example: I want to build a better mousetrap. This puts you in the extermination industry.
7-6

7. Chapter 7
Industry
Key is selecting an industry that offers good potential for making a profit
Also needs to offer attractive opportunities to work with a minimum of risk and competition
Trade association: group of people in the same industry who band together to represent the industry to the public and government
Trade associations often have magazines, conventions, websites, and other resources available to help businesses in their industry.
Sometimes companies may band together to perform functions.
For example:
In the sporting goods industry it is not uncommon for stores to band together to purchase items in larger quantities to be able to purchase from the manufacturer. Contacts are used in this process and store do not normally compete in the same geographic region.
The Dairy Farmers of America band together for the “Got Milk” campaign which promotes the product but not a specific brand.
7-7

8. Chapter 7 Question The size of the market refers to: a) scale
b) market mass
c) scope
d) niche
Answer: a
7-8

9. Chapter 7
Market: business term for the population of customers for your product or service
Scale: size of the market
Mass or Niche
Scope: geographic range covered by the market
Local to Global
Your potential market is anyone who could have a use for your product but who has not yet purchased.
Your market is made up of those who purchase that type of product.
Your target market is the subgroup you choose to focus on.
Mass markets are everyone in the population. Coca-Cola mass markets to the entire US.
Niche markets are small often underserved markets of people with a similar need and who act or purchase in similar ways.
The scope of your market merely refers to how geographically large your market is and is outlined on the next two slide.
7-9

10. Chapter 7 Scale: most industries have both mass and niche markets
Mass market: large portions of the population
Example: all men, all women, all teens, et al
Mass market is broad
Niche market: narrowly defined segment of the population that is likely to share interests or concerns
Example: Hallmark vs. SimplyShe
7-10

11. Chapter 7 Example 3 Rules for Niche Marketing
Niche marketing can be extremely cost-effective
Niche marketing can be a low risk way to grow your business following 3 rules:
Meet their unique needs
Say the right thing
Always test-market
3 Rules for Niche Marketing
Niche marketing can be extremely cost-effective
Niche marketing can be a low risk way to grow your business following 3 rules:
Meet their unique needs
Say the right thing
Always test-market
7-11

12. Chapter 7 Scope: local or global
Can be local, regional, national, international, or global
Scope is important for two reasons:
Knowing your scope helps deciding where to focus sales and advertising efforts
Knowing your target market gives you a way to know which competitors to worry about most, namely those within your market scope
7-12

13. Chapter 7 Imitative strategy: doing more or less what others are doing
Classic small business strategy
Almost 2/3 of people starting business use this approach
Advantages: existing technologies, possibility to buy existing businesses, customers already know what you are offering
7-13

14. Chapter 7
Degree of similarity: extent to which a product or service is like another
Imitation is not likely to match precision or completeness or copying seen in franchising
Imitation plus one degree of similarity: copying of existing businesses with the exception of one or two key aspects in hopes of improving them
Pure innovation: new product or service, also with a unique setting
7-14

15. Chapter 7 Tool: Industry Analysis
Industry analysis (IA): a research process that provides the entrepreneur with key information about the industry, such as current situation and trends
Helps to estimate possible financial returns
Often, industry analyses can be purchased from trade organizations or market research firms.
7-15

16. Chapter 7 Basics of Industry Analysis
SIC/NAICS number and description: online
Industry size over time: online
Profitability
How profits are made: interview or articles
Target market competitor concentration: directory checking
Analysis
Sources
Many of the basics can be found through simple online searches.
While profitability may not be found quite so simply, the methods by which profits and sales are made come out in interviews with executives or articles on the industry.
7-16

17. Chapter 7 2. Benefits: Second Step of Strategic Planning
Benefits: characteristics of a product or service that the target customer would consider worthwhile (low cost or high quality)
Key decision is deciding what benefits you plan to offer to your customer
A key to succeeding in business is knowing what your customer wants and how to provide it to him or her at a profit.
Some benefits may be possible to add but may also lower your profits.
Add the benefits that customers will be willing to pay more for.
For example, people pay more for leather seats in their car, or a DVD player.
7-17

18. Chapter 7 Value Benefits Cost Benefits Technology Credit Quality
Style
Delivery
Service
Technology
Shopping Ease
Personalization
Assurance
Place
Credit
Brand/reputation
Belonging
Altruism
Some benefits to a customer are direct product features, others are services offered along with the purchase.
Benefits can also come by saving customers time, money, or frustration.
Scope
savings
Learning
Cost Benefits
Lower costs
Scale savings
Organizational practices
7-18

19. Chapter 7 Leveraging Opportunities During Entry 7 Entry Wedges
Supply shortages
Unutilized resources
Customer contracting
Second sourcing
Market relinquishment
Favored purchasing
Government rules
There are several situations during which you can enter a market.
If there is currently a shortage of market supply, you can offer your alternative or substitute to fill the demand.
If there are resources which could be used more efficiently, or to make a better product, this gives you an advantage coming in.
Contracting with customers who currently use this type of service locks them in to your service.
For example, contracting with a heating and A/C company to provide routine maintenance.
Some companies like to have a primary supplier, but during busy times may need a secondary supplier. You can start as a secondary supplier but through superior offering, pricing, or service become their primary supplier.
Other times a conglomerate may be willing to ‘give up’ a small niche market which you may be better able to serve.
Government bids often give an advantage to women or minority businesses. So make sure they know you are one.
Whatever your advantage is, make the most of it.
7-19

20. What are the components of a SWOT analysis?
Chapter 7
Question
What are the components of a SWOT analysis?
a) small, working conditions, organization, time
b) social, weaknesses, opportunities, technology
c) strengths, weaknesses, opportunities, threats
d) segment, wealth, organization, technology
Answer: c
7-20

21. Chapter 7 Tool: SWOT Analysis
S: Strength W: Weakness O: Opportunity T: Threat
SWOT looks critically at these factors
Used to organize and perform an analysis of your company’s current and future resources and situations
Each of the four are discussed in turn.
Strengths and weaknesses are internal to the company.
Opportunities and threats come from outside the company.
7-21

22. Chapter 7 SWOT: Strengths Customers ready to buy Specialized knowledge
Trade secrets
Patents, trademarks, copyrights
Brand or personal recognition
Prior self-employment experience
Prior sales experience
7-22

23. Chapter 7 SWOT: Weaknesses Customers not ready to buy
Inadequate financial backing
Easy-to-copy business
Undistinctive product, service, or brand
Location or facility disadvantages
Lack of self-employment experience
Lack of managerial experience
7-23

24. Chapter 7 SWOT: Opportunities (from entry wedges) Supply shortages
Unutilized resources
Customer contracting
Second sourcing
Favored purchasing
Technology creating new products/services
New markets opening up
7-24

25. Chapter 7 SWOT: Threats Economic downturn Oversupply
Competitive pressures
Supplier/customer pressures
Major supplier/customer loss
Missed window of opportunity
Negative government regulations or actions
7-25

26. Chapter 7 Inside the Firm
How you react to the new found information depends on the situation.
If an opportunity plays to your strengths, take advantage of it.
If there is a threat in an area you’re weak in, don’t try to fight it.
Fight the threats in areas in which you are strong.
And if an opportunity come along in an area where you are weak, can you build up that weakness to be able to take advantage of the opportunity?
7-26

27. Chapter 7
SWOT Analysis
Final stage of SWOT analysis is to match it against the benefits sought by your market
Strengths should match or support the benefits
Weaknesses should not get in the way of delivering the desired benefits
7-27

28. Use SWOT to Kick-Start Your Planning
Chapter 7
Example
Use SWOT to Kick-Start Your Planning
The SWOT analysis--evaluating strengths, weaknesses, opportunities and threats--is one good way to start thinking strategically
As you perform a SWOT analysis, try to involve other people; it improves the brainstorming value
To clarify, strengths and weaknesses are about you and your company, its nature, history, and what it does and doesn't do well
Threats and opportunities are external-- factors outside of your business
7-28

29. Chapter 7 Question a) mass market strategy
Which strategy is clarifying how one product is unlike another in a mass market?
a) mass market strategy
b) focus strategy
c) cost strategy
d) differentiation strategy
Answer: d
7-29

30. Chapter 7 Strategy Suggestion 3 Classic Strategies
Differentiation strategy: clarifying how one product is unlike another in a mass market
Cost strategy: firm offers a combination of cost benefits that appeals to the customer
Focus strategy: targets a portion of the market (segment or niche)
7-30

31. Chapter 7 7 Small Business Supra-Strategies Craftsmanship
Customization
Super-support
Serving the underserved/interstices
Elite
Single-mindedness
Comprehensiveness
These are seven strategies which are unique to small businesses due to the nature of being small.
Being able to customize quickly and well doesn’t happen when your machinery is best set for runs of 1,000 or more.
Additionally large companies with thousands of customers cannot possibly know them all by name and provide individual service and support.
Nor can they provide to the high class, high-end elite. Some customers value things simply because they are unique and not everyone bought one at Wal-Mart. They like to dress differently, show off their brands, and be above others because they have someone you can’t.
7-31

32. Chapter 7 Competitive Advantage
Resources: Any asset, capability, organizational process, information, or knowledge that contributes to the firm’s performance
Tangible resources: easily identified
Financial (cash), Physical (land)
Intangible resources: typically informational and and expertise-based practices and routines that are not clearly evident
Human (skill), Reputation (trust)
7-32

33. Chapter 7
Organizational capabilities: abilities, skills, and competencies used by the firm to make profits from tangible and intangible resources
Transformational competencies: firm can make its product or service better in value
Combinational competencies: combining tangible and intangible resources
Vermont Bear Company’s Bear-Gram
Your competencies are what you do well.
It may be you as a person, or you as a firm.
Vermont Teddy Bear took a well made bear, and offered a unique customized service to create the Bear-Gram which is loved the country over. Botht the product and service side of the bear-gram are high quality, unique, desired, and thus profitable.
7-33

34. Chapter 7 The VRIO Analysis
Test 1: Value – does the resource help you increase sales or decrease costs
Test 2: Rareness – is the resource rare enough that you can charge more than competitors without the resource
Test 3: Imitability – can the competition imitate the resource
Test 4: Organization – can the firm make use of the resource
When evaluating resources for use, whether it is a financial resource, marketing resource, or product component, it is important to ask four questions.
If the test fails at any level, then the resource is truly not of value to the organization.
7-34

35. Chapter 7
The Industry life cycle approach to small business is similar to the normal industry life cycle.
Introduction stage is normally not yet profitable, sales are slow, and there are startup costs to recover.
Growth stage kicks in when sales take off. Prices can rise, profitability comes in.
Maturity is where sales start to level off. You can then focus on cutting costs and improving efficiency without sacrificing your offerings.
Not all products or industries reach decline. Can you imagine the beer industry disappearing? The wagon wheel, on the other hand, has gone into decline.
7-35