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Sound Strategy

How good is your business plan?

August 28, 2014
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Businesses that develop and execute formal business plans consistently outperform those that have no formal plans. We’ve all read the articles and seen the statistics supporting that fact. In our consulting business, a keystone of the work we do with our clients is developing—and keeping the owners and their organizations focused on executing—sound yearly business plans.ts-472059753

Integral to those plans are market focus; product and service offerings; revenue forecasts; cost control and budgeting; organization and personnel development and financial performance. As our cleaning and restoration clients’ customers continue to evolve, become more competitive and are influenced by organizations, such as third-party administrators (TPAs) for insurance claims, the need to focus on business strategy grows dramatically.

What is strategy?

The term “strategy” can be a bit nebulous, and when asked, people will respond with many different definitions and interpretations. For the purposes of this article, I would like to boil the essence of strategy down to this: Understanding

  • The overall industry in which you operate;
  • The competitive forces that are present (not just those we typically consider, i.e. the presence and behavior of other organizations that do what we do);
  • The changes taking place that impact potential customers; and

How we decide to position and market our company to effectively differentiate us from our competitors in the eyes of our prospects—those people and organizations with whom we want to do business.

Competitive strategy is about being different. It means deliberately choosing a different set of activities to deliver a unique mix of value. You can consistently outperform your competitors only if you can establish, and preserve, that differentiation.

Don’t start too narrow

When smaller businesses go about crafting a business plan, they typically start with a revenue goal or forecast. Some call it a budget. Regardless of the term we use, it’s the target for which we’re shooting. This leads to the following questions:

  • Where are we going to get the additional revenue?
  • How can we find more customers who have a need for what we provide?
  • Who will value the quality, service, pricing, customer focus, etc. that we offer?

This thought process is very “inside-out.” It’s driven by asking ourselves who else we can find to buy what we’re selling. The result is often a “some things to all people” approach as we continually broaden the market segments (specific types of customers) we are serving.

One of the drawbacks of this approach is that your business is more vulnerable to being poached by your competition. Anyone who offers the same services you offer—and we know that there are more and more of them every day—can approach your existing customers and potentially give them a good reason to switch. It’s important to remember that your current customers are the target accounts for your competitors. They are where your competitors are going to go to grow their revenue.

Start with a broad view

Defining and driving our businesses with effective strategies requires a totally different viewpoint and thought process. It starts with a much broader view of our industry and the changes that are taking place. For the restoration industry, it includes elements like:

  • Property insurers utilizing multiple distribution channels to reach customers
  • online, in addition to agent-driven sales;
  • TPAs controlling a larger and larger percentage of property claims and forcing performance metrics and lower profit margins on contractors;
  • Competition increasing in many areas as new competitors enter the market (building contractors, as an example, who shifted to a focus on restoration work when construction markets shrank during the financial crisis);
  • Demographics changing with the Baby Boomer generation aging, resulting in continued expansion in the number of health care and nursing/elder care facilities;
  • A supplier to the industry—Lowe’s—purchasing one of the claims administration companies so that it is now positioned as a customer of restoration contractors, as well as a supplier for them.

These trends represent only a few of a large number of changes that are taking place across the industry and in your local markets. Our challenge is to interpret what impact these changes are having or will have on our businesses.

Do the changes represent an opportunity or a challenge for us? If, for example, you view the increasing control of claims by TPAs as a threat to your company’s profitability or to your access to losses, you could decide to pursue a strategy focused on obtaining commercial losses directly from property and facility managers, thereby reducing the impact TPAs would have.

Think like a customer

The other critical shift needed to build an effective strategy is to analyze your markets and customers from their perspectives, not the traditional “who else needs the services we provide?” view. This approach is driven by the concept of differentiation. The best way to take business away from your competitors—and more importantly, keep your competition from stealing your existing customers—is to provide value to your customers that your competitors do not or cannot. And by value, I don’t mean a lower price.

The more your customers integrate into or rely on your company, the harder it is for your competitor to approach them and say, “we can do all those things; you should do business with us.” This is an extrapolation of the “barriers to entry” concept put forth by Michael Porter in his well-known work on strategy. We have to think about our customers’ businesses and their needs but not just from the perspective of the services we currently provide. Let’s look at a hypothetical example.

Your market focus includes some segments of commercial property managers. It may be condominiums, class A office spaces, medical facilities or schools and universities. One of the approaches you use successfully is to develop Emergency Response Plans (ERPs) or agreements with your customers. These agreements may include building inspections and other loss prevention work, as well as link you into the customers’ protocols when damage occurs. Aside from the relationships you have with the people involved, there isn’t a lot preventing your competition from approaching those property managers with a similar proposal. But what if your company was able to bundle together a package of services that included some combination of janitorial, carpet and floor maintenance, window cleaning, landscaping and facility security?

A point to remember is that it is becoming more difficult to perform all of the activities required as productively as specialists. You may choose to partner with other contractors and outsource the delivery of some of the services you have determined are necessary.

In addition to increasing your total revenue from a single customer, you have now made it substantially more difficult—created a barrier—for your existing competitors to be able to replace you on that account.

Clearly, this kind of approach will force you to be much more selective in the markets you serve. In marketing terms, it is a “narrower and deeper” strategy as opposed to the “wider and shallower” approach that is typical in the restoration industry.

Developing a strategy is essential

Your specific market make-up will help determine which segments represent significant enough revenue and profit potential to justify the kind of deeper commitment I have described. Having defined the overall market strategy, the role of your shorter term business plan is to define the specific actions—we call them tactics—that must be executed in order to implement the strategy. What additional skills, capabilities, people or equipment do we need?  What partner-contractor relationships should we develop in order to expand the set of services we provide to our customers?

The bottom line is that differentiating your company from your competitors is becoming more and more difficult. Developing an effective business strategy, one that allows you to consistently outperform the competition, hinges on identifying a different set of services and delivering a unique mix of value in the customer’s eyes.

Tom Cline has a 28-year background in sales, marketing and operations. He currently is a business development advisor for Violand Management Associates (VMA) where he works closely with business owners and their key management staff as both a business consultant and an executive coach. To learn more about VMA's services and programs visit www.Violand.com or call (330) 966-0700.

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