Beautification Needs to be Measured

The purpose of development is to increase peoples quality of life in order to make them happier so beautification and art projects are often included in many development plans. However when beautification is one of the tactics an economic or community development organization uses there needs to be some gauge to determine the impact of the project or to measure beauty.
It is of course challenging to try to measure something so abstract as beauty or happiness, however, such measurements are necessary to know if ones efforts are effective. After all there are many things that could have been done with the millions, even billions of dollars spent on beautification projects every year.
It's also important to remember when working towards getting some public art installed that the purpose of development is to service a community, not to service an elite few. I would argue that creating art for the sake of a small elite segment would be and is no different then developing the economy solely to help the richest people in society. In other words having arts entities control public art is a mistake, all public art should be controlled by the public in some way.
With all beatification projects pre and post surveys should be conducted to determine how much the people of a community would want a specific beautification project would do, to determine what types of projects people would prefer and what impact the project had on people over all.

Crowd Funding for Business Development Organizations

Economic Development Organization looking for new ways to expand existing businesses have only a few options traditionally as many traditional strategies are held back by a lack of capital. It's a lack of capital is what prevents many businesses from expanding and entrepreneurs from starting up. Those who have reached out to entrepreneurs or even existing small and mid-sized businesses will likely have heard that they would love to expand, love to start a business but they don't have the money to do so. This situation is worse with business lending down and not likely to improve soon. 

With new technology has come new methods of helping businesses to raise capital which include Crowd Funding, Peer to Peer Lending and with luck some new Micro-Equity options.

Crowd Funding

A means of financing a project or business in which the businesses reaches out to the public for money, offering goods or services in return for a financial advance. For those who haven't I would recommend looking at Kickstarter.com and Indiegogo.com.

Peer to Peer Lending

Allows a company to seek small loans from many ordinary people. To learn more about this go to kiva.org and prosper.com

Crowd Funded Equity

Just legalized in the United States this program allows small businesses to sell shares of their business via crowd funding. You can learn more about this at http://www.practicalecommerce.com/articles/3472-Equity-Crowdfunding-Is-Now-Legal-in-U-S- and http://www.delawareonline.com/article/20120424/BUSINESS10/120423036/Investor-risk-rises-crowdfunding-gets-easier?odyssey=tab%7Ctopnews%7Ctext%7CBusiness

Economic Development Program

The challenge to crowd and peer funding for businesses are that;

1-It's always difficult for businesses to get the word out about their program

2-It's difficult for people to find programs in their neighborhood which they can help to fund.

3-It's difficult for those providing money to know who to trust, this is especially true now that equity is an option in crowd funding. 

As the economic development organization for a region you can aggregate and endorse projects and businesses you trust in one place; linking out to external sites like Kickstarter and Kiva while also running your own crowd funding projects when necessary. In addition to this you can also start a small venture capital organization which would allow you to meet with gather together and easily communicate with those interested in funding small local businesses. 

You must keep in mind that such crowd funding can carry big risks and take steps to protect investors and eliminate your liability for posting companies you like.

Forming the Venture Capital Group

Selecting Projects

Great care must be given by the economic development organization when selecting projects in order to try to select those which are most likely to succeed. The organization should review the business owner and officers histories, business plans, and at times should require that they agree to receive additional support if their company gets into trouble.

Managing the Site

The Economic Development Organization needs to develop a website where they can list each of the crowd funding projects within a community in order to direct those interested in such projects to a single location.

Promoting the Venture Capital Site and Organization

Remember ROI (Return on Investment) is more important then the number of people reached.

No organization has the money to reach everyone they could potentially reach and then convince them to donate to a project. So the first rule of marketing is that spending money on the medium with the potential to reach the most people is worse than meaningless it’s a waste of time and money which could have been better spent elsewhere. What’s important is spending money where its possible to make the most profit per donation.

This is why in most cases the Economic Development Organization should do most of their promotions online, because even though only 70% of the population is online, they are usually wealthier, donate twice as much to charities, and it costs 1/4^th as much money to reach people online as it does to reach them offline.

Three Pillars of Promotion

The three primary methods by which you should promote your Venture Capital Organization should most likely be Public Relations - especially online public relations but also through more traditional media relations wherever possible. Search Engine Optimization (SEO) the method by which the likelihood that people will find a site while simply browsing the web is increased. And through Social media.

Continuing to Get the Word Out

In order to insure success your organization also needs to continue to reach out to those interested continue to remain interested and get information about new businesses looking for funding. In order to do this you should;

1-Create a Facebook, Google Plus and Twitter Page for the Venture Capital Organization and direct them to follow one of these. 

2-Send out Email newsletters to members and interested parties. 

3-Hold special events for those who are members of the venture capital group in order to allow businesses to pitch them directly and to show appreciation for their efforts.

There are many other aspects of this program which go beyond the extent of this article but I will continue to post on how to perform economic and business development through crowd and peer funding programs as time goes on.

Demand

While I have argued that the United States as a whole needs to focus on productivity, individual communities within the country often face demand shortages. There are many retail stores, providers of services and manufacturers which have a lot of down time because they have so few customers.

lack of demand is a big problem for the 'Inner Cities' which typically have the empty properties available for stores and the people available to work but which don't have enough customers buying their products and services to allow for more and larger businesses.

Whole industries such as the Art Industry face the problem of more productivity than there are customers.

Improving demand for a communities businesses can involve; helping existing businesses to better promote themselves, helping to attract new businesses which will attract additional customers to an area, beautifying a community, attracting new residents to a community, and or promoting the community as a destination.

Helping existing businesses to better promote themselves.

When a community has engaged and active businesses programs which provide businesses with marketing support and training can be the best means of bringing additional customers to a community. Keep in mind when helping businesses promote themselves that the goal of economic development isn't to create five star restaurants or fancy pants establishments, the goal is to improve the quality of life. This means that low cost dollar stores, thrift stores, and other similar establishments can at times be more important to a community than any nice restaurant would. Japan, Taiwan, the nations known as the 'Asian Tigers,' and China all grew their economies by starting with the creation of cheaper products which created the wealth, knowledge, and infrastructure necessary to create other products. 

Business Attraction

Often times after demand falls within a community business engagement does as well and this lack of business engagement causes demand to fall further. In addition the business apathy created by this cycle of falling demand means that local businesses may not be interested in help increasing demand for their products, or worse may be interested but will make very little real effort to help themselves, expecting the development organization to do the bulk of the work. When this occurs business attraction is often the best option for increasing demand within a community.

Attracting new businesses to a region, especially one which faces serious blight and has a lot of businesses leave it in the past is very challenging. Many of the steps involved in this are similar to those involved in marketing and require;

Demographic/Psychographic Reviews - Appeals to attract businesses and entrepreneurs need to be targeted to be successful. Remember that any move to a new location requires that the move make sense for both a persons businesses and the person themselves.

Comparative Advantages - When pitching a region to a business you must explain the advantages of moving their business to that region over another. This means that before businesses can be attracted advantages for various types of businesses must be found or made.

Promoting the Region - Perhaps the most difficult part of promoting a region to prospective businesses and business owners is knowing who to contact. One solution to this problem for neighborhood economic development organizations is to reach out to entrepreneurs by offering therm workshops on how to start the businesses you are trying to attract.
When promoting a region always remember to be specific, people are bombarded by hundreds even thousands of messages a day so you need to speak specifically to the individuals you want by saying the type of business you want. Often times the more specific you can be the more likely you will be to get someones attention. 

Increasing Productivity

For the purpose of our discussion productivity is the value of the products and or services being produced by a person. When things work as they should the value a person creates is tied to the amount of money they earn, further the more value (money/capital) which is created the more money there will be to hire additional people, and the more money will be spent to create additional jobs.

Improving Productivity is one of the single most important parts of creating jobs and increasing wages. 

I would argue that in the United States education and training are the best way's to improve productivity as these each help to improve worker performance as well as technology as more knowledgeable people demand and create better technology. Along with education improved technology, efficiency, better leadership, and infrastructure all play their part in improving productivity.

Improving productivity is especially important in the United States where demand currently exceeds productivity by hundreds of billions of dollars a year. 

Education as a means of Increasing Productivity
One of the biggest challenges we face in educating people to find work and earn more money is that many of the jobs which are available didn't exist when people started college or high school. Further there is a tendency to have more people learn a specific skill then there are job openings for that skill which means that many people won't be able to find jobs.

In order to deal with this problem there needs to be more short term educational options for people which allow them to learn new skills or to improve upon there existing sets of skills cheaply. This can be done through new means such as Education Badges and Moocs (such as those at http://www.mooc.ca/) and other online seminars and training sessions, as economic developers and development organizations we can discover what people need to learn and pull together the resources to help them learn it.
In addition to these newer means of learning there are more traditional methods such as workshops, apprenticeships and consulting.

Education and Business Development
Within the field of economic development there has often been more emphasis placed on fighting other communities for resources rather than developing resources within a community. The problem with business attraction is that it is a zero sum game in which one community will win out over another but it creates nothing. The advantage to business attraction is that allows a community to gain a known entity, and brings additional brain power into a community. However, by helping the people within a community learn the skills they need to start and or improve their businesses we provide the people we serve with new opportunities while creating money which wouldn't have existed without these opportunities. Creating new value also means that nearly all communities can improve, and is a great option for those communities which will have difficulty attracting new businesses.

When developing educational opportunities for business owners one must keep in mind that they will learn more from a series of workshops than from a single workshop and will learn more from consulting than from workshops. Unfortunately a series of workshops costs more time and money than a single one and consulting costs more money than workshops.
Technology can be used as a means or reducing the cost of increased knowledge through the creation of online workshops which business owners can review as they have time. Further the business owners can send their questions via email and than these questions and the answers to them can become part of the information included on the workshops site, decreasing the number of questions which need to be answered and increasing the knowledge of all the businesses involved.

Such workshops should not be used to replace direct business consulting when this is possible as consulting provides business with specific ideas and knowledge which they need and allows businesses to keep their secrets private. 

Biases


Avoid Biases
In some ways you are the biggest danger to developing a successful strategy because you, like everyone else, are full of biases. There are things you want to engage in, emotions you have, ideas you hold to be true that all contribute to the choices you make. The problem is that many, if not most, of these gut reactions won’t lead to the best possible outcomes.

McKinsey points out that “good analysis and good judgment don’t naturally lead to good decisions as the process is also crucial.” In other words, no matter how smart and capable you are, you don’t necessarily make good strategic choices. So you must “Never trust your gut. You need to take your gut feeling as an important data point, but then you have to consciously and deliberately evaluate it.”

Ultimately, your gut is based on emotions, on split-second judgments that “the weighing of emotional tags associated with our memories rather than by conscious weighing of rational pros and cons: we start feeling something–often before we are conscious of having thought anything.” To deal with this you need to develop strategies to rule out strategies rather than simply to confirm them. Warren Buffett does this by hiring an advisor who is against a deal he’s thinking of making. More importantly, he pays that advisor a bonus if they can prevent the deal from happening through their arguments against it.

Use Biases
At the same time as you are avoiding biases, keep in mind that your competitors will tend to have the same set of natural biases. Good strategies work in such a way that your competitors--either because of physical or mental blocks--won’t be able to respond in time to prevent you from increasing your market share. Thus, you can take competitor biases into account when developing your strategy in order to try to create a plan which they will likely be slow to respond to.




List of Biases

Bias Blind Spot
You, I, and everyone else will tend to see ourselves as being less biased than other people, less biased then we actually are. I put this common bias first because as you take the possibility that you might be biased into account, you must realize that you are often less likely to presume that you are biased than you actually are. This is why it’s so important to listen to others and to not only encourage others to challenge you but, at times, to require it. Warren Buffett will sometimes even go so far as to hire people who get a bonus if they convince him not to go through with a deal he thought was a good idea.
Common mistakes exist and are repeated because, as humans, we all rely on a brain which is generally structured in a similar way one to another; a brain which sadly isn’t always perfect. Because of this, an important part of being successful is recognizing what aspects of our thinking are likely to cause these mistakes to come from so that we can avoid them as much as possible.

Anchoring
The tendency to spend too much time focusing or worrying about a single piece of information when making a decision, rather than being able to look at the situation as a whole, is complex. Anchoring occurs because, with dozens of pieces of information out there, it becomes difficult to take everything into account the way we should. So we focus on very few aspects of something to make our decisions. This is one of the big reasons economic gold rushes occur. Because a few aspects of an industry seem to be perfect, we become unable to take into account the more complex information that would tell us that there might be a problem.

While knowledge can be a valuable tool in combating this bias, this bias exists because of our inability to easily keep track of our knowledge. The key to combating this bias then is to be organized, to develop a list of the knowledge which would help us make decisions, and then being organized enough to review those many pieces of information to make the right decision.

Bandwagon Effect
Also known as groupthink, this occurs when people go along with the crowd or do what their boss wants. This is not to say that they will simply give in or don’t have enough of a spine to disagree with what the crowd wants, rather, this is to say that their own beliefs will change to fit those of the group. This is especially dangerous because doing things to encourage people to speak their minds may do nothing to prevent people from thinking what the group has already decided. This is why individual thinking time is important so that people can come to discussions and meetings with some idea of their existing beliefs. This way you are better able to get ideas from many sources rather than a single one.

Confirmation Bias
Rather than trying to discover the truth, humans will subconsciously search for information to confirm what they believe or disprove what they don’t believe. Along with this, any information we take in may automatically be interpreted in such a way that we think that it confirms what we already believe. The backfire effect is similar to this in that it occurs when evidence which proves we are wrong only increases our existing beliefs.
One could argue, then, that our existing beliefs alter how we perceive reality rather than reality altering our existing beliefs. This is why the scientific method involves trying to disprove a hypothesis rather than trying to prove it. I would argue that this idea of trying to prove your idea wrong is an important part of determining which course of action you should take.


Semmelweis Reflex
A reflex which shows that people tend to reject, or not take into account, anything which might contradict their established beliefs and ideas. In some ways this is much more dangerous than the confirmation bias because, while we might attempt to get around our confirmation bias by looking for information to disprove our ideas, we may not always pay attention to the information that we receive. This is one reason why diversity is cited as an important part of developing new and fresh ideas because different views have different natural biases. The danger when planning for diversity is to presume that alternative ideas come from demographic diversity. However, demographics are not an indicator of diversity in thinking; thus, it’s important then to think about psychographic rather than demographic diversity within your organization.


Irrational Escalation
As people invest in a project, they become more and more likely to continue to invest in that project no matter how much evidence comes to light that the project is likely to fail. This occurs in large part because people feel that they have to recover their investment and so hope that by continuing to put money into a poor investment it’ll eventually pay them back.

It’s important to remember that the amount of money you earn from any investment is curtailed by the amount you could have earned had you invested in something else. In other words, if you invest $10,000 in one tactic which will return $13,000 when you could have invested $10,000 in a tactic that would have returned $16,000 then you have lost 3,000 potential dollars. So no amount of previous investment justifies further investment if there is something better you could do with your money. If a project is struggling, you need to reanalyze the resources you need to put into it and compare this to the resources you could put into something else while completely ignoring the amount of previous investment because it is already lost.


Mere Exposure Effect
The more we experience something, the more we’ll like it. So the longer you work on an idea, the more likely you are to like the idea. This is dangerous because it prevents us from actually judging existing thoughts and ideas properly. This is why you need to test the marketing you’ve developed on other people in order to make certain that you don’t just like it because you’ve been looking at it for so long.



Negativity Bias
When people have a negative experience with something, they will tend to give more weight to that experience than they will to positive experiences or statistics. So if a tactic is normally sound, but you’ve had a bad experience with it, you are less likely to try it again regardless of the likelihood of statistical success or changes in the environment. This bias can be especially useful in predicting what your competitors will likely do or how they’ll react as it may be possible to see which of their tactics have failed and so predict that they’ll be slower to respond to similar tactics.

Neglect of Probability
The less certain we are about the outcome of our decisions, or the less information we have with regards to a certain tactic or strategy, the more likely we are to ignore the statistical information we do have. So when something seems to be uncertain, we tend to be more susceptible to our natural biases.


Normalcy Bias
People tend to focus only on what their experience has shown them is likely to happen and so won’t plan for disasters which haven’t happened. This, for example, is one reason why people have tended to underestimate the impact of some of the major disasters we’ve had recently. It’s also why many businesses underestimated the impact which the recession, changes in technology, gas prices, and globalization would have on their business.



Planning Fallacy
We tend to think that it will take less time to do something than it actually will; thus, we should always try to plan for things to take substantially longer than we think they will in order to mitigate this effect.


Status Quo Bias
Many people don’t like change. Once they’ve established a rhythm, they want it to continue on forever. This is why so many strategies remain rigid even as the world changes around them depleting their resources. Perhaps the biggest danger of the status quo bias occurs when what was the status quo was in fact the best situation for a business, yet the world has changed around the business so that the status quo they once knew no longer exists.

Take, for example, the book industry which reached a near perfect balance for large retailers, publishers, and distributors that allowed them to continually grow and earn profit while keeping smaller competitors from entering the market. Then everything changed in such a way that they stand to lose money. Rather than realizing that many of the loses are inevitable and trying to find a way to deal with them, however, most businesses have refused to accept the changes and have so failed.

You must understand that the world, the status quo, will change and many if not most of these changes will destroy much of the money you used to make. In order to survive, you can’t pretend that the status quo isn’t changing. You can’t pretend that globalization, recessions, bubbles, technology, etc. don’t exist because they do. I have repeated this throughout this book, but it bears repeating. You must adapt your strategy to the reality that exists or that you can actually change. Yes, sometimes the reality is that you are going to earn less money in a specific industry or with a specific niche than you used to which is why you must also be able to find new sources of revenue.

Think, for example, about Apple, a computer company which now earns billions of dollars on music, or Disney, a movie company who now earns more on theme parks than they do on their movies which has allowed it to survive while most entertainment companies have been bought out by someone else.


Ambiguity Effect
When people avoid doing something new or something because they feel they don’t have all the information for it, they have fallen victim to this bias. It’s important to remember that there is no such thing as perfect information, and you have to do something different from what’s being done in order to pull ahead of your competitors.

An example of this is the reason companies were slow to begin running Internet marketing campaigns. Indeed, most companies have only recently jumped in even though the cost of search ads, for example, has more than tripled. Any business which had tried this method of marketing sooner was more successful.


Ostrich Effect
I have noticed that almost all the businesses which started to slide into the red would tend to ignore what was happening and continue to pretend that they didn’t need to immediately implement some form of emergency strategy to deal with the problem until it was too late. This is why so many music retailers and book retailers seemed to ignore the impact that the Internet would have on their strategies until it was too late. It is also why so many businesses ignored the impact the recession was having on their strategy until it was too late. You cannot hide from a negative situation, nor can you assume that a negative situation will simply turn itself around. You need to be adaptable, to be able to change your structure in order to remain in business.


Disregard of Regression Toward the Mean
We tend to believe that whatever situation is occurring is likely to continue to occur no matter what is statistically likely. This is why we presume that we should continue to gamble during a winning streak, for example, even though we eventually have to lose and our chances of winning are the same regardless. This is also why people continued to think that the housing market would continue to increase in value forever even though most industries will eventually have to level off or decrease in value. Never assume that growth or other impressive events will simply continue on. You must plan to find ways to replace existing growth or deal with problems that arise because they will eventually happen.

Gold Rushes and Bubbles

I use “gold rush” as a term for excessive growth in a specific industry which crashes but doesn’t end in a general recession such as the temporary over-interest in Beanie-Baby-type plush toys. Like a gold rush, a bubble is an over-excessive interest in a single market that ends with such a dramatic crash that the economy as a whole suffers.

While there have always been bubbles and gold rushes, the increasingly chaotic nature of capital along with the increased number of people will likely continue to increase the occurrence of bubbles and gold rushes. As time goes on, we’ll find more and more of the world’s capital is held by private people and is no longer under the control of major institutions. In other words, non-savvy investors will continue to have an increasing pull on where money goes, which means that decisions will be made by people with very little understanding of the market. Further, because these people can buy things instantly over the Internet, we’ll find that these transactions occur quickly. So if people are prone to panic or to get excited about something, then money will move in mass regardless of what more-experienced investors and buyers might think.

Another challenge we’ll face is that there won’t necessarily be a substantial increase in the number of companies that exist simply because there are more customers or more regions to service. This means that while lots of new companies will enter most every industry, as the market for that industry grows in places like China, India, and Brazil, either the new companies will put existing businesses out of business or will go under themselves over next decade or two. This means that every new market presents dozens of gold rushes or bubbles. So your strategy has to be increasingly aware of the dangers and opportunities presented by the dozens of gold rushes which will alter society.

Avoid the Gold Rushes and Bubbles

Gold rushes and economic bubbles are emotional responses in which people over-exuberantly seek after something by investing more time and money in it than the market can return to it. I use the term “gold rush” to describe this because of the fame of the gold rushes in Alaska and California in which tens of thousands of people gave up everything to travel across the world in search for gold, but only a handful of people actually got rich in their search for gold. Similarly, Warren Buffett points out that thousands of car companies once existed, but most of them went under so for a while there were only three car companies. Most recently, thousands sought a safe investment in housing only to have that industry and the value of their property and the loans associated with housing collapse. Gold rushes lure people in with promises of easy riches that rarely ever pan out for very many people in the long term. Because a gold rush is something many people rush into but few people earn money on, a gold rush doesn’t have to be large or global; it can also be small. A few years ago, dozens of new playing card and plush toy companies started up to take advantage of what seemed to be rapidly growing industries with a low barriers to entry, but most of these new companies eventually failed before these industries reached much more than a billion dollars in revenue. So while the social impact of most bubbles is minimal, their impact on the businesses connected with them can be substantial.


Identifying the Gold Rush

1) Rapid value increase.
Anything that increases in value rapidly is in serious danger of collapsing, but this is especially true if its value is increasing much faster than the money it’s generating. This is what happened with the dot-com bust. The value of the dot com businesses increased faster than their actual earnings did. It’s important to realize that this doesn’t mean that the Web wasn’t worth what people thought it was; it just took a lot longer for it to get there than it did for people to invest in it. Further, much of the value of the Web wasn’t yet understood. Search Marketing, Rich Media, Social Networks, logistics networks to support large Internet retailers such as Diapers.com--none of these things existed in a substantial way before the dot-com bust. These were the things, however, that needed to exist for the Internet to meet its full potential. So without them most Internet companies crashed leaving many who entered it early without jobs and many of those who invested in it with huge financial losses.

2) Lots of competitors but only a few possible winners.
Business tends to be about consolidation. Hundreds of car companies turned into three companies, for example. As a general rule, if there are a lot of competitors in a field that is new, most of them are going to fail to make money when the smoke clears. This means that while an industry can continue to grow in revenue, the likelihood of succeeding in that industry can be low. Online video went through this same thing with an untold number of companies trying to start streaming companies only to have their business fail even as the revenue that companies like YouTube, Hulu, and Netflix increased.

3) Barriers to real growth.
The growth of an industry is based on resources that may be limited or which have suppliers or governments which are likely to block its growth. This is essentially what the gold rush was. There was only so much gold to be had. So, in the end, only a limited number of people could get it. This same event happens a lot at the local level. If a new major business moves in and promises to buy from three or four vendors, then dozens, sometimes hundreds of local vendors, will build their strategies around getting that limited pool of money, which means that dozens or hundreds of businesses will fail. I saw this same thing occur in Philadelphia where Casino moved into the area, and suddenly hundreds of businesses were trying to build their strategy for survival around becoming one of the five or six vendors Casino hired.

Another common, limited resource which far too many small businesses go after is Oprah. Out of the hundreds of businesses I’ve spoken with, nearly a quarter spent a significant portion of PR strategy on trying to figure out how they might get on Oprah’s show. Yet she can only have a few hundred out of millions of potential guests a year.

4) Increasing amounts of excess product.
This occurs when something grows in such popularity that people build more of it than is actually needed. This can be said to be partly what was responsible for the housing bust. Millions of new houses were built that had no people living in them. In fact, more houses and condos were built than people would realistically buy. So eventually, the companies building houses had to go under, and the value of houses overall had to fall.

5) Creates its own change in society.
Some industries change society causing production costs to increase or prices to decrease. Take the consumer electronics market, for example, in which products such as microwaves saw rapid declines in the price points they could sell for as the number of companies competing in the industry grew to meet increasing demand. Ultimately, these lower price points destroyed the earnings that the companies which made them could expect, putting many of them out of business.

6) Over-zealous promotion.
Ads and news reports about how great a business field is to get into saturate the airways,. The business field suddenly inexplicably gets its own category in financial news even though it only makes up a small portion of an overall industry or economy. Sure, exuberance can signal increasing value, but it also lures more people into a small industry than can actually make money at it. Remember that new entrants hurt your business’s strategy so it can become impossible to build an effective strategy in an industry that has thousands of new entrants every year.

7) Fads.
It’s often hard to predict what’s going to be a fad and what’s not. However, things like collectibles, fashion, and cultural movements are very often fads which pass with time. If you are over the age of 3o, you should be aware that a number of cultural movements have come and gone in your lifetime or at least have shrunk substantially. Grunge, Gothic, Punk, and now Hipster movements have all seen their market base start to deplete or alter forcing those businesses focused on catering to these groups to alter or go under.

8) Easy to replace and pirate.
Replacement products and pirating have become a way of life and will likely destroy most creative industries. We have already seen the music industry crash due to pirating. Manga, which was also growing in popularity rapidly, has crashed in the United States due to online pirating of the books. Computer games could be next as people discover new ways to get their favorite products for free. Moving beyond the entertainment industry, creative industries such as web design and logo design could run into trouble as template websites grow in popularity making it easier for companies to replace or reduce the amount they pay these designers. Indeed, in the modern world, technology and global competition can threaten to replace the products of any American business.


Current Bubbles
There are three primary bubbles which currently exist; the "Green Economy," social media and China.
Green Technology is a bubble because it utilizes rare earths - a limited resource which hinders its growth and because only a small percentage of the businesses in Green Tech well succeed in developing a new technology while most well go under.
China is a bubble because China hasn't developed it's own brands and so the manufacturing which has allowed it to grow can be moved. Further so many people have rushed into the economy that they have over stimulated it.
Social Media has created more excitement than it's current financial value should indicate. When the valuation of Facebook is believed to be approaching a hundred times their earnings it should become obvious that their value is over inflated. As of yet almost no one has figured out how to earn solid money on social media.


Embracing Gold Rushes and Bubbles

The idea that bubbles are all bad is an extreme oversimplification. Bubbles rapidly advance society and create infrastructure. What’s bad are the shattered dreams and lost jobs that happen after the bubble. So those are what we need to avoid while embracing the good aspects of bubbles.

Positive Aspects of Bubbles to Take Advantage Of

1) Bubbles can rapidly advance society.
Imagine where we’d be without the railroads or the thousands of entrepreneurs who worked to find better ways to create automobiles. Think about the Internet and how much that has advanced many aspects of society. At least in cases not involving speculation or limited resources, bubbles come into being in part due to something expanding faster than the rest of society can support it. The dot-com bubble is a good example of this in which IT companies came into being and developed new technology faster than society adopted those technologies or people were able to figure out how to make money of them.

2) Bubbles create infrastructure.
Bubbles leave behind a new infrastructure that can be used not only to recover from the bubble but to continue to drive the economy. Railroad mania created the infrastructure for American manufacturing to grow. The Mississippi Company bubble advanced paper money which helped improve commerce. There would likely be no Google without the dot-com boom, and imagine for a moment what California might be like without the Gold Rush that went bust. Silicon Valley is in California for a reason. Would it exist if California weren’t a highly populated state?

Warning! Not all bubbles create great infrastructure, however, as the government tends to outlaw certain things after their bubbles burst, typically involving finance. Imagine if after the dot-com bubble, the government had outlawed Internet companies, or if after the railroad bubble railroads had been outlawed? This is exactly what happens every time there’s a finance bubble.
Why do you need to know this? Because with the government tying the hands of the infrastructure that drove the economy or an industry for years, economic recoveries take longer. So you need to react differently to these types of bubbles than other ones.



Taking Advantage of a Bubble

Taking advantage of a bubble is tricky at best. Again, the reason it’s a bubble is because so many people are rushing into it that most of them won’t earn money. There have been, of course, a number of millionaires who came out of a bubble even as their companies failed. Further, the chaos-created bubbles give companies an opportunity to move ahead of their competitors or to consolidate and solidify their position as a leader.

1) Get in early or late.
The first thing you need to determine with any bubble is if you should jump into it early on or later on. Technology is often easier for late entrants rather than early ones. GM came after Ford and hundreds of others and superseded them, and Toyota came way after all of them. More recently, Google, Facebook, and a number of the other new online tech companies entered the field after the dot-com bubble had collapsed to become the most successful companies in their industry. Entering late offers the following advantages: it allows the new entrant to see how the existing companies are weak; those coming in later can learn from a number of failed strategies and have more of a knowledge base to build their initial strategy on.

In other fields, those coming in early have the advantage. Coke in the cola industry comes to mind. They gained the early mover advantage because there was so little difference between them and competitors that being first gave them the right to call themselves the original. Further, coming in early can allow a business to earn a war chest or to spend on infrastructure which will allow them to survive after the bubble pops as Amazon.com did during the dot-com bubble.

2) Take advantage of the infrastructure once it is in place.
At the end of a bubble the infrastructure is in place to continue growth in an industry. At the end of the dot-com crash, Internet companies started finally making serious money, and people had just started to really use the Internet in large numbers. Thus, web designers among others were able to continue work after the dot-com bubble if they had developed a good skill set. At the end of the railroad bubble, companies started making a fortune using railroads in manufacturing. Auto repair places still continued after and because of the auto bubble because the number of cars sold didn’t decrease when most of the companies making cars failed.

Again, I would caution you to think about how the government will react to a bubble bursting because if it chooses to prevent the use of the infrastructure to create businesses and improve the economy as it does all too often, then you won’t be able to take advantage of this infrastructure.

3) Sell to the bubble.
The people who grew wealthiest from the gold rush were not looking for gold. They were the people selling flour and shovels to the people who were. In order to go into business in bubble companies, and depending on the size of the bubble, it can be possible to earn a lot of money selling these things to them. After all, a bubble exists because people are investing more in an industry than that industry will return. So if your products or services are what they are investing in, you will earn much more than they do.

There are two things to realize when you’re doing this, however. First, there is a danger that those selling to the bubble will increase so much that this will become a bubble in and of itself, and second, there is a danger that when the bubble bursts, the market for your products will dry up. So you must prepare for this by using your money to take advantage of the aftermath of the bubble or to expand your business so that you are less dependent on it.

4) Prepare for the recession.
The end result of many bubbles is a recession or an industry slump, and it’s during a recession that most firms pull inwards making them less able to develop their brand, innovate, build their customer base, or respond to changes in the market. Further, during a recession, many companies make serious mistakes which put them out of business, leaving an opening for someone else to step in. This means that a company that is able to act quickly and nimbly in a recession and has a plan to build its market share and innovate new products can come out of the recession much larger than when it went into it. Bain states that it’s during such times that smaller companies are best able to pull ahead of their larger rivals. So by seeing a recession coming, you can begin to save money and plan a strategy to replace companies which can’t compete once the recession occurs.

Develop Competitive Advantages

Every successful business has a few things that makes them stand out, which allows them to earn money despite fierce competition and the fact that many other businesses falter and fall behind. These are competitive advantages. Although there are potentially dozens of sources of competitive advantages, there are two primary categories which provide advantages; customers and products. These primary categories of competitive advantages provide your customers with a reason to purchase your products. Everyone is trying to develop primary competitive advantages so to do this you often have to develop supporting advantages which allow you to gain an edge over competitors in developing primary advantages. There are three supporting categories of advantages which allow you to better improve upon the primary advantages; personnel, structure, and resources.
So while you need to have some primary competitive advantages to attract customers, one must not underestimate the importance of supporting advantages. Wal-Mart, 7-Eleven, and McDonald’s can only provide quality service at low prices thanks to their structural advantages. Toyota built high-quality cars thanks to its employees and its structure. Starbucks has great customer service thanks to its employees. What we see then is that while customers might only see and buy from a business based on its products or its customer service, what allows some businesses to succeed while others fail is often advantages which allow that business to spend the money or get the personnel necessary to build better quality, lower prices, better customer service, etc.

While it’s theoretically not impossible for any one company to be good at everything, it has proven nearly so even for companies with billions of dollars in resources. Further, because you are using limited resources, it is important for you to focus your efforts on those things that will give you a distinct edge which you can afford to do with the limited time and money you have. Focusing does not mean giving up on other aspects of the business. Even if you choose not to make customer service the center of your business, you can’t suddenly not care about your customers. In other words, while success is about focusing in order to become extremely good, it’s also about being skilled at a number of different things.





Customer-based Advantages

Brand, Target, Service, Marketing, Ease of Purchase, and Reduction of Concern

Customer service is about more than simply being friendly and helpful although these can be a big part of it. The primary purpose of a customer-focused strategy is to find ways to reduce the barriers that might prevent a customer from making a purchase. For example, many customers don’t buy because they’re worried they’ll find a better price the next day which is why a number of stores have a guarantee to match a competitors’ price. Other stores have grown more lenient in their return policies as a means of convincing people to try their products they are unsure about. Remember that sometimes even customers who want to buy your products and have the money to do so won’t ultimately buy. They’ll put everything in the shopping cart then leave it and walk out of the door because the line is too long because they feel uncomfortable because the store is too crowded, or they will be uncertain which of the dozens of products are better and so will get none. Finding better ways to deal with any of these issues can give you an advantage.

It’s important to understand that any company is faced with two issues when it comes to making a sale; first is the emotional risk which a customer feels when they think about committing to a purchase. Everyone worries about making any form of commitment in both time and money. The commitment to any one purchase comes with emotional risks. Thus reducing these risks can include making customers feel comfortable in a store; building a brand so they feel more comfortable with your product; reassuring them about their purchase, etc. The second challenge you face is buyer’s remorse. The negative feelings a customer has after they make a purchase which can reduce the likelihood that they’ll make a future purchase from you. There are a number of factors which can cause buyers to feel remorse including; social factors (especially related to fashion or items which might have political connotations), price factors, quality factors, concern that perhaps they should have purchased another product, or saved their money, and more. Such concerns can be reduced through branding (in the case of fashion or concerns about whether they should have purchased a different product) and quality-based tactics.


Quality Service

The quality and friendliness of service in and after your purchasing process, the moment a person walks into your store or calls, sales to their follow-up desire to return a purchased product, to calls to customer support are extremely important. This can also include efforts to improve the beauty of the store and prevent it from feeling overcrowded. Zappos, one of the few online retailers to become a billion-dollar company, was also one of the few retailers to put their phone number at the top of every page encouraging people to call with questions which, in turn, encouraged people to buy from them. Like everything else, customer service costs time and money so you must determine its value versus the value of other tactics you could engage in.


Ease of Purchase

The longer someone has to wait to purchase from you, or the more complicated it is to do so, the less likely they are to buy. This is one reason why location is so important because the further your customers have to travel to reach your business, the less likely they are to do it. Once a customer enters your store, the easier it is for your customer to find what they want and the faster the checkout process, the more likely they are to purchase a product. On the web Amazon.com has created a system to allow customers to buy products with a single click saving them from any checkout process.

Reduction of Concern

Reducing the concern customers have when they purchase something by allowing them to return it, by matching later prices, providing samples, quoting reviews and more is an important part of getting customers to actually choose to buy your products.

Branding

What people think of and especially how they feel about your company alters the way they shop. Trust and style are both worth a premium. People can be willing to pay more for something that fits their self-image, will make themselves look better to the world, or which they trust. Target is building on this advantage by making itself the stylish choice for the upper, middle class. This is happening even though most of the products they sell are no different from what any other department store sells. Remember, brand is about image and emotion.

You can learn more about branding in our section on this topic on pages (6-17).

Target Customers

Almost every industry has certain groups of people they tend to target more than others leaving many potential customers by the wayside. You can gain an advantage by targeting these ignored customers by going into underserved neighborhoods and reaching out to various cultures and demographics.

Axe found success by building a line of body washes, body sprays, and similar items for teens and twenties men, a demographic that other companies ignored. Whole Foods served health-conscious customers who were looking for high-end products and were otherwise underserved by the grocers who were focused on lowering prices. When targeting a new set of customers, you have to think differently about what you’re selling, and you need to be much more conscious of your target than others in your field are.


Marketing and Sales Methods

There are three aspects of marketing that will give you an advantage; they are message, reach, and cost. Most of your large competitors promote well their products, but it’s unlikely that small businesses with which you compete will do so in a way that makes them relevant. This can make marketing an easy advantage for you to gain. However, this simplicity exists because marketing is difficult to understand which is why it’s been given its own section within this book.

You can learn more about marketing on Page 21.




Product Advantages

The products you sell can provide you with a unique advantage; however, this advantage only exists if your product tactics are customer centric. There is, after all, almost nothing that people have to buy and nothing that large groups of people have to buy from you. Even if you run the only grocery store in a small town, they can likely drive to another town or order some food online. There are many people who drive for miles to shop at grocery stores when they don’t feel their needs are being met locally. We are a very mobile society, after all. Thus, it’s important to remember that while extremely important products themselves don’t offer the strategic advantages, its people’s perceptions of your products that ultimately offer the advantages.

As a retailer you can choose to sell unique products that no one else is selling. However, if people don’t feel an emotional draw to those products, then you won’t gain an advantage from this uniqueness. Think of all the amazing new technologies which took years to get off the ground such as the Tablet PC which went on sale almost ten years before Apple brought it out. The first companies which sold this “revolutionary” new product made very little or lost money in their attempt to sell it, and then Apple came along and made billions off them in a few months’ time. The stuffed toys known as Beanie Babies were not different from other small toys, yet they became hugely successful (for a short period of time anyways). Beanie Babies wasn’t successful because it was truly unique; it was successful because people perceived it as more emotionally appealing than other miniature plush toys that existed. At the center of a good product tactic are your customers’ emotional desires.


Quality

The quality of the product can be the most important part of a business’s success. It’s true, of course, that people sometimes accept lower quality for other advantages, but it’s much more difficult for small businesses to achieve these other advantages. Quality is easier to achieve for many small businesses because of the amount of attention that the entrepreneur can give to the products they create and because of new innovations within the product or service that spurred them into business. Equally important is the fact that niche groups are willing to pay more for something that is high quality allows small businesses targeting these niches to spend the money per product to develop quality. Skull Candy, a maker of high-end headphones is a good example of this. They started out making headphones which they sold for much higher prices than most of the existing headphone models. American Girl charges over $100 for their doll boxed sets again because they focus on quality. Both these companies grew into multimillion dollar businesses by selling to small groups of people who were willing to pay a lot more for quality.

Quality isn’t only for manufacturers of products. Quality is also the key to the success of restaurants, salons, and any other business which is creating something for a customer.
Retailers can also gain an edge in quality by choosing only to carry certain types of merchandise as Whole Foods and Bloomingdale's do. The biggest challenges small businesses face in achieving quality, especially when dealing with food, is that it’s difficult for them to choose to throw out food the moment it might start to lose quality, or to throw out products which might not meet rigorous quality standards but are still fairly good and accept the financial loss. If you can’t accept the loss of tossing products that don’t meet your quality standards, then you need to figure out some advantage other then quality. The other challenge businesses will face in seeking a quality advantage is in having the skills necessary to craft quality products. Such skills don’t just have to be in your chosen field. They can also be in managing your employees or vendors to ensure that they maintain your quality standards.


Pricing

Unlike what many people think, advantages in prices don’t just come from low prices. Price advantages can also mean charging more to become more exclusive, to gain better cash flow and more flexibility in other strategies. If Tiffany’s sold its rings for the lowest price, for example, they wouldn’t be exclusive and so would likely be less successful than they are. In general, low pricing is a dangerous strategy for a small business to try to achieve because it requires other advantages that are difficult for small companies to develop and takes away the small businesses opportunity to create other advantages.

There are small businesses that manage to pull off low prices and earn money because of natural advantages, but you need to make certain some of these exist before you choose this strategy. Remember, in the low prices arena, you’re competing against large companies such as Wal-Mart, McDonald’s, major service providers and the category killers. Strategy is about finding an edge, and you have to realize that these companies all save a lot of money per product in order to be able to charge what they do.










Supporting Advantages

Management and Personnel

The people who work for you can be your most important resource because those on salary are likely working for less per hour then a freelance worker who’s brought into the company. Further, they are the ones your customers interact with daily and who have the opportunity to notice every flaw or business opportunity your company might have. This is why Starbucks chooses to offer health plans even to its part-time workers so that they can attract the best people in the industry; people who might not otherwise be willing to work at a coffee shop.

Disney has also gained a lot of its edge over competitors through being able to hire the best people. Unlike Starbucks, however, this advantage comes primarily from Disney’s unique brand. People want to work for Disney because of what it stands for, and then those people go out and continue to help Disney continue to build the brand that attracted them to the company in the first place. Google and each new, hip technology company gain a similar advantage in being able to attract the best workers in a large part because of the brand they have. Google further gains an advantage in the way they manage their personnel so that these employees help them create new, innovative products and solutions. What we see then is that a company can gain a unique advantage in customer service, branding, products, price, and more through the people they employ.

In order to gain an advantage in personnel, a company should think of its recruitment and retainment strategies in much the same way that they would think of marketing to customers. They need a good marketing and targeting program to find high-quality employees and good employee services to retain these employees. In addition, however, they need a way to determine both who these good employees are and a management system which allows them to take advantage of their employees’ skills.



Innovation Leader

"Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It's not about money. It's about the people you have, how you're led, and how much you get it."
Steve Jobs – “Fortune,” Nov. 9, 1998

Being an innovation leader involves constantly finding new ways to gain advantages, ways that have not been used before within your immediate industry. In many cases such innovations come either from the employees or the founder of a company, and so the personnel that a company has and the way they manage them are key to this tactic.
What makes innovation so difficult to pull off is that it’s standard to ask questions such as: Who else has done something? Where else has this worked? If something is truly innovative, the answer to these is going to be “no one” and “nowhere.” When you come up with something innovative, you may lay in bed anxious and excited wondering if it’ll actually work, and odds are you won’t follow through out of the fear that it won’t work.
Just as challenging as actually following through on innovations is developing new innovations frequently. To learn more about this, see “Innovation” on page ()))



Adaptability

No matter the industry you are in, it will eventually shrink or change drastically. This is the only thing you can count on. The biggest changes are what often help catapult small companies into the lead. It’s during recessions, for example, that little companies tend to expand their market share. New technologies, new consumer tastes all have the same affect.

And while it’s common for us to notice the big changes that occur, we often miss the more subtle but important, small changes. Every industry has new opportunities to change itself because new things are happening every day. The biggest challenges to using adaptability as a competitive advantage come from fear. People are afraid of the unknown. So even though we are entering the unknown at an ever-increasing rate, most companies try to avoid it rather than embrace it because it’s human nature to do so. Further, building an adaptable company requires you to be patient. New strategies based on what’s happening in the world can take a long time to bear fruit. Because of this they are often dropped before they can realize value or are ignored altogether. Finally, one must be aware of what’s happening in the world around them. Adaptability comes from constant learning.

More than any other advantage, adaptability comes from knowing what is happening and what could happen because sometimes adapting to a change better than the competition involves knowing that things are changing before they do. When researching changes, it’s important to do more than look at what’s directly impacting your business now. You must also think about what might impact your business in the future. Think about what the worst and the best things that could happen are. If, for example, you own a supply company and a large percentage of your customers are on the other side of a river, imagine what would happen if the bridges had a toll placed on them. Adaptability is a personal advantage because it is about learning and being aware, which are things that only you and the people working for you can do properly.
Thus, you must allow your employees to engage in some experimentation as adapting to changes you must be willing to experiment with new ideas. You have to set up your business where you can afford to be wrong occasionally because you will be wrong. Further, you must foster in your employees not only the ability to challenge you but a willingness and even a desire to do so. Adaptation, after all, requires you to challenge your assumptions about things because assumptions tend to be biased towards the existing status quo. Such challenges can allow you to think of things you otherwise might not have.



Structural Advantages

Structural advantages provide you with the ability to produce, manufacture, ship, and manage your products, business, or services at a lower cost or faster than most or all of your competitors. Because structural advantages help you improve or save money on every product you make, they provide you more leeway in any decision you want to make or tactic you wish to utilize. Wal-Mart’s success is based on developing more efficient logistics and management processes which allow it to lower its prices on key products. Toyota and Sony used the money they saved from their efficient manufacturing process to allow them to make higher-quality products which in turn allowed them to leapfrog over a lot of larger and better financed competitors. McDonald’s became more efficient so that it could make its meals faster, an important advantage in the fast food industry.
While it’s rare for small businesses to have an edge over larger businesses in efficiency, a small business might easily be able to find advantages in efficiency over many of its equal-sized competitors. After all, a maker of handcrafts isn’t just competing with Wal-Mart, they’re competing with other makers of handcrafts. So if they can find a way to get their shipping done faster and at a lower cost than other people who make handcrafts, they have an edge.

One of the challenges many businesses face in achieving structural advantages is that these aren’t the upfront parts of business seen by the public. Structural advantages involve bookkeeping, warehouses, truck routes, factory layouts, etc. However, many of the great innovations which have propelled one business ahead of another have been structural, unseen advantages. Further, just as structural advantages provide leeway, having structural disadvantages can prevent you from doing the things you need to do to compete. To gain as much of a structural advantage as possible then, you must track and review the primary processes you use to manage your business. How you train your employees, how you get the supplies you need, how you make, store, or shelve the products you sell, and how you go about selling these products is critical.

You will find that education and learning are an important part of discovering and keeping up with new processes. Industry and business journals and news often discuss new structures and means by which businesses have gained advantages is efficiency. Further, there are always new companies seeking to provide new services to assist companies in improving their structure. Amazon.com, for example, offers its logistics services (at a price of course) in which they’ll store your products, box them up with your name, and ship them for you, which can free you up to focus on the things you’re better at.

You must also realize that your structure is based not only one your company’s ability to do its job but on your vendors’ ability to do theirs. Wal-Mart, Disney, and more all allocate money to track and work with their vendors; helping to improve their systems so that they can provide better service. While it is difficult for a small business to do this, in most cases they can at times negotiate with the companies they depend on to be better involved in the process. Odwalla Juices set up a system with its distributors and the retailers who carried their products to help them determine which products sold best in which stores and on what days allowing them to become more efficient in delivering just the right products. Further, nearly any business can carefully review the vendors they use to make certain that they have the best vendors for their needs.
Structure is a long-term investment so it may take awhile to see returns on purchasing technology, building a new warehouse, or doing other things that make you more efficient. However, once these returns come in, you’ll have a huge advantage over the competitors who didn’t make this investment because they will have to wait to see returns on their own investments in structure while you’re enjoying them.


Consistency

People claim to want originality; they claim to want something unique, and indeed a few people actually do. The majority of people, however, buy from McDonald’s because they know what they’ll get, or they go to movie sequels more often than original movies. Most people want to know what they’re getting, and so you often need to structure your business in order to create the same thing, provide the same service, and have the same set of hours every single time. As with any aspect of gaining a structural advantage, this requires you to review your processes to see where and how errors are made so that you can find ways to reduce them.

Channels and Placement

Your sales channel is the place where your product is sold whether it’s online or in a store or via some other means. There have been many companies which have been able to develop their customer advantages based almost entirely on how they choose to sell to customers. Two of the most famous examples of this have been Avon and Tupperware which chose to make their target market the sellers who made sales door-to-door and to friends. Cutco, a highly profitable knife manufacturer, chooses to avoid selling their products in retail outlets and instead opts to have them sold by independent contractors in people’s homes one-on-one based on referrals made by previous customers. American Girl sold their products by distributing beautifully designed catalogs, allowing them to keep all the money from their sales so they could spend more on promotions and the products themselves. Whether you’re choosing to sell online, in a catalog, to high-end cafes or somewhere else, where you choose to sell will have a huge impact on your other tactics.

Many sales channels, such as stores or direct salespeople, require you to share a huge percentage of your earnings with someone else, which means that your channel can become the most expensive part of your marketing plan. This requires you to be certain that your customers prefer that channel and that that channel will provide you with as much market exposure as possible. Additionally, such sales channels often mean that you have two sets of customers; the stores or salespeople who sell your products as well as the people who buy your product from this sales channel. It is not uncommon for a company to have salespeople to sell to retail stores and a recruiter to attract their salespeople; thus requiring them to choose three sales channels for each stage of their product.

While it might seem easier to just sell directly to customers the way American Girl does, you must remember that retailers are often better at connecting with customers than manufacturers are. So you must be ready to sell directly to your target market. As you can see, selecting the right places and methods for selling your products can be a complex task, one which requires a good awareness of your own abilities as well as the abilities of those who you might sell through and your target market’s desires.

Technology

There is a lot made of how technology is rapidly changing the world and altering the way we do business. Indeed, technology is perhaps responsible for more changes and advantages than anything else. Having the latest technology, however, is not an advantage in and of itself. Rather, technology is a way for you to obtain other advantages. Ecommerce was a new sales channel, robots help businesses improve their structure reducing their manufacturing or shipping costs, computers provide employees with additional information allowing them to be more innovative and efficient.

When examining new technology, it’s important to look at it based on what it can do for you and how your customers will respond to it. It might, for example, be cheaper to have an automated system answer customers’ questions, but this might also cause you to lose customers. Ecommerce might mean that you don’t have to pay rent on a space, but it can also make it more difficult for customers to discover that you exist or remember you. The Internet, after all, is based on the top ten results and the few websites that people can remember.

When you actually take the time to analyze your structure and how technology might impact it, you can build incredible advantages that will put you well ahead of the competition. Diapers.com, for example, owes its success to the use of robots which greatly enhanced its logistics. Such robots reduced the costs of storing and handling its products so that it was able to sell at lower costs and provide greater customer convenience than most of its competitors. So while some have argued that Diapers.com’s advantage came from customer service and price, these advantages existed because of new technology.


Focus

Focusing on one set of processes, products, or customers will make you better at working with them. As with technology, focus itself isn’t an edge so much as it is a way to enhance another edge. That being said, it’s important to understand that focusing on a specific set of competencies is the best way to insure that you not only retain the advantages gained from those competencies but that you are able to improve on those advantages. When determining your focus, you need to think about what your company is uniquely good at or what you can be good at. As with everything else, look for openings that no one else sees. Keep in mind when you’re doing this that dozens of people likely see openings in the trendy industry so you shouldn’t be afraid to focus on an industry which is shrinking because every industry in the world has companies that do well despite what the industry is doing over all.

Indeed, in some cases, a shrinking industry can create new advantages because of new niche markets and because few people within that industry are developing truly new ideas. Candlelight, for example, was probably not romantic when everyone was using candles so the opportunity to claim that it was and develop that niche market probably didn’t exist until light bulbs became common. American Girl expanded by hundreds of millions of dollars while the doll industry was shrinking overall. What makes or breaks your business’s success oftentimes is not what’s happening in an industry but your response to what’s happening.



Resource Advantages

Nearly every business has certain resources which are vital do doing its business, and in many cases the quality, price, or simply the ability to get these resources can give you a decisive advantage or a disadvantage. In the modern world, when many resources are just as easy for one company to obtain as for another, location and placement has become one of the most important resources. For example, any company trying to make something for retailers has to struggle for a limited resource, “shelf space.” In the case of freezer or fridge space, this access to resources is truly at a premium because not only does the store have to find room for your product, but they must pay electricity for it to be there. Häagen-Dazs and other ice cream sellers which manage to get shelf space have used this to their advantage to hinder new competition from entering the market. Indeed, the best places on the store shelves are often paid for.
Companies have located themselves near suppliers in order to be in a better position to negotiate deals or buy a limited amount of products before they are bought by competitors. Similarly, tech companies locate near other tech companies in order to be in a position to attract better employees (an important resource in technology).
There are a number of possible advantages a location can provide; the first and most obvious is the ability to gain the customers necessary to stay open. A location can also allow your company to obtain better workers which is why so many businesses of the same type choose to locate in the same areas. By the same token, some locations provide real financial benefits; they cost less in property taxes, zoning, or they provide better access to capital then others do. Much of the venture capital in this country goes to businesses in Silicon Valley, and businesses in Salt Lake City received more SBA-based loans in 2009 they did businesses in any other city.

Still, location isn’t everything. There are still many things that are in short supply. There are record companies that only release a few thousand records giving any retailer which can get some of these records an advantage. By the same token, many wineries and other manufacturers of high-end products provide only a limited number of their products. Also, there are still some minerals, such as rare earths, which can be in short supply. Finally, since it’s possible to buy some things in advance, doing this before the price goes up can give you the advantage of getting the resources you need at a lower price than most of your competitors. Doing this requires you to be able to predict what’s going to happen in the future so that you can determine when prices are about to go up.


Barriers to Entry

Many businesses stay in business simply because it’s difficult for new competitors to enter the market; this can be both an advantage and a disadvantage. On the one hand, having less risk of a new competitor entering the market means that you can dominate it. However, this can cause a business to grow lax so that the demand for their products decreases or so that the cost of making these products skyrockets. The lack of competitors in an industry can also mean that the companies in it are ill-prepared to deal with new competitors who do manage to enter it.

Hollywood film companies have enjoyed incredibly high barriers to entry with the same few film studios having dominated the industry for decades. This barrier to entry comes from more than just the costs to break into Hollywood though these are substantial. The barriers also come from the difficulty smaller distribution companies have in convincing stores and movie theaters to show their products. At the same time, however, we do see that the cost to make movies has been skyrocketing and that growth may be hindered by competition in the form of computer games, various forms of online entertainment, and more.

Outside of Hollywood, this industry-based barrier to entry is rare on a global level, however, as there are many countries that can push into the market. The big three automakers in the U.S. enjoyed this competitive advantage for years. This led to inefficient processes that caused their expenses to go up and quality to go down. Then Japanese automakers entered the market. Now it’s likely Chinese, Indian, and other automakers are going to come into the market.

Barriers to entry can also come from the government. Pennsylvania has created serious barriers to entry into the restaurant and grocery business by creating stringent liquor laws that make it more difficult for new businesses to enter the market, a situation Philadelphia has compounded through problematic zoning laws and regulations which cost new businesses tens of thousands of additional dollars. Indeed, I would argue that most barriers to entry exist because of government regulation that prevents small businesses from entering the market, allowing a few large businesses to overcharge for their services. This means that perhaps the easiest way to gain this advantage is to work with other businesses in your industry to lobby the government in order to get them to create zoning laws, licenses, and other forms of red tape to stop competitors from entering the market. As history has shown repeatedly, even when these laws are worse for the economy, governments tend to listen to large blocks of voters and so often do pass them.

Assess the Industry

Most industries have settled into a routine or certain ways of doing things as well as relationships and goals that most of the competitors are trying to achieve. There are two ways to think about this routine; first, you can do what everyone else is doing and think of it as tried and true methods to success, or you can think of how you might differentiate and innovate away from that routine in order to improve on what everyone else is doing. When assessing your industry, you should try your best to answer the following questions:

1) How many competitors are there, and what are their advantages?

2) Who are their typical customers, and are their underserved customers or people?

3) What are your competitors’ profit margins, and how can these be improved upon?

4) What are the industry’s best practices, and how can these be improved on?

5) How do businesses in the industry reach out to customers through sales channels, marketing, services, etc.? Is there a way you can improve upon this?


What’s the Competition Doing?

Understanding your competition is the first step in taking advantage not only of their weaknesses but of their strengths as well. When a strategy can’t do this, it should be designed to avoid directly competing in areas that you can’t win. Understanding your competitors requires gathering some basic intelligence on them.

Intelligence gathering:

Step 1: Determine who your competition is.

There are three types of competition. The first and most obvious is direct competition which is made up of those businesses which sell almost the exact same thing you do. The second type of competition is for the fulfillment of needs. People only need to eat so much; they only need so much light, etc. Once these needs are filled, anyone else trying to fill them is likely to fail. The third type of competition is for time. Even the richest person in the world can only be in one store at a time.

Competitors are anyone who replaces your product in the mind of the customers in one of these competitive areas. Porter’s model on threats to your strategy states that “…replacement products are one of the big seven dangers to any successful strategy.” For example, people read fewer newspapers because they spend more time online. They read less of the information in online portals because they go to Facebook more often. People stopped burning candles because of light bulbs, and people may start eating at fast-food restaurants less thanks to improved quality and decreasing costs of TV dinners. Because of this you could argue that a restaurant’s competition can include gourmet food stores and cooking classes not just other restaurants.
Things get a little more complex as you consider that people have a limited amount of money and time. People commuting to work take up time they could be spending in your store, as does Facebook, etc. I would argue that housing competes with almost every other job in the economy. Housing has taken up more time, more money, and works to supersede more needs than any other industry.

Step 2: Pick what you consider to be the biggest risks or the most crucial things you need to know based on your understanding of the business.

"Don't say, 'Find out everything you can about every competitor in the marketplace,' " says John Nolan, who spent 22 years as a military intelligence officer and is now a business consultant. It's far more productive to think of a specific question or problem that is crucial to your company's success. The goal of your intelligence operation will be to gather information to help address that one matter.

As with strategic planning in general, it’s important to get information quickly and in short, usable pieces. It’s impossible to know or track everything which means you must pick what to work on.

Step 3: Review your competitor’s mission statements if they are available.

Most of your competition will likely proudly display their mission or their vision somewhere. Think about what these missions and visions tell you about them and about the industry as a whole. Remember, good mission and vision statements tell you not only what a business is but the direction they are headed as well. The fact that Starbuck’s mission is to dominate anywhere that coffee is sold, for example, should let anyone who is going into this business know that Starbucks is thinking of new ways to compete with them wherever they’re selling their product.

Step 4: Think about your competitors’ brand image. How do they project themselves to customers?

Are they trying to position themselves as low-cost, as high-end, as a part of the local community? What is their personality like, and what are they really selling?

Step 5: Look at what your competitors are selling and what their price points are.

Step 6: Look at what competitors did in the past.

Your competitors’ past actions can give you important insight not only into how they think but into how consumers think as well. Did Pepsi Clear fail because not enough people were interested in buying it? Or perhaps if failed because Pepsi failed to differentiate it properly? If you’re creating a soda company, think about what this failure means. Notice that both Pepsi and Coke (New Coke) have had major and expensive failures changing their base formulas. They’ve also had real successes with changing formulas but only where it fulfilled a missing need such as with diet sodas or actual flavor changes such as cherry. Ask yourself what these failures mean about consumers. What do they mean about how your competitors will view the world in the future, and what strategies are they likely to try or avoid?

Step 7: Where are your competitors strong and where are they weak?

What are your competitors very good at and what are they bad at? Does being bad at something actually impact their business? McDonald’s, for example, has a very hard time projecting an image of health; however, they still enjoy healthy growth rates. Wal-Mart has had trouble projecting itself as a community business yet it’s also the largest retailer. Think about what this says about your customers.

Even when what a competitor is bad at doesn’t hinder their growth, it can help your own if you pick the right strategy. Subway, for example, chooses to focus on health and fresh food as a means of fueling its success against other fast food companies. Because it was different, both it and McDonald’s grew rapidly alongside each other. The fast food companies which suffered were the Me Too companies which followed McDonald’s strategy too closely (Burger King and Wendy’s).

Step 8: See who your competitors are hiring.

The types of jobs companies are hiring for, the expertise they are requesting, how much they are willing to pay, and how many people they are hiring says a lot about the direction they are headed. Some of these signals are clear. For example, when a series of companies recently started hiring touch screen interface designers, it was apparent that they were at least interested in touch screen technology. A restaurant that suddenly needs to hire a lot of servers has likely either had a lot of servers quit (which might signal that they have poor employment policies), or it could signal that they are getting ready to expand or have been expanding. Simply walking into their restaurant and ordering food would let you know if they have enough servers or not allowing you to make a fairly good guess as to the direction they are going.

Step 10: Review Competitor’s leadership.

Run a Google/Bing search of your competitors to determine what they’ve done in the past, and use other legal means to learn about them to see if they have any specific thoughts that would provide information on the direction they’re going.

Step 11: Go to their store, website, etc.

Shopping at a competitors’ store can give you a lot of information about them; how they handle customer service, what they are choosing to stock a lot of, if they have enough employees.

Step 12: Determine where your competitors might be headed given the above information.

There are three things that a company’s past can tell you about what they might do in the future. First, good companies learn from their mistakes and are going to be leery of repeating them. Second, companies and people often work within detectable patterns. There are things they like to do and don’t like to do. Third, good companies focus on the areas that they are strong. Review each of these to guess multiple directions that your competitors may go in.


Step 13: Think about how the competition is going to react to your strategy.

The moment you hit the radar, your competitors have the opportunity to react to what you’re doing. This is why it can be dangerous to sell low without some way of reducing costs because the competition only needs to cut prices to match your strategy. If you target a new market, your competitors might realize that they can target the same market as well. You need to guess how they might react and figure out how you’re going to deal with it. Some of the ways competitors’ reactions have been dealt with in the past include; simply being better than your competitors, getting them to wait to react until it’s too late for them to do so. Having your plan be such that reaction is essentially impossible, or being ready to adjust your strategy when they do react.


What’s Happening in Society and the World?
The world is changing at such a dizzying pace its difficult for many people to keep up with it. This is why your strategy needs to be extremely fluid. Big band music defined a generation changing the way people thought and acted as well as the structure of a number of businesses. Then, all at once, it vanished to be replaced by new ideas. Almost no one has control over what happens in society (a few companies like Apple do manage to control society, but if you run a restaurant, etc., odds are your impact will be limited). This means you must control how you react to society. There are three major types of changes; macro, micro, and migratory. Understanding what’s happening at each of these levels can help you make better judgments about your future.

Micro-changes occur when small groups of existing customers change their spending habits in a way that makes them easier for businesses to target or causes them to stop shopping at your store. Hipsters and hippies would be examples of these trends. They made up only a small percentage of society although they did make a lot of noise which caused a lot of businesses to try to target them. Macro-movements are large, social changes that impact a huge portion of the population. Macro-movements tend to be less extreme than micro-movements, but they often have more permanent impacts, and they involve more people. The movement towards being thrifty, online spending, or purchases of smart phones are macro-trends.

The last of these social changes involves migration patterns. Such patterns include both immigration to the United States and within it. One of the biggest social changes as far as businesses are concerned was the movement of Americans to the suburbs. Without this movement there would be no inner city poverty, and small, inner city businesses wouldn’t have gone out of business. At the same time, it would have been more difficult for large retailers like Wal-Mart to have grown as large as they did if most of their customers had lived in the middle of major cities. It’s interesting to note, however, that, at the moment, urban renewal is occurring in many places because people are moving back into the cities.

Society has been changing at a dizzying pace for hundreds of years, but now these changes are being exacerbated by a number of other changes that are coming ever more rapidly. Any successful strategy must not only take into account these changes as they occur; they must seek to take advantage of these changes. To a certain extent this means that you must invest and innovate around specific trends as much as you do around your core.


Study Other Industries

Many companies in industries other than your own have already dealt with issues very similar to the ones you’re dealing with. Whether they have similar customers, deal with similar social changes, or have to integrate with new technology, companies that may seem unrelated to yours may have found ways of doing things better than anyone in your industry has. Just as importantly, they may have tried a strategy or strategies which didn’t work allowing you to avoid making the same mistakes.


Where are you?

Although the purpose of a strategy is to help you get to where you want to be, you have to begin every strategy with where you are at the moment. Be honest in your evaluation of yourself. List what you’re good at doing and what you’re not good at doing compared to your competition. What are you efficient at; what makes your company special? When doing this, many businesses make the mistake of focusing on their customer relationship, their message, service, etc. While this is extremely important, it’s also important to consider your ability to manage projects, your costs to do business per product, the speed at which you can get things done, etc.