One of the first decisions you will make as a new small business owner is to determine your business strategy. Ultimately, you have to settle for one of three business strategy options. And it is important that you are clear on what one you are going for.
Your business strategy choices are, at the end of the day, very simple. The big question is, how do you want to position yourself in relation to your competition. Basically your options are :
- To be the cheapest
- To be the best
- To dominate a market niche
Many small businesses go for the first option, in the mistaken belief that it is only way to survive. The problem is, there will always be someone who can do what you do, more cheaply than you can.
To Be the Cheapest
A cost leadership strategy is only really suitable for big businesses. Businesses that have substantial economies of scale. They are able to spread their overheads thinly over large volumes, and charge low unit prices. So if you are running a small business, this strategy probably won’t work for you.
If, as a small business, you build your business reputation on being the cheapest, you are operating from a position of weakness. Even if you can survive with your low prices, you will not be able to withstand a price war with a bigger competitor. So why take the risk?
To Be the Best
The second strategy, being the best, can be used to build a powerful competitive advantage. It means, however, that you have to have a unique product. Otherwise, you will have to spend a lot of money on R&D to stay ahead of the competition.
You need deep pockets to win with this strategy. Unless, of course, your product is so specialized that no one else is producing it. And big companies, for whatever reasons, don’t want to produce it either. That would give you dominance over a niche of your own.
But generally speaking, a product leadership strategy is only for the big boys. Like, Nokia, Sony and Mercedes Benz. While being the best in a category, and staying that way, can be a powerful strategy for highly specialized small businesses, it is just not sustainable for most. Which brings us to our third option.
To Dominate a Market Niche
Dominating a market niche in your industry. It is the most suitable business strategy for most small businesses. By adding value in a way that attracts a particular kind of customer, you can steadily build your business success. You are able to charge a premium. And you don’t have to be the “best”.
The trick, of course is to clearly identify your niche market, and convince your target market that you provide the best solution to their problem. For nearly all businesses, finding a niche and dominating it provides a solid foundation for building a business on.
It is very important that you are absolutely clear on what generic strategy you are relying on. Your business strategy, by definition, is supported by a number of strategic tactics. Whether you are aware of using them or not.
If you aren’t clear about your overall strategic direction, you may end up using conflicting strategies. For example, focusing customers on your low prices at the same time as you introduce best of class products. Doing this means that your profitability suffers and you fail to attract the customers you want : not good!
Deciding on the generic strategy that will create the business success you are looking for, clarifies your thinking. And it helps you see clearly what tactics you need to use.
For more information on How to Position Your Business, read the following:
- Three Business Strategies for Small Business Entrepreneurs
- Changing Your Position When There’s Competition
- Marketing to the Right Audience
- How to Position Your Online Retail Business When the Economy is Down
- Focus on a Niche: Factors to Consider
Recommended Books on Business Strategy:
- Playing to Win: How Strategy Really Works
- Developing Business Strategies
- Understanding Michael Porter: The Essential Guide to Competition and Strategy
- What I Didn’t Learn in Business School: How Strategy Works in the Real World
- Business Strategy: A Guide to Taking Your Business Forward (The Economist)
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