Competing Through Quality

However, a plan is useless unless you use it to guide your business. That means taking it out of your drawer and looking at it, and thinking about it

Dear Dadu

Your last letter was very practical and I was happy to start working on my business plan in line with your suggestions.  However, one possibility is that I may not start a new business but take over an existing business. In such a case, is business planning very different?

Another question: is competing by offering lower price, higher quality and higher service the only way to compete?

Love,

Sudama

Dear Sudama,

Let me start with your second question.

Actually, there is another way to compete: by selling at a higher price than your competitors, since price affects perceptions of quality. Though such a strategy is usually quite difficult for people like us to achieve, if you can think of a way to do this, that would be wonderful. Let me explain the basic idea behind the approach in the following way.

What enables someone to sell at a higher price is the addition of enough perceived value. Think of Coca-Cola or of Nike shoes. Probably the contents of Coke are not much better than any other cola drink, and Nike shoes may not be that much better than competing brands of shoes. But Coke and Nike command higher prices because they have been able to build up an image of having greater attractiveness. The design of the product, and the marketing messages regarding the product, focus on the experiences and emotions that are sought to be associated with that product. If this sort of effort is successful, it contributes to creating what is called a “brand effect”, which usually takes time and consistent effort to build up.

However, in today’s fast-moving world, we see how Microsoft has been upstaged by Apple, and that in turn has been overcome by Google – which may be about to give way to Facebook or Twitter or some other company. So whether you can create “brand effect” is certainly something worth thinking about.

In any case, competitiveness can be achieved systematically by keeping your eye on two things: what is happening in markets globally, and what is happening in your business in relation to your business plan.

However, a plan is useless unless you use it to guide your business. That means taking it out of your drawer and looking at it, and thinking about it, and (if you do, or are willing to do, that sort of thing) talking to God about it, so that you can see the things that are going according to plan, and what needs to be changed (whether in the way you are running your business or in the plan – or both). It is helpful to set a date every week when you can focus on this for perhaps a few minutes or an hour, depending on how complex your business is and how quickly markets are changing.

Competitiveness in business is nothing but focus on questions such as:

  1. What is your goal for the next year or two, and what are the monthly, weekly and immediate next steps that are necessary to achieve if you are to get to your goal?
  2. Calculate all the essential expenses for each month (e.g. rent, electricity, travel, any salaries – including your own, however little or much you need from the business).
  3. List important business dates and deadlines so that you can keep these in mind and have a way of dealing with them. That includes community festivals and seasonal holidays because those will always impact your business for better or for worse.
  4. If you ask anyone else to help with anything regarding the business, make a list of the key things you have asked to be done – and by when.
  5. Do a sales forecast for the first year. Break it down into whatever makes sense (even if the only things you can put down are things like hours or days), along with the average price at which you expect to sell, as well as the average of what that costs you per unit.

In the case of an established business, a business plan needs to include:

* Growth Highlights – which provides examples of company growth, such as financial or market achievements (for example, exact figures about increased profit margins, sales volume, number of customers or market share). Graphs and charts can be helpful in this section to enable the reader to see things clearly at a glance.

* Products/Services – which of course describes your products or services (however, if this information is already clear from the Mission Statement, then don’t repeat yourself here; simply skip this).

* Financial Information – which must include information about your current bank and existing investors (that includes you!).

* Summary of Future Plans – which states where you would like to take your business, how much money this needs, and why.

If you have further questions about business plans, please let me know. Otherwise, let us go on to discuss a bit the actual process of business planning – because business planning is more important than the plans. Or perhaps I should say that while the result (the plan) is important, it is the actual undertaking of the process of planning on a regular and continuous basis which plays a key role in business success.

Love,  Dadu

Published in the February 2014 issue of the Forward Press magazine


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