Business Coaching

How High is The Bar?

Several weeks ago I wrote about Michael Porter's Five Forces model for industry analysis and in particular I explained about the threat of new entrants.

The lower the barriers to entry, the easier it is for new competitors to enter the market.

As profit depends on selling price and prices depend on the balance between supply and demand, the more competitors in a market, the lower the prices and profits.

So I was surprised today when I was looking at the keywords people use to find my blog in the search engines that "free business coaching certification" appeared.

Why would someone want free business coaching certification?

It's like those spam emails offering you a Harvard MBA certificate for $30.

Where is the value?

How can a qualification that is free and / or easy to obtain be any use in distinguishing you from a competitor?

How can it mean anything to an informed prospective client and if someone is looking to take advantage of uninformed prospects "who don't know any better", what does that say about a) their ethics and b) their ability to keep the client happy and retain them over the longer term?

Last year I had a meeting with a young chap who wanted marketing advice for his business but many of his qualifications came from short courses.

He seemed genuine and reckoned that he could do great things and showed me various stories of the techniques being applied.

I explained the problem as I saw it.

The more work we got for him, the more people would get to know about these techniques and see for themselves that they worked.

The more people who know about it, the more they tell other people and the more likely it is that they will do a little bit of research on the Internet and discover that anyone can be a master practitioner in just three days.

Now this is bad news in two ways:

1. Because the bar is not set high, the qualification loses perceived value and people may start doubting the techniques. Demand starts falling away as people stop believing, stop doing the exercises and don't get the expected benefits.
    
   
2. At the same time, the opportunists who see this as easy money, jump on the bandwagon, quickly become qualified and increase the supply of competitors.

So what happens when demand starts going down and supply increases? That's right, prices and profits go down.

That didn't seem to be the reward for successful marketing that I wanted to give my prospective client - a short term success but little long term future.

I couldn't see any way to fight back against these trends - theoretically it would be possible to develop some unique twist which increases the customer value and becoming famous for this revolutionary innovation but what were the odds of that happening?

I am expensive and while I expect to earn a fair share of the extra profits generated, I expect my clients to receive an ongoing payback on the costs from the step change in their profits.

 If we look at other professions we can see that the "height of the barrier" is one of the reasons why the top professions do so nicely.

You don't see poor doctors, dentists, lawyers and accountants.

That's because it's tough getting into these professions. The intellectual challenges are high and weed out many people, the training is tough and requires many sacrifices and the clients appreciate the value that these professionals bring to them.

Back to Business Coaching Certification

Business coaching is largely an unregulated profession although there are various certification bodies.

How good they are, I don't know.

I have admitted before that my strengths (experience and qualifications) lie in the business element of business coaching, rather than in the coaching element but you know that already if you have been reading my blog regularly.

But if some mandatory business coaching certification process is ever brought in, I don't want it to be free and easy.

It has to be tough and demanding and set exacting standards for ongoing membership.

It has to be able to "sort the men from the boys".

It has to set the bar high and form a real barrier to entry to guarantee professionalism to the clients and protect teh interests of the established business coaches.

Your Profit Coach

Paul Simister

Business coaching for customer focused entrepreneurs

Industry Analysis: Buyer Power & Supplier Power

This is the third article focused on Michael Porter's Five Forces model for Industry Analysis (Michael Porter Five Forces Model (the introduction) and the Threat of New Entrants and we now turn our attention to two similar but opposing threats:

1. The bargaining power of customers
2. The bargaining power of suppliers

Win Win or Win Lose?

It is always best to go into any negotiations on the basis of looking for win-win arrangements where you and your customer or supplier can agree to strip out any unwanted or unnecessary extras that increase cost but add little or no value to the transaction.

But it is essential to recognise that when it comes to price, any reduction you negotiate with a supplier transfers profit from them to you and the opposite happens if a customer wins an extra discount.

How well each party to the negotiations will perform will depend on individual negotiation skills and the industry structure which usually biases the negotiating power one way or another.

Two Major Factors Determine Relative Power Between Buyers and Suppliers

1. The price sensitivity of the customer to paying a high or low price.
    
2. The relative bargaining power that comes from a readiness to walk away from any deal and go elsewhere.

Price Sensitivity of the Buyer

Buyers will be more willing to switch to get a lower price if:

1. The product being bought is important to the buyer in terms of the high proportion of costs spent on the items but there is little difference in the products from the suppliers. The buyer knows that the product can be sourced from somewhere but doesn't really care where, provided the price is the lowest.
2. The buyer will also become much more sensitive to price if the buyer and its industry is under pressure and is having to scramble for every drop of profit. Good times may protect suppliers at the moment but as the expected recession bites, pressure to reduce prices will increase because the buyer is trying to compensate for profit lost in its market.

Relative Bargaining Power - Who Can Walk Away The Easiest?

The second factor that determines whether buyers or sellers capture the majority of the profit from a transaction is the bargaining power that comes from having the knowledge that you can walk away from any deal you don't like.

It's a wonderful position to be in and if you are a seller, it is great to keep reminding yourself that you always have a choice and you don't have to accept any deal the supplier proposes.

Industry analysis and Michael Porter's Five Forces model says that the buyer has the advantage if:

1. The buyer is large and the supplier is small which means that the deal is likely to be much more important to the supplier.
    
2. There are few buyers and many suppliers. The buyer has the choice of many different suppliers to play off against each other but the supplier knows that to achieve good sales, at least one of the small number of large accounts need to be captured.
    
3. The buyer knows the product very well and has no problem comparing goods and prices from different suppliers. Buying apples v apples and dominating the price negotiation is easy but it gets much more difficult to compare apples with oranges and feel confident that the deal is right for you.
    
4. The buyer does not incur any penalties or other switching costs from moving its purchases from one supplier to another.
    
5. The buyer can make a credible threat to enter the suppliers industry and provide its own supplies of the product unless the price is very low while the supplier cannot move into their customers market safely. This issue of vertical integration forward and back is a big topic which I will be covering in future business strategy articles.

Can you see how some of these factors apply to your relationships with your customers and help or hinder your negotiations while others apply to your suppliers?

The Worst Of All Worlds

If business was fair, some industries would be able to pass on pressure from suppliers to customers or vice versa but the worst situation is when you are stuck in the middle, sandwiched between very powerful buyers and sellers.

I have seen this in the metals processing industries where the big steel and copper mills control supply and can even ration it during times of peak cyclical demand while the customer chain is dominated by the big vehicle companies who force price reductions down the line.

While there is little that can be done about the basic industry structure, any business competing in this market has the chance to try to re-position itself to more protected areas by developing specialist capabilities and market niches. The stronger the differentiation and the bigger the gap from competitive products, the more the company is able to think of itself as the unique or sole supplier.

It May Not Just Be Price Pressure 

It is easy to fall into the trap of thinking that buyer and seller power is just about price and often that is where the pressure is exerted but sometimes a strong buyer will insist on extra service requirements (next day delivery at no cost) or a favourable financial arrangement (extended credit terms or consignment stock).

Conclusion

So far we have looked at three of the five forces in Michael Porter's industry analysis model so in the next two articles on strategy we will examine the threat of substitute products and the threat of competitive rivalry from firms in the same industry.
 

To Your Success

Paul Simister

Your Profit Coach, business coaching for customer focused entrepreneurs

© Planning & Control Solutions Ltd 2007-2008 All Rights Reserved

Competition and the Survival of the Fittest

I am just back from my safari holiday in South Africa and Botswana and while I tool my mp3 player loaded with Jay Abraham, Peter Thomson and Brian Tracy recordings, I didn't even turn it on and I just read a couple of chapters of a marketing book I took away.

Margaret and I had a great time despite the 5:30 am wake-up calls and saw many animals and birds including six new species of mammals which was great considering this was our sixth safari based holiday.

But I don't think that anything brings home to the nature of competition to you more effectively than seeing the animals in their natural habits.

The Difficult Life of A Male Impala

For the impala, it is the rutting season which is highly stressful for the males. Yes when they get to the top of the pile, they get to have their wicked way with lots of impala girls but between keeping the ladies happy and keeping other males away from their mates, they don't have the time to eat.

The result is that they quickly lose their strength and are knocked off their perch by another male impala who has been conserving energy.

Now our first male impala is banished from the protection of the herd and slinks off into the bush to recover. Outside of the rutting season, the males form bachelor herds for their own protection. Twenty eyes looking in every direction are better than just two but in the rutting season, they are on their own.

They need to do two things desperately - eat and sleep - but both activities put them at risk of becoming food for the hungry lions, leopards, cheetahs and hyenas.

Their very success in rising to the top and claiming their rewards has put them in mortal danger and strangely it can be like that in business as well.

Often the seeds of failure are sowed from continuing a successful strategy too long. A business can feel it has become invincible and that opens the door to complacency. When you are successful, you become the target for others.

The Fight For Food

It's late autumn in the Southern hemisphere and in the reserve in Botswana, it's now four months since the last rains and the grass is short and parched. Rivers running through the reserve are mainly dried up but the next rains won't come until late September or October so in the next four months, it is going to become much more difficult to find the food and water the animals need to survive.

It becomes an issue of eating what you can find and hoping that you have built up enough reserves of fat to last you through the lean times.

This made me think about businesses who are facing the difficult times from the expected recession. New revenues will be more difficult to find as businesses compete for the lower disposable income of customers.

So have you built up enough resources to help your business survive the tough times ahead?

Or do you need to start implementing survival strategies urgently?

In the good times, the elephant herds can be large because the bush can support them but as conditions get tougher, the herds start fragmenting into smaller and smaller groups and spread out.

So have you identified your core markets and customers who can help you to survive the recession?

It Is The Survival Of The Fittest

Whether it is in the African bush or in business, competition is a question of who is the strongest and fittest.

If you haven't started your fitness program you, then I urge you to start.

To Your Success

Paul Simister

Your Profit Coach, business coaching for the customer focused entrepreneur

© Planning & Control Solutions Ltd 2007-2008 All Rights Reserved

Industry Analysis: Threat Of New Entrants

Today we will look at how you could be affected by the threat of new entrants in your market. This is one of the forces in Michael Porter's Five Forces model of industry analysis.

This applies to any business of any size but can be particularly damaging if your market is a fixed size and suddenly you find that you have to share it with a competitor e.g. another shoe shop opens in a small town.

Why Should New Entrants Be Attracted To A Market?

Any indication that a market is growing, under-served or particularly profitable will trigger interest from an entrepreneur who believes that there is money to be made from your market.

Where the existing business is making good profits, an entrepreneur will see this as an opportunity too good to miss.

So before you order your Porsche and move house to a ten bedroom mansion, you need to think what these signs of success are saying to your competitors.

Barriers To Entry Make It More Difficult For New Entrants

To discourage new firms coming into your market and competing for your customers and profits, you need barriers to entry.

Common barriers include:

1. Entrants must make a big financial investment
    
2. Established firms have cost advantages unavailable to new entrants
    
3. There are supply restrictions, either from suppliers or to customers which make it more difficult for new entrants to become established
    
4. Customer loyalty makes it hard for new entrants to attract customers
    
5. Legal barriers and patents
    
6. Threat of retaliation from existing competitors

Financial Investment As A Barrier To Entry

Some industries require a large financial investment before a new business can start. This introduces doubt into the minds of the prospective entrepreneur and any financial backers.

Some potential competitors won't be able to raise the funds and others won't be prepared to risk so much on a new venture which may not succeed.

Other industries, for example my own business coaching and consultancy require virtually no financial investment (unless people choose to buy a franchise) so we have to rely on other barriers to entry.

Cost Advantages As A Barrier To Entry

Cost advantages can come from three main sources:

1. Economies of scale - the bigger the business, the lower the average unit costs. For more details see economies of scale.
    
2. The experience curve - the more you perform an activity, the more opportunity you have for finding the best ways to do it for the least cost.
    
3. Low cost input prices, either from a favourable location e.g. a lower wage economy or long term supply contracts at very good prices.

These factors naturally favour the existing companies in the market although increased globalisation is opening up many markets to competition from the lower wage economies for the first time. New technology can undermine the cost position of the existing competitors.

Where brand names are important, an new competitor has a major problem becoming known and accepted unless it is prepared to invest heavily in sustained advertising and/or buy market share at a low price.

Supply Restrictions As A Barrier To Entry

A new entrant in the market may find it difficult to buy the supplies necessary to compete (including skilled labour) or it may be that it finds that distribution channels to the customers/consumers are reluctant to add extra lines and won't drop existing proven products from their range.

Customer Loyalty As A Barrier To Entry

Happy customers who are delighted with the service and the products from the existing companies may be very reluctant to risk buying from a new competitor.

Depending on how important the product is, even a much lower price may not compensate for the uncertainty of dealing with a new company.

It may also be difficult for customers to suddenly switch from one supplier to another because of incompatibilities. For example it is a big decision to switch computer suppliers because of all the inconvenience and effort required.

Legal Barriers And Patents As A Barrier To Entry

New companies may have to deal with difficult legislation issues and even legislation that doesn't affect incumbents. When I worked for a company with an iron foundry back in the early nineties, we did not have to meet environmental legislation that a new competitors would have had to comply with.

The market may also be protected through effective patents which stop a competitor bringing out a product very similar to your own.

Threat Of Retaliation From Existing Competitors As A Barrier To Entry

Any new entrant is attracted by the prospects of high profit so if existing competitors can put together a convincing threat that they will stop this happening (by cutting prices or extensive advertising), the new company will see high profit will not materialise.

But it is difficult to pull off.

Threatening retaliation against a new entrant means sacrificing the short term profitability of existing businesses so the new competitor has to be seen as a major threat which justifies the costs.

Barriers To Entry - An Effective Deterrent?

High barriers to entry are good if you are already established in a market but bad if you are investigating a market as a possible route for expansion.

The factors can change which is why it is important to keep reviewing Michael Porter's Five Forces model and the danger is that once one entrant has succeeded, other copycats may see that entry barriers like the threat of retaliation were an illusion.

Barriers May Be Reduced From Closely Connected Industries

The other issue when assessing entry barriers is that your starting point matters.

If you already have relationships with the prospective customers, a well known brand which is portable to this new market or you have the supply capabilities, your ability to enter a new market successfully is very different from a totally new company.

Can You Increase The Barriers To Entry?

To make your industry analysis better and to protect your business from the threats of new entrants, can you find ways to move these factors in your favour?

Are you doing everything you could to capitalise on your cumulative experience so that you find better ways to provide your product or service?

Can you find ways to increase customer loyalty so that they are unlikely to be tempted away by new entrants or existing rivals?

Is your patent protection as strong as it could be?

Overcoming Barriers To Entry

The entire issue of the threat of new entrants and the issue of barriers to entry all depends on where you are coming from.

If you are already in the industry you want high barriers but if you are outside looking to get in, ideally you want low barriers for you but high barriers for every other possible entrant.

So after you have identified the potential barriers to entry for your industry, put yourself in the shoes of a new competitor eager to enter the market.

Ask yourself how you would get around the barriers.

Can you reconstruct the industry?

Traditional High Street operations like banks and insurance brokers have been disrupted by first telephone and then Internet technologies.

Amazon have done the same with books, CDs and DVDs replacing a bricks and mortar presence with a huge website with many more products and product reviews.

Can you separate out the constraining area and subcontract to tyake advantage of other companies economies of scale and learning?

Can you license trademarks, patents and products so that you colloborate with a key player and help them compete against the other competitors?

Your Thoughts On Barriers To Entry and the Threat of New Entrants

It will be great if you can share you thoughts about barriers to entry? When have they protected your business or a business you know?

How have you managed to work around traditional barriers to entry which looked formidable?

To Your Success

Paul Simister

Your Profit Coach, business coaching for the customer focused entrepreneur

© Planning & Control Solutions Ltd 2007-2008 All Rights Reserved

Michael Porter Five Forces Model of Industry Analysis

I previously looked at What Is Industry Analysis and promised that I would tell you more about Michael Porter's famous Five Forces Model which is a centre point of his classic "Competitive Strategy" book.

The principle behind Michael Porter's ideas is that profit only comes from two sources:

1. Operating in an industry with an attractive structure as defined by the five forces model
    
2. Having a sustainable competitive advantage

Michael Porter argues that the Five Forces model identifies the key factors which determine the average profitability of an industry.

The five forces are:

1. The threat of new entrants
    
2. The bargaining power of customers
    
3. The bargaining power of suppliers
    
4. The threat of substitutes
    
5. The rivalry among existing firms.

Customers, suppliers and competitors compete for value created by the industry which is limited by substitutes or alternative solutions to the underlying customer need.

The ideal industry is one where both suppliers and customers are weak, any new companies would find it very difficult to enter the market effectively and competitors focus on enlarging the total industry profits rather than competing away profits unnecessarily through crazy pricing because there are no viable substitutes.

I believe that the Five Forces model often gives more insight when you are considering entering a new market than for small businesses already firmly entrenched in existing markets. This is because it helps to identify the threats to making superior profits.

This problem of putting the Five Forces model to work has led to people struggling to gain much insight about what to do next in their current markets.

The options are limited:

1. Can the business influence the five forces? Most small businesses can't.
    
2. Can the business protect itself from any damaging forces or take advantage of opportunities that come from favourable changes?
    
3. Can the business move to into an area of the market where the forces are less of an issue?
    
4. Should the business exit this market and move its attention and resources elsewhere?

However I do believe that any business that occupies a strategic position in its market should periodically work through the five forces model and see what new insights it brings.

All industries and local economies are constantly evolving and Michael Porter's Five Forces model is a proven technique for analysing industries and markets so that you identify threats and opportunities early.

Without a framework like the Five Forces Model, it is very difficult to identify all the issues that are changing and I will be looking at the threat of new entrants, buyer and supplier power, substitutes and competitive rivalry in more detail. 

To Your Success

Paul Simister

Your Profit Coach, business coaching for the customer focused entrepreneur

© Planning & Control Solutions Ltd 2007-2008 All Rights Reserved

Valuing Differentiation With Premium Prices

All the gurus say that for your business to be success you have to follow a differentiation strategy so that you stand out from your competitors. Provided you are different in factors which matter to customers you then have a competitive advantage based on being better, cheaper or different.

For the differentiation advantage to turn into extra profits you have to be able to justify why customers should be prepared to pay premium prices.

Inspired By Footballers Pay

I started to think about why people are prepared to pay premium prices after I read the sports news this morning about two Manchester United footballers who have agreed new deals. One player is 28, the other 29. Both are England internationals and have many years of first team experience. Both are tall and strong and can play in the same position. But it is reported that one player has agreed a deal for £60,000 per week while the other will receive £120,000.

So why is it that Manchester United are prepared to pay one player 100% more than the other?

Small Differences Can Make A Big Impact

Everyone who watches Manchester United accepts that the one player is better than the other. He is a little more aware of what is happening in the game. His positioning is a little bit better. He is a better passer of the ball.

And all the small differences add up to one big difference when the Manchester United management decide how much each player is worth to the team.

Easy Pricing Mistakes

It is very easy to misunderstand the value that your product or service creates.

When you look at the advantages from a supply perspective, the differences are very small and knowing how small, you may not have the confidence to add much of a premium price.

But turn the situation around and look at it from the customer's perspective.

These differences in the two players may mean that once in every five games, a goal may be scored by the opposing team which could have been avoided if the better, more expensive player was in the team.

And over a thirty eight game season, that could be an extra seven or eight goals conceded so eight games may be drawn instead of won, gaining the team eight points instead of twenty four.

Championships are won or lost on much smaller margins than that.

Look At Customer Consequences

To understand the value of your differentation, you need to look at your product or service through the eyes of a customer and in particular look at the different effect of the consequences of purchase and how these consequences relate to their goals.

Remember people buy something for what it does, not what it is.

I think that it was in the excellent book "The Strategy and Tactics of Pricing" that I read about the example of two paint brushes.

The first was a standard paint brush which cost $10 to buy.

The second paint brush was special. The company had invested a fortune and developed innovative bristle technology that meant the paint could be applied twice as quickly and achieve the same quality.

So is this new paint brush twice as good as the standard?

Yes.

So should it be priced at $20?

No.

When you are buying a paint brush, you are buying the ability to put paint on walls, doors and any other object.

Your goal is to make whatever you are painting look nice as quickly as possible.

It is time which matters and this is where the extra value of the paint brush comes in.

If the faster speed of the new paint brush will save you ten hours work, its value is worth much more than $10 to you.

Identifying Your Extra Value

So you are not a professional footballer and you don't sell paint brushes but you can still apply these ideas.

Look at your products and services and compare the consequences of buying from you rather than from your competitors.

Identify where the differences are and calculate what this means to a customer [segment if possible and you can set up price boundaries].

You now have the maximum price premium you can charge but your task is to persuade the customer to pay more so you have to give an incentive to buy so you both share the gain.

You need to educate your customers to appreciate the extra value you are providing and provide proof through testimonials or demonstrations.

Valuing Differentiation With Premium Prices

If you have gone to the trouble of creating sustainable differentiation in your products and services, it is essential that:

• you capture this extra value through premium pricing so that your profits are higher than industry norms or
   
• You knowingly intend to offer better value for money with the intention of gaining share. Your competitors may react but going back to the paint brush example, their room to manoeuvre is very limited. The price of the standard paint brush pay fall from $10 to $5 but that has little effect on the value of the time saving which is worth much more.

This is why knowing, understanding and applying the principles of customer value are so important and why customer focused entrepreneurs do so well.

If you would like a free report please click on "How To Price What You Sell"

To Your Success

Paul Simister

Your Profit Coach, business coaching for customer focused entrepreneurs

© Planning & Control Solutions Ltd 2007-2008 All Rights Reserved

Business Book Reviews 1

My new Business Books blog has been active in the first week with a combination of book reviews and book summary reviews.

Book Reviews

The Ultimate Sales Letter Dan Kennedy - 4.5 Stars

I review my well thumbed guide to copywriting by non nonsense copywriter Dan Kennedy.

Instant Team Building Bradley Sugars - 3 Stars

I plucked up courage to read another of Brad's Sugars books and this time it does have some good points but not enough to recommend it as a buy.

Ebooks

The Secrets Of Getting Your Bank Manager To Say Yes by Rob Warlow - 4.5 Stars

Excellent guide to convincing your bank manager to give you a loan.

Book Summaries

Success In Small Business Is A Laughing Matter Phil Johnson

Business advice with humour.

Creative Marketing Communications

Compendium of articles from the big creative agencies ran into my scepticism of brand advertising.

How To Close Every Sale Joe Girard

Hard nosed sales book from the Guinness Book of Records top salesman. Not for the squeamish who prefer consultative selling but ideal for those people tired of being walked over by prospects.

New Leaders Wanted Now Hiring Leandro Herrero

Thought-provoking and unusual book about leadership

Built To Last Jim Collins & Jerry Porras

Other people love it but I can't see what the fuss is about.

Articles

Michael Porter Five Forces Update

Latest Harvard Business Review article updates the classic with recent examples but the basic theory stays untouched.

Free Ebooks

Download these free ebooks while you have the chance as I intend to refresh the contents regularly.

Internet Marketers Guide To FREE Traffic, Sales and Profit by Raam Anand

Making A Living Off Your Blog by Terry Jett

AdSense Income Blueprint by Kurt Chrisler

To Your Success

Paul Simister

Your Profit Coach, business coaching for customer focused entrepreneurs

© Planning & Control Solutions Ltd 2007-2008 All Rights Reserved

Industry Analysis: What is Industry Analysis?

A few days ago I reviewed a classic business strategy book "Competitive Strategy" by Michael Porter and I promised to explain industry analysis or market analysis so this is the first of what will be a series of postings on industry analysis.

Today I am going to look at what is industry analysis and why it is important while in subsequent articles we'll take a detailed look at Michael Porter's Five Forces model which is the most famous method for analysing industries and markets before wrapping it all up with a guide on how to prepare an industry analysis.

What Is Industry Analysis?

Industry analysis is a structured process for reviewing the profitability of your industry at the moment and in the future to help you position your business in the most advantageous way.

Industry analysis explains why one industry is very profitable and all the competitors make good money while another industry has much lower profit and many businesses operate on a marginal basis.

I will use industry analysis and market analysis as the same basic concept so that there is some variety in the words I use. Strictly speaking, industry analysis looks from the supply side while market analysis looks from the demand side.

So you have the airline industry and the market for air travel.

Why is Industry Analysis Important?

There are only three alternatives:

1. You are thinking about starting a business in a particular industry, so industry analysis asks "Is this a sensible market for us to enter? Is this market a source of superior profits?"
    
2. You already have a business in an industry and you are committed to it so industry analysis asks "How can we make sure that we perform better than our competitors?"
    
3. You have a business but you are considering selling it, either because it is struggling or because it is very successful and you will be paid a great price. In the disposal situation, industry analysis asks "How are the future prospects of the industry likely to be affected and how does that affect my decision to sell.?"

So industry analysis helps you to move from having a "gut feel" about the prospects for the market to having scenarios that you can explain to others and seek their feedback.

It is for the big strategic questions and not for the smaller tactical decisions that many businesses spend their time focusing on.

There Are Only Two Reasons For Superior Profits

Unfortunately there are only two sources of superior profit

Either :

a) you have a business which is in an attractive industry or

b) you have a competitive advantage which means that you can capture the majority of profits made in your immediate market. Some industries are very fragmented and localised so one shop for example may be in a city where there is no competition while an identical shop in a city 100 miles away, may have two hot competitors which severely ration profits available.

The Strange World Of Perfect Competition

Economists have a concept called perfect competition but as a business person it won't sound very perfect to you.

Perfect competition is a world where there is an equilibrium and all the firms operating in the market produce profits which exactly match their cost of capital (the return you have to pay on your bank loans and the return you should demand on the money you have invested in your business.)

Perfect competition is a world where there are many competitors who are free to move into the industry if companies start to make more than the cost of capital and to move out of if returns fall below the cost of capital.

Perfect competition is a world where there is no product differentiation. Everyone knows how to make the product or service to the same standard and in the same time periods.

In perfect competition there are many buyers and they are all of similar sizes and they all have perfect information of their buying options. Information is free and there aren't any transactions costs which make it easier or cheaper to deal with one supplier than another.

But this is the important point - it is when these assumptions are broken that create the opportunity for sustained profit or loss within an industry:

• When there are few buyers
   
• When there are few suppliers
   
• When products and services are different
   
• When new competitors find it difficult to enter an industry
   
• When existing competitors find it difficult to leave
   
• When information isn't freely available to customers about the best prices and deals
   
• When information isn't available to competitors about the best methods to market, sell and supply their products
   
• When there are transactions costs which create a connection between particular buyers and sellers and a disincentive to trade with others.

All these create an opportunity for profit but they can all change over time.

These are the factors that you will look at during your Industry analysis and the most famous approach is the Five Forces model of Michael Porter.

To Your Success

Paul Simister

Your Profit Coach, business coaching for the customer focused entrepreneur

© Planning & Control Solutions Ltd 2007-2008 All Rights Reserved

Michael Porter Competitive Strategy 5 Stars

I have just started a Business Books blog with my fifth 5 star rated book, "Competitive Strategy: Techniques For Analyzing Industries and Competitors" by Michael E. Porter.

Competitive Strategy by Michael Porter

I believe that Competitive Strategy is an essential read for:

1. Any business adviser involved with advising clients on business development, strategy or marketing.
    
2. Any manager of a sizable business who is facing changes in their external environment.

The "Competitive Strategy" book is rightfully regarded as a classic since it was published in 1980 but unfortunately its contents are often mis-represented in other strategy books that I read.

Because Michael Porter's ideas became so popular, his became the established approach to business strategy and people tried to raise their ideas up by explaining how Michael Porter was wrong. Unfortunately some of the things I've read elsewhere just show that the authors have never read either Competitive Strategy or his follow up book "Competitive Advantage."

I will admit that it is more of a reference book, and a source I go back to quite often than a nice book to read from start to finish. It is not a problem provided you become familiar with  Porter's Five Forces which is the main analytical technique used in the book.

Click to read my full review Competitive Strategy Michael Porter

The Five Forces model has been recently updated in a new Harvard Business Review article - The Five Competitive Forces That Shape Strategy - which I will also be reviewing on my Business Book blog but I am planning to write some guidance notes on how to put the five forces into action on this blog.

Business Books Blog

I have realised that to try to keep this Business Coaching blog focused on helping entrepreneurs and owners of small businesses to build better businesses with increased profits, I need to take some of my writing away to more specialised blogs.

I have already created the Business Development Advice blog for my reviews of business development products by other people and it is starting to attract its own traffic from the search engines.

I want to write about more of the business books, book summaries and articles that I read but I don't believe that this blog is the place to do it so I have started my Business Books blog. Some book reviews will appear on both sites in a different form (although the ratings and buy recommendations will be the same) if I believe that it is particularly important for you to be aware of a book.

I will be writing regular updates so that you have the option to read about a book that may interest you.

I am also thinking about an Internet marketing style blog to take away some of those post which will appeal to some readers but perhaps not to the majority.

Your Profit Coach

Paul Simister

Business coaching for customer focused entrepreneurs

Writing A Better Business Plan - Free Report

Today's free guide will help you to write a better business plan.

I know everybody says "you must have a business plan" but have you really spent a few hours focusing your thoughts about the future of your business?

Probably not.

Preparing a business plan is one of those things that people know they should do but often don't do unless the bank manager is breathing down their neck threatening to take away the bank overdraft.

This is a waste of a great opportunity to get your thoughts down on paper both to clarify your thinking and as a record of what you think you want to achieve and how you think you will do it. It's only by having the record that you can see how your ideas develop.

I've written this before but there is an old saying "If you don't know where you are going, any road will do."

Your business plan will encourage you to make choices and that's important both in terms of what you will focus on achieving but also what you won't do.

If you find yourself getting easily distracted, not sure where you are going or jumping from one opportunity or another, then it is time to write a business plan and I have just the guide for you free.

Better Business Plans

Name:

Email:

Subscribe to the report and I will also send you my regular email newsletter packed with tips on how to succeed with your business. I do not share your email details with anybody, you won't get more than one email a week and you can unsubscribe any time.

What's In the Better Business Plan Free Report?

This 17 page report is packed with information:

• 8 reasons for preparing a business plan
   
• 5 factors for a success plan
   
• 11 questions to ask and answer when preparing your business plan
   
• Why your bank manager wants to check your PARTS
   
• A template for assessing the knowledge and skills you need for business success
   
• 9 questions to ask about your strategy
   
• The importance of customer demographics and market segmentation
   
• A guide to helping you to find your niche
   
• Positioning price v quality
   
• 10 questions to ask about your marketing strategy
   
• Are you in the right business sector? This is a critical issue if you are just starting your business and the business plan report helps you to assess your business risk across seven industry characteristics and seven internal factors.
   
• Checklist to make sure your plan is up to scratch for the bank manager

This great report can be with you in two minutes. Just fill in the form below and you will receive an email asking you to confirm the email address. Do that and the link to the business plan report will come whizzing back to you.

If you are already on my main email list and you receive the regular copy of Better Business Focus, you will receive your link to this business planning report in my next mailing.

Name:

Email:

Do you need to write a full business plan?

In my view the answers are:

• Yes if you are just starting out in business you need the full business plan
   
• Yes if you are looking to raise finance, bank managers expect a business plan
   
• Yes if your business is in trouble and you need to make some tough decisions. Just getting your thoughts down on paper, both about the current problems, their causes and what you intend to do can be very empowering. When you have a plan you will feel in control but without a plan, you are likely to be desperately fire-fighting.
  
  Start small and spend an hour writing our your thoughts about your current situation. The next day spend another hour writing down your ideas for the various options. The next day, look at your solutions and identify what is stopping you putting them in action.I am sure that you will start feeling in more control and won't see extending your business plan as busy work.
   
• No if your business is performing well and you just want to fine tune it, then you don't need to do the full business plan but I do recommend that you spend time outlining your current thoughts about where you are, where you want to go and your plans for crossing the gap. The more people in your business, the more the actions plans have to be developed.

Given the choice, I would much rather you prepare a one or two page business plan that looks at the big issues having given your business future two hours of thought, than not done anything at all.

As an example of how you can keep a plan, short and to the point, one of the key Guerrilla Marketing tools is the Seven Sentence Guerrilla Marketing Plan.

Seven Sentence Guerrilla Marketing Strategy

This is an extremely flexible idea which can be applied to your business or just to one particular advert or direct mail letter or any stage in between.

1. The purpose of your marketing - the one action you want your customer to do
    
2. Your key benefits
    
3. Your target markets
    
4. Your marketing weapons
    
5. Your positioning in your target market
    
6. The identity of your business - how you really are rather than a false image
    
7. Your marketing budget

Extending Your Marketing Plan

Your marketing plan is the core of your business plan but you can extend it by:

1. A brief summary of your strengths, weaknesses, opportunities and threats (SWOT)
    
2. Your key financial measures, now and what you want at the end
    
3. Your operational strategy - how you are going to make things happen inside your business

Download the Better Business Plan report. It will give you more ideas for how you can develop your business.

To Your Success

Paul Simister

Your Profit Coach, business coaching for customer focused entrepreneurs

© Planning & Control Solutions Ltd 2008 All Rights Reserved