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Getting strategic for a rough year ahead

Wednesday, 20 July 2011 | By Greg Hayes

Greg HayesThe coming 12 months promise a lot of volatility for business. Uncertainty around interest rates, the carbon tax debate, weak consumer sentiment and the possible ripple effect from problems overseas means that business will be working with a range of domestic and wider influences that will cause uncertainty.

 

And this uncertainty will have upsides as well as problems for businesses.

 

Most SMEs are well downstream from major economic triggers. We don’t cause the problems but we are affected because of what is happening to larger businesses, the economy and consumers.

 

Some industries are more impacted than others.

 

Expecting business in the coming year to be simply more of the same as in the past is likely to be wishful thinking.

 

If your business strategy is simply to turn up, work hard and expect business to come to you then you are set to be disappointed. 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.

 

This sounds okay in theory but the problem is that you are doing next to 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 not to simply carve out some business share, but to create a sustainable business.

 

And this is where your business strategy comes in. It 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 business share.

 

The challenge for the market is more supply than demand. The scenario swings around 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 looking to win business, either by chance or by 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 are and how you can differentiate your position in that market.

 

This is not easy, but get it right and it will pay big dividends. Your starting point needs to be to identify what your current business strategy is.

 

You should be able to clearly articulate it and write it down. If you don’t have one, then accept the reality and start working on one.

 

Your strategy should flow into your business plan and then be reflected through your operating and cashflow 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 is likely to separate the successful from the strugglers.

 

Greg Hayes is a director of Hayes Knight and specialises in taxation and business planning advice.