29 Apr Maintaining Your Small Business Competitive Advantage in 2021
Sustainable Competitive Advantage
By Randall Walker, Entrepreneurship Facilitator
In this new 2020 business environment of constant disruption and change how can an entrepreneur plan for success?
It has always been best practice to have a business model that is flexible and versatile, able to adapt to trends and changes in market conditions. Prior to 2000 it was regarded as unlikely that there would be a relatively rapid onslaught of events that could cause significant to catastrophic disruption. We must now accept that globalisation, where nearly everything seems interconnected, interrelated and interdependent, means not only are disruptions more frequent, but a major disruption in one location/country can quickly become a major disruption in many locations/countries.
Entrepreneurs sometimes create business disruptions like Airbnb (2008) and Uber (2009), or disruptions can come in the form of a terrorist attack, a pandemic, a global financial crisis, a major environmental/climate change event such as tsunamis, volcanic eruptions or bushfires, a nuclear accident, power outages, an oil shortage, a major hacker/virus attack to the internet and even war such as the Iraq War (2003). A new conflict involving North Korea, Iran or China is not unforeseeable.
Sometimes it is not possible to have a sufficiently diversified business model that it could mitigate risks associated with major disruptions. For example, airlines fly passengers from A to B and always take a hit with reduced travel events such as a pandemic like SARS (2002) or Covid-19, or terrorist attacks like September 11 (2001) and the Bali bombings (2002). That is unlikely to change. It is difficult for airlines to diversify without being distracted from their specialised core business.
However, given everything that we know and have learned from 2000 to 2020, ideally a contemporary business model/plan would include contingencies to financially survive a major disruption for 6 – 12 months. It is therefore prudent for all businesses to give consideration to a major disruption and possible recovery. A practical step could include securing an insurance policy that specifically covers disruption (even if the premium is higher). For start-ups in the first 2 years of trading a major disruption strategy may simply entail identifying the steps required to wind up the business quickly without leaving outstanding obligations that may result in penalties for directors.
An alternate strategy for a business that has been trading for more than 2 years is to have the discipline to silo (put aside) a percentage of income, and factor that into the financial modelling, for the specific purpose of being a ‘rainy day’ (disruption) buffer. For example, setting aside 10% of gross income could mean that after 2 years you may be able to cover 3 months of basic operating costs when required, after 4 years cover 6 months and so on. Current examples of no contingency include the NRL. With Covid-19 triggering a suspension of the sport’s season and possible loss of the entire season, the NRL may lose up to $500 million in broadcasting revenue. With no cash reserves players have been asked to consider an 87% pay cut. Retail (except supermarkets and hardware) and hospitality have been hit hard. Another example of no contingency is Solomon Lew announcing publicly that Premier Investments, which operates brands including Just Jeans, Portmans, Jay Jays and Smiggle across 1,250 retail outlets, will be laying off 9,000 staff and not paying rent to landlords.
5 Tips to achieve a Sustainable Competitive Advantage
- Distinctive Competence – what is truly unique?
- Competitive Advantage – what do you do better than your competitors?
- Economic & Environmental Sustainability
- Digital Presence
- Major Disruption & Recovery Plan
Distinctive Competence – what is truly unique?
Push yourself to identify and create what do your products/services offer customers that is truly unique? Is it something through invention or process innovation that is the first of its kind? Is it simply bundling together pre-existing products/services so that the combination is unique, convenient and appealing to customers? Everyone claims to offer product/service quality, but how are you genuinely unique? Is the service delivery method unique? If there are 20 cafes in the main street of a town and you are for some reason planning to open another cafe, it must be unique in some way to have a fighting chance of being profitable! Consider not starting a business unless you can identify a truly unique selling point.
Competitive Advantage – what do you do better than your competitors?
A great reference point for achieving competitive advantage is the book Blue Ocean strategy written by Chan Kim and Renee Mauborgne, who in 2019 were named the World’s #1 Most Influential Management Thinkers by Thinkers50. Red Ocean refers to the bloody competition of rivals fighting in the known and accepted marketplace. Companies clamouring for market share of existing demand. By contrast, Blue Ocean refers to new entrants, entrepreneurs and innovators, going into uncharted and unknown new market space. New products and services create new demand and rapid growth and profit is possible. Don’t simply try and beat the competition, make the competition irrelevant, create new demand!
Economic & Environmental Sustainability
Sustainability is a macro-economic trend with two parts, economic (financial viability) and environmental (minimal carbon). Adopting ‘best practice’ reduces energy, waste and water costs. Maintaining a positive workplace culture with a wellbeing program reduces staff turnover and increases productivity. Become an employer of choice. Customers are more discerning, they want to buy from a company or brand that is known to be actively environmentally responsible e.g. minimising single use plastic packaging, embracing waste separation and recycling, using energy efficient LED light globes, and possibly installing solar power or purchasing renewable energy. Communicating these positive steps, including via social media, will attract more customers and boost customer loyalty.
The overwhelming majority of customer information search and evaluation is done online. Voice only searches are rapidly increasing. The 2019 national retail recession was driven by a shift in consumer behaviour, moving away from visiting bricks and mortar retail stores towards purchasing online. Can your customers book/order and pay online? How easy is it for new customers to find you? If you are still providing a physical location experience or service – is that experience presented online in a an appealing and compelling manner? Minimum requirements include a mobile device friendly website or app, quality content including images, supported by search engine optimisation (SEO) and a customer engagement strategy including digital communications with social media.
Major Disruption & Recovery Plan
It is prudent to have a Major Disruption and Recovery Plan including contingencies to financially survive a major disruption for 6 – 12 months. A practical step could include securing an insurance policy that specifically covers disruption. For start-ups in the first 2 years of trading it may simply identify the steps required to wind up the business quickly without leaving outstanding obligations that may result in penalties for directors. An alternate strategy for a business that has been trading for more than 2 years is to have the discipline to silo a percentage of income for the specific purpose of being a ‘rainy day’ buffer. Setting aside 10% of gross income could mean that after 2 years you may be able to cover 3 months of basic operating costs when required.
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