Index Business Direction Feedback

3. Direction and strategy

Do you really know what your business is good at? Do you have a good idea of where you want to be in three years? Do you know if you are doing well enough to get there?

These may seem fairly simple questions, but it is surprising how many businesses fail to ask them. Businesses need to plan in the first place, but they also need to check constantly that they are on course.

One of the reasons why business-owners fail to plan properly is that they are too close to their business. Your time may be taken up with solving day-to-day problems. As a result, you may not have time to take a step back from the business and take a long look at it.

Another reason for this lack of planning is that many business-owners just do not have the relevant background and experience to analyse the business properly and make sense out of what is happening - because they are still in the early stages of running their business.

There are three main areas you need to look at in order to review performance.
They are:

  • Customers and markets.
  • Finance - particularly cash and profit.
  • Managing the operations - resources and people.

    A SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats) is a good way of doing this and is a sensible starting point to any planning. It is concerned with identifying your business's strengths and weaknesses, seeing what opportunities you have, and what the threats to your business are.

    A blank SWOT Analysis for you to use is shown below:

    SWOT ANALYSIS
    BUSINESS NAME:
    STRENGTHS WEAKNESSES

     

     

     

     

     

     

     

     

     

     

     

     

    OPPORTUNTIES THREATS

     

     

     

     

     

     

     

     

     

     

     

     

    Customers and markets

    A sound business must be based on meeting the needs of its customers. Despite all the jargon that surrounds it, marketing is simply recognising the needs of present and potential customers and then meeting those needs. Markets do not buy your goods - customers do. Markets are made up of a variety of different types (or 'segments') of customers. It is important to know which type you want to do business with. The more you focus on the right segment, the more likely you are to be successful - it is very difficult and expensive to sell to the world at large.

    Check your focus and direction by answering the following key questions:

  • The three main reasons why your customers buy from you?
  • What are your business objectives?
  • How often do you review your progress?
  • Which is your most and least profitable product/service?
  • Where is the biggest potential in your business and why?
  • If your customers did not buy from you, where would they go instead?
  • How has your business changed due to changes in the economy?

    To keep your focus right, bear these questions in mind and constantly review the way your business is going.

    Success in winning business is as much to do with solving customers' problems as delivering a core product or service. The only way you can solve problems is by getting close to your customers and maintaining a relationship with them.

    In order to solve your customers' problems you need to know what you are good at. What are your core skills? Once you have identified your core skills you need to focus on them. Core skills are developed over time from a lot of experience. The more specific you can be about your expertise, the easier it will be to market your business and find customers.

    Your core skills need to be recognised by your customers as well as you. If you find out why your customers buy from you, you have found out your competitive advantage. You can then promote that advantage in your marketing activities as a way of winning business.

    There are five key marketing areas that make successful businesses stand out:

  • Good at recognising and meeting customer needs.
  • Keep nearly as much information on customer trends as they do on their own finances.
  • Know their markets and are aware of the wider issues that affect their business.
  • Understand their customers because they constantly get feedback from them on their products and services. As a result they know how to sell to their customers.
  • Bring all these elements together which makes it easy for their customers to buy from them and to contact them first if a problem arises.

    There is more about customers and markets in Section Four

    Finance - particularly cash and profit

    Most business-owners are not interested in 'accounts' for two reasons:

  • They are "hard to understand".
  • They are "difficult to relate to current activities".

    Businesses need simple, quick, effective measures for analysing performance. It is better to have fairly accurate information available now rather than very accurate information that is out of date.

    The wise business-owner needs to:

  • know the business's 'breakeven point' and monitor sales compared to this point;
  • know the importance of 'gross margin' (sales less cost of sales);
  • manage cash flow; and
  • control fixed costs.

    Remember: "Cash is king!"
    Many businesses fail because they run out of cash, even though they are profitable. There is more about cash and profit in Section Five

    Managing the operations

    Many businesses cannot easily tell whether they are making the most efficient use of their machinery, time and space, or whether they are producing too much waste and letting the quality of their products slip. It is essential to have simple measures for setting standards.

    There are four key areas to consider to make sure your business is as effective as it can be:

  • Make the best use of all your assets - people, machinery, space and so on.
  • Use all resources efficiently. (Remember - time is the most valuable resource of all.)
  • Meet quality standards such as few rejects and no customer complaints.
  • Keep waste of materials and time to a minimum.

    You will need to ask yourself:

  • How well do I manage my operations?
  • Where are the key areas for improvement?
  • How do I solve problems and make the improvement?

    The key areas for you to look at will be those where your performance is below the standards set for the use of assets, efficiency, quality and waste.

    A business with a clear focus and direction will be in a position to predict problems. Products and markets go in cycles. A well run business sees far enough ahead to predict the decline of a product or market and do something about it. To sum up: A good business-owner wants to control the business rather than be controlled by it.

    If your focus is short-term then you are being controlled by your business. By taking a longer view and having direction, you have a better chance of controlling your own destiny.

    There are four key questions to ask yourself regularly:

  • Where am I now?
  • Where do I want to be?
  • How am I going to get there?
  • What might get in my way?

    You probably won't be able to answer these questions with complete certainty and your answers may change over time. But they are still important.

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