Sun Tzu on Leveraging Strength - Part 4 of 6

“The general who thoroughly understand the advantages that accompany variation of tactics knows how to handle his troops. The general who does not understand these, may be well acquainted with the configuration of the country, yet he will not be able to turn his knowledge to practical account.” - Sun Tzu, The Art of War

An Uphill Battle

We live in an increasingly competitive world, where the top 20% of businesses own 80% of the market. Are you in that top 20%? Probably not. So how do you protect your little business in a market full of giants? How does a local retailer compete with the likes of Wal-Mart? Kmart tried to compete with Wal-Mart’s low cost strategy and it ended in bankruptcy. If Kmart couldn’t beat Wal-Mart in a price war, how can you hope to? Well… you can’t.

Enter the Internet. Suddenly small businesses could reach consumers worldwide. No longer were they limited to a local market. A small business owner’s dream come true, right? Sadly, that knife cuts both ways. In his book, Clear Blogging: How People Blogging Are Changing the World and How You Can Join Them, Bob Walsh discusses this problem, which he calls the “Internet Price.” Sure, you can reach customers everywhere, but suddenly your local clients can access businesses everywhere. Now, rather than a few local competitors, your business is fighting thousands of other businesses worldwide. Businesses that offer the same product at a fraction of the price you might charge. Even service businesses are no longer safe. Software development, IT consulting, and even so-called “knowledge processes” like legal and marketing research are now being sent overseas. Worse yet, a Stanford study says they’ll work for $500/year.

Fighting the Internet Price

“If, on the other hand, in the midst of difficulties we are always ready to seize an advantage, we may extricate ourselves from misfortune.” - Sun Tzu, The Art of War

True, small businesses may be facing an increasingly competitive marketplace. True, mega corporations like Wal-Mart have a stranglehold on the cost leadership segment. So how do you fight back? How do you keep your business from failing like Kmart did? Again, Sun Tzu has the answer: “Carefully compare the opposing army with your own, so that you may know where strength is superabundant and where it is deficient.”

You can’t beat the Goliaths of the world on price, but you can leverage strengths where they are weak. Here’s how:

Differentiate Yourself

Make your product or service stand out from the crowd. Deliver at a quality that your competitors can’t match. Use eco-friendly materials and business practices. Whatever you do, make sure that your marketing focuses on these differences. If your product is better but your customers don’t know it, what good is that? Marketing alone can be a great form of differentiation - get creative! For god’s sake, if Pet Rocks made someone rich, surely your business can do the same.

Be Responsive

In working with a few large corporate clients, I’ve learned one thing: big businesses are SLOW. Once they decide they want to do something, they have to get the approval of 43 different corporate managers, run it by legal, justify it to their shareholders, put in a request for funding, and then justify the project to the new corporate managers because 30% of the original 43 have died of old age since the initial request was made.

In my business, if a client comes to me with a request, I turn my head slightly, run it by my partner, turn my head back, mull it over for a bit, and give my client a response. I can do this because small businesses aren’t shackled by bureaucracy. We can respond quickly and respond to their needs before old age takes them.

Cultivate Personal Relationships

This is a big one. As I’ve mentioned in the past, I hate dealing with customer service reps. I put it off for days or weeks if I can because I know that they’re going to put me on hold for an hour and then someone I can barely understand will ask me to hold again while he accesses my account history. Where’s the personal touch? Big businesses can’t afford it, but we can. I keep all my client data in my phone so when a client calls, I greet them by name. Little things like this make people feel important. Take the time to get to know your clients. Treat them like people rather than numbers. In an increasingly impersonal world, people are willing to pay extra for that personal touch.

From Survival to Success

Most small business owners start out just hoping to survive. Far too many fail because they never find a way to stand out. Their business is just another nameless, faceless company vying for consumers’ hard-earned money. It’s important to develop your business in such a way that it holds meaning for your customer.

Take your doctor, for instance. You might tell people “I go to Dr. ____ because my family has known him for years, he’s extremely capable, and he genuinely seems to care about my wellbeing.” You might recommend a specific tax consultant because he found all kinds of tax deductions and saved your business from an audit. What meaning does your business hold for your customers?

Big companies may own most of the market, but there’s still plenty of room for small businesses. The key to survival is to determine what aspects of their business leave the customer wanting more, and then structure your business to make it happen. Use your small size to outmaneuver your competition. Deliver exceptional service and tell your customer how your business is different.

Remember: avoid your competitor’s strengths and instead attack their weaknesses.

What’s next?

Sun Tzu on Adapting to Your Environment - Part 5 of 6

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Sun Tzu on Business Tactics - Part 3 of 6

“Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win.” - Sun Tzu, The Art of War

A Shot in the Dark

Let’s face facts. These days, if you don’t have a clearly defined target market, your business is in trouble. How are you going to reach the people most likely to buy your product if you’re not even sure who they are? Naomi from IttyBiz says it better than I could:

Imagine the target is, um, a target. And you’re the dude with the gun or the bow and arrow or whatever. If you hit the target right in the middle, you get 50 points. If you hit the outside circle, you get 10. If you aim at 50, you might get 50 or you might get 10. If you aim at 10, you might get 10 or you might get nothing.

So why are you aiming at 10?

Your target demographic is your version of perfection. These are the people who are begging for your product or service. They have money to spend and they want to spend it on you. Maybe they don’t know it yet, but you do, and that’s all that counts.

It’s time to start developing some tactics to start bringing in more bulls-eyes and stop wasting energy on shots you take with a hope and a prayer that they’ll hit something.

Know Your Target Demographics

Start by breaking your clients down into demographic groups. Web Marketing Resources defines demographics and psychographics like this: “Demographics refer to statistics like age, income and location. Psychographics refers to preferences, interests and personality characteristics.” It was recently revealed that Best Buy takes this approach to an extreme. They actually create personas for each of their demographics:

Source: The Consumerist

While Best Buy’s methods may be a bit overkill, imagine what having this sort of data could do for your business. Is your marketing plan tailored to each demographic, or is it a One-Size-Fits-Some approach?

Making no mistakes is what establishes the certainty of victory, for it means conquering the enemy that is already defeated.

- Sun Tzu

If you know what motivates your customers, what they want and need, you’re well ahead of the game.

Know Yourself

Clearly defining your target market and demographics is a good start. You’ve defined what your ideal customer looks like to you. Now ask yourself, “What does my business look like to my target customer?”

• Is your shop/restaurant/office clean and inviting?
• Does your website look professional, up-to-date, and provide the right information?
• Take a good look at your business’s weaknesses and see if there’s some way to turn them into strengths.
• Are you offering goods or services your target market values? How do you express this to each demographic?
• Do people even know your business exists?

Understanding your business and the way it’s perceived will go a long way. Just understanding isn’t enough though. A successful business is built on continuous improvement. A good owner also knows what they don’t know, creating partnerships and learning opportunities to improve their limitations.

Measurement and Calculation

Here comes the hard part. How do you accurately forecast sales as a new business? As a growing business? As a service business? There’s always going to be an excuse to put off market forecasting. Why? Because it’s hard. It forces you to take a serious look at your business and set some quantifiable goals. For some great advice on this topic, pick up a copy of On Target : The Book on Marketing Plans. It offers some great tips on how to generate those initial sales forecasts. For instance:

• Use census data to determine the number of people in your target market.
• Find out what data is available in similar markets, or what has been gathered by your competitors.
• Build on whatever past data you have available, and go with your gut instinct.
• Most importantly: GET STARTED! Next year you’ll be able to look back on the data you’ve gathered this year.

Set some expectations for your business. Make sure they’re clear, quantifiable, and have a well-defined due date. “I’m going to lose weight” is not a clear goal. How much are you going to lose, and by when? “We’re going to increase sales” is just as useless. Instead, try “We’re going to increase online sales by 20% in the next 18 months by advertising through channels X, Y and Z.”

See how much more clear that is? 18 months from now it will be very clear whether or not you met your goal. By now this should be easy. You should know your customers better than they know themselves. You should know their demographics and their psychographics. You know what makes them tick. Your business is structured to give them exactly what they need in the best possible environment. You’ve set measurable goals, forecasted sales, and you revisit the numbers regularly. With that kind of preparation, you’ve got a tremendous advantage over the competition.

If you know your customer and you know your business, your success will not stand in doubt.

What’s next?

Sun Tzu on Leveraging Advantage - Part 4 of 6

Business Owner or Hat Rack?

As an entrepreneur, business owner or manager, how many hats do you wear? Dave McClure, Master of 500 Hats, “refers to the many hats that entrepreneurs have to wear as they get a new startup venture off the ground. It’s also a reminder to entrepreneurs to spend time identifying all those hats, find talented people to wear them productively, and gradually take off & transfer the hats to others who can best help the business grow. “

As a small business owner, I’ve worn more than my share of hats. I mentioned in my last post that I’ve been the project manager, programmer, designer, account manager, marketing manager, and so on. Chris Garrett pointed out that by starting my own blog, I’ve just given myself ten more hats to worry about. Now I’m writing, researching, networking, etc. in addition to all the things I’m already doing. It occurred to me that I’m spending more time as a hat rack than as a business owner. A business owner should be negotiating deals, formulating strategies. A hat rack keeps hats from falling on the ground, getting trampled and lost.

Sadly, for most entrepreneurs this is a necessary evil. If I’d had the cash for a professional accountant, I would have hired one. God knows I’m clueless when it comes to accounting. Matt Inglot points out in his blog that the areas we struggle in tend to be the hats we spend the least time wearing. That explains why, before we hired an accountant, our accounting hats only showed up once a year in early April.

You can learn a lot about yourself by looking at the way you solve problems like drooping sales. A tech-savvy owner might put his programming hat on and implement a cutting-edge CRM application to better track leads and customer information. A marketer will put his marketing hat on and find new ways to reach customers or new target markets to enter. The engineer will reach for his inventor’s hat and start working on his next big idea, guaranteed to draw crowds of customers. Which hat do you reach for? A true entrepreneur will consider each hat in turn, weighing his options until he comes up with the best combination of hats for the task at hand.

Unloading a Few Hats

The hardest thing for most business owners to do is let someone else wear a few hats. In The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It, Michael Gerber outlines some of the dangers of taking this step. By hiring people to do the jobs I hate, I’m ensuring that they get the attention they deserve. But to whose standards? Not mine. I’m just trusting that the new guy knows what he’s doing. And then when he cooks the books and disappears with all of my money, who do I have to blame?

The critical component in effectively delegating tasks is learning how to handle each task yourself, THEN deciding how to delegate. You’re in charge. You have to set the rules.

Start by creating an Organizational Chart. It may seem ridiculous in a company with one to three employees, but this is critical. Take a look at my company’s first org chart. Initially, all of those boxes were filled with just two names.

Once you have the chart, create a position contract and job description for each box. For each position, what are the expectations? As VP of Marketing, what are my responsibilities? How do I know I’m fulfilling them? Who do I report to? Who reports to me? This should all be clearly defined when there are only a few employees, because it will get much harder the larger the company gets.

You should now have an Organizational Chart and a stack of position contracts. For each box that has your name on it, sign the position contract to seal the deal. This is especially important in partnerships, where responsibilities are not clearly defined. There’s got to be some accountability right from the start.

As you grow, you now have the structure to hire employees and present them with clearly defined roles. Each new employee takes one of your hats, and signs a contract indicating that they understand what is expected of them. This is just a small step forward, but it’s a step most small businesses never take. Once you start hiring, you need to worry about training, communication, record keeping, and all sorts of other things well beyond the scope of this post. More on all that later…

Your turn… what hats are you wearing? What hat do you instinctively reach for when there’s work to be done?

Other Bloggers on The E-Myth

Naomi at IttyBiz wrote a (not surprisingly) great post last week about how to make the jump toward starting a business when you hate your current job. Johnathan posted a number of statistics from the book over at WiseVisions. Marc Melvin presents a great summary of the goal behind The E-Myth: creating a “place of community that has purpose, order, and meaning… A place where the generally disorganized thinking that pervades our culture becomes organized and clearly focused on a specific worthwhile result.” Michael Gerber’s blog is definitely worth checking out too. Pick up a copy of The E-Myth, it’ll be worth your while.