Small Business for Dummies. Veechi Curtis

      Sometimes your strategic advantage isn’t something that’s blindingly clear from the moment you set out in business, but instead grows over time. Your skills grow as you develop in business, and your understanding of how you’re different from the competition consolidates as well.

From time to time, you can review your strategic advantage by asking yourself these questions:

       What am I naturally good at? (Or what is my team good at?) Where do I feel I have been particularly successful in my business?

       What do I offer to my customers that’s either cheaper than my competitors, better value or unique in some way?

       Does a point exist where what I’m naturally good at connects with what I do better than my competitors? If so, how can I build and develop this?

      

When our local osteopath first started out in business, he didn’t really have anything that separated him from the competition. The only thing that was really different about him was that he was an elite rock climber in his spare time. However, as his business grew, he became expert at treating other climbers for their injuries. His business developed, and now he treats climbers who not only live locally, but also come from interstate. He even does some international consultations (and, yes, if you’re wondering, some parts of an osteopathic consultation can be conducted via Zoom!). This combination of skills — being a natural climber and a highly trained osteopath — is hard to beat, and a true strategic advantage.

      Making sure a demand really exists

      One common mistake people make when starting a new business is that they’re overly optimistic about the demand or interest in their product or services. A sunhat with a solar-powered fan on top may seem a good idea, but is anyone going to be seen dead wearing such a thing? In the ideal world, find a way to test the demand for your business idea before you invest too much capital or time in its development.

      

A friend of mine had an idea to start a business selling handmade timber beds. He decided to test this idea by running a stall once a month at the local markets. The response seemed good at first, but he soon found that people were reluctant to pay the extra dollars for his products, with people comparing his prices against the mass-manufactured timber beds made from poor-quality pine and available from large discount furniture chains. His profits were also lower than expected, and the time required to liaise with customers about their individual orders was higher. The result was that he decided not to pursue this business idea, but to explore other ways of making money instead.

Understanding How Risk Relates to Gain

In most situations, the business with the highest potential strategic advantage is going to be the business that requires the most capital or involves the most risk of failure. For example, in Table 2-1 earlier in this chapter, the business with the highest number of yeses in the strategic column is the toddler safety business. This business has the advantages of being a new idea, and something that clearly adds value for customers, but involves fairly substantial risks. Because this is a new service, people aren’t going to look around thinking to hire someone to make their home toddler-proof. This business will have to invest significantly in marketing to make consumers aware of its services and may yet find that demand is so weak that the business idea is unsustainable.

      In contrast, lawn mowing has few potential strategic advantages but probably the lowest risk of all. (The cost for Leila to set up her business could be as low as placing an ad on Facebook Marketplace.) The reason that strategic advantages are hard to find for Leila’s business is that a lawn is only ever a lawn, and Leila is limited in what she can offer that others can’t.

      However, I still include ‘maybe’ against three possible strategic advantages for Leila’s lawn mowing business:

       Added value: Maybe Leila has some specialist horticultural knowledge that could differentiate her from her competitors.

       Location: Maybe Leila would be providing the only service in her suburb, or maybe she lives in a very exclusive suburb with lots of high-income earners.

       Lower costs: Maybe Leila’s teenage son works for her at low hourly rates, enabling Leila to afford very competitive prices.

      

If your business is very similar to many others, you may find it’s tricky to identify strategic advantages and to stand out from your competitors. The upside of a business that’s very similar to many others is that the risks are usually lower; the downside of a low-risk business is that it’s always going to be tricky to charge premium rates or make above-average profits.

Figuring Out Who Your Competitors Really Are

      I like to organise competitors into three broad groups, and I suggest you try to do so too:

       Head-to-head competitors provide exactly the same service or exactly the same product as you do.

       ‘Sometimes’ competitors provide a slightly different service or product, or are in a different location.

       Left-field competitors don’t normally compete with you but, if circumstances were to change, could possibly do so.

      

When you’re thinking about the competition for your proposed business, don’t be too literal — think about where both your business and its industry are headed. For example, a watchmaker repairing and selling watches 30 years ago would have probably thought that the main competition was other watchmakers. The idea that the mobile phone could almost completely annihilate this industry would seem a long shot.

      Also, don’t be hesitant to compare your business against big-time competitors such as supermarket chains or large franchises. While you may find it hard to imagine how your fledgling business could ever compete, the mass-market nature of these competitors often leaves niches that are underserviced, providing opportunities for smaller players.

      Understanding why you need to do this

      Here are five reasons I recommend you spend time analysing your competitors:

       You can get fresh inspiration: Your competition can be a source of inspiration, showing you where to gain a possible edge. Pricing specials, weekend packages, discount offers, creative advertising and clever sales techniques are just some of the things you may decide to copy. After all, imitation is the greatest form of flattery (although your competitors may not see it that way!).

       You can avoid terrible mistakes: Competitor analysis may provide the reality check that prevents you from taking unnecessary risks and losing your savings. For example, in my local town a whole strip of cafes come and go with every change in season. If I were thinking about starting a cafe, a competitor analysis may quickly reveal that the rents in this strip are hideously high, the landlords are difficult, and nobody is making enough profits to survive, let alone thrive.

       You can capitalise on others’ weaknesses: Interacting with competitors can also point to potential opportunities. For many people, the seed of a winning business idea is sown by not being able to receive good enough service or quite the right product. So they think, I can do better than that, and a new business idea or marketing strategy is born.

       You can set your prices just right: If you’re going to compete head-on with another business, you want to be right across the services that business provides, and the prices it charges. Unless a massive