Getting to know the 'new norm'.
Businesses face a very different landscape in 2021. To continue to thrive or even get back on track it’s important to take some time to become familiar with the 'new norm'. This video covers tools you can use to explore how things have changed so you can identify where there may be new roadblocks or opportunities for your business.
Hello and welcome to ‘Getting to know the ‘new norm’’ – the first in our Back to Business in 2021 online event series. My name is Bronwyn Lawson, and I will be your presenter for the next 20 minutes or so. The past 12 months have certainly seen some changes in business landscapes across the world. While Australian businesses are more confident now than they were 6 months ago there are still many who are struggling and still many who will not survive the pandemic disruption.
What is going to be vital to forging ahead is gaining an understanding of how things have changed and looking at how your business might respond to those changes. Today’s webinar looks at a number of tools that you can use to help you examine the marketplace you now operate in, your internal business strengths and weaknesses, and pulling together a plan for your business to survive and hopefully thrive in 2021.
As I said, my name is Bronwyn Lawson and I love my job as a Financial Educator with Westpac’s Davidson Institute. I spent many years as a lender for Westpac helping people buy their 1st car, their1st home, manage their business cash flow, grow their business, and retire comfortably. Working with these many people from varied lives gave me some great insights into financial management on both a personal and business perspective.
What I love about what I do now is that I get to share those insights with people like you. People who are actively looking to improve their own knowledge and skills and in doing so become more financially confident and independent.
Now to help today run smoothly let me fill you in on the house rules. With so many people joining us today it can be noisy in the background, so we have placed you all in listen only mode.
As this is a live webinar, I encourage you to ask questions. Please type your questions into the questions panel. If you are on a computer, you’ll find the questions panel as part of the control panel probably on the right-hand side of your screen. If you’re on a mobile device, it will be a ? at the top of bottom of your screen to tap on.
Type them in when you think of them. I will answer your questions at the end of the presentation. We’ll also send you an email later this week with a link to a recording of this webinar. If you lose audio at any point during the webinar, please stay on the line as we will be working in the background to get back to you as soon as possible.
The final piece of housekeeping is to let you know that the information contained in this presentation is general in nature and does not constitute advice on your personal situation. We recommend talking to your banker, financial advisor or accountant for detailed information relevant to your personal circumstances.
So, during our time together today I’m going to encourage you to take a step back from the day to day and take a helicopter view of what it is you’re looking to achieve, how you might go about doing that, what are some of the external factors that might help or hinder you, and then internally what are some of the things that might help or hinder you so that you can come up with a plan.
Throughout the process you may find there is nothing to change, or there is opportunity to improve business performance. The most important thing is that a thorough review of your business will encourage you to ask questions, identify any issues that may be affecting performance, and ensure that your business operations are still aligned to what you are trying to achieve.
We’re going to begin today with some of the key strategic considerations for every business owner. For a business to be viable and sustainable in the long term it needs to sell something that people want and that it can make a profit from. So, at the very core of developing a business strategy is identifying who those people are that will buy your product – that is, who are your customers?
Now this may very well have changed considerably from where you were prior to the pandemic. Perhaps the product you sold previously has changed or perhaps the people who purchase it have changed, or perhaps nothing has changed at all. But now is a really good time to take a look at your customers and get to know them very well.
Ask yourself, “What do they look like? How old are they? How much money do they earn? What do they spend that money on? What do they really care about? What makes them happy? What frustrates them? What need or want does your product satisfy? And what motivates them to buy from you?”
One way you can start to get to know your customers is by looking at their demographics. Things such as age, gender, marital status, education level etc. The ones on the screen are just an example and there may be others that are relevant to your business/industry.
Also, bear in mind how to best collect the information that’s relevant to you. Large corporates may spend a significant amount on customer focus groups and research companies to obtain this information however you could simply talk to your customers as they do business with you, ask them to fill out a survey or something similar.
When you understand what’s happening in the customer’s world and can see things through their eyes you can potentially make a real connection that enhances their willingness to shop with you and recommend you to others. Which brings us to the next strategic consideration for your business which is …
Your brand promise. What is it that you want your business to be to your customers? What does your brand promise to the market? Do you promise to fix their problem and put a smile back on their face? Do you promise that they’ll get great service every time? Do you promise to give them the cheapest price?
What you promise and deliver consistently becomes your brand and a business’s brand is a recognisable entity that customers can relate to. A brand creates an emotional and practical response in your customers and potential customers that can act as a shortcut for when they are making a purchasing decision.
It enables the customer to associate that brand with things such as happiness, satisfaction or comfort, and builds trust that means they don’t have to reassess the product or business every time they make a purchase. Your brand should be conveyed in every single interaction you have with the market, existing customers, and potential customers to consistently reiterate why they should be buying from you.
Think of some well-known brands … then think about how you feel about those brands. What sort of emotions do they elicit from you? What do you associate with each of these brands? Then ask yourself, “How do my customers feel about my brand? Does their feeling match my vision? Am I living up to my brand promise?”
Given the enormous upheaval we’ve experienced over the past 12 months many people’s values, confidence, and sentiment have shifted so, again, this is a really great time to be examining where you sit with your customers and the market in general.
Which is our next strategic consideration - the environment you operate in. Firstly, we’re going to look at some tools that can help us explore the external environment, or our market, and what is going on around us. This can include such things as what our competitors are doing, what's happening in the industry and how customer tastes are changing. We will look at this in more detail in our ‘Market analysis’ section shortly.
Then, the final strategic consideration is your internal environment. This is about your own operations and what's happening within the business; your ability to meet customer expectations; and fulfil on your brand promise. And again, we’ll deep dive into that later in the webinar in our ‘Business analysis’ section.
Your business does not operate in isolation. The market is a dynamic environment that changes almost constantly and has competitiveness at its very heart. A useful 2 step process for analysing your business in terms of the market is firstly to understand what your niche is in the market and what you need to do to keep it.
To do this we’ll use Porter’s 5 Forces Analysis to examine the industry and its key players. Then, the next step is to identify and interpret events and trends in the market. We’ll use a tool known as PEST analysis to do this. Firstly, let’s look at identifying your niche in the market and how that is affected by 5 market forces.
Developed by renowned management author Michael Porter, Five Forces analysis is designed to give businesses a clearer understanding of the industry and how they interact with other participants in the industry. The objective of the analysis is to identify the profit potential within an industry or market; as well as the forces that could either harm a business’s profitability or protect or extend a competitive advantage. It also helps to anticipate changes to the industry’s structure.
So, what are these five forces? Firstly, supplier power. Supplier power looks at things like … How many suppliers are there to the industry and how many does your business have? How big are these suppliers? And most importantly, who has the balance of power? If you only have a couple of big suppliers, you may be in a position where you have to accept their prices and terms rather than having the power of choice.
The next consideration is buyer power. This refers to when the buyer, as in your customer, is in the position of power, perhaps due to there being several alternate suppliers they can choose from. Information is power and now more than ever there are so many sources of this information.
The emergence of the internet has seen a huge number of customers using this as an information source and using that information to source products at the lowest price possible from the most convenient source possible. For example, the deregulation of energy providers has seen a massive swing in power to the consumer in that particular industry.
The next force to consider is threats of substitutes. This is about what else your customer could do or buy to fulfil their need or want. For example, when buying chocolates, the underlying need might be a gift for someone, as opposed to appeasing your own sweet tooth, in which case an alternative, or substitute, might be flowers. This means that florists, not just other sweets vendors, need to be considered as competition too.
Also, we live in an age of dynamic innovation and disruption so keep in mind that the substitute may not even exist yet but is potentially not too far away and may not be what you’re expecting. An example that comes to mind here is that despite being the first to develop a digital camera Kodak, to their detriment, didn’t predict the huge uptake of digital cameras by consumers that meant their products - film, photographic paper etc – were no longer needed.
They’re no longer the household name they used to be.
The next force to consider is Barriers to entry. This is about how difficult it is for new competitors to join your industry. Are there any restrictions that make entry into the industry more difficult or less attractive? Take coffee shops for example. They seem to be popping up everywhere these days! It doesn’t take much effort or money to get set up with a coffee machine, a ‘hole in the wall’, and a barista's certificate.
This is an industry that has few barriers to entry so your competition can change rapidly.
Finally, Barriers to exit is about how difficult it is to get out of the industry. At some point you’ll be looking to get out of your business. Whether that’s by closing down all or part of the business, or even selling it, what are the things that are going to make this more difficult? Are there any contracts or leases that need to be paid out? Are there conditions on the site of your premises if it was to be used for another purpose?
For instance, there are a number of environmental guidelines in place to redevelop a site such as a petrol station that can add significant costs to an exit.
Looking at these five forces … supplier power, buyer power, threats of substitutes, and barriers to entry and exit … and considering how they have changed over the past 12 months or how they could change in the future is about understanding who’s playing, and winning, in the industry and thinking about how you can minimise any negative impact or make the positives work to your advantage.
One of the most frustrating aspects of running your own business is the number of things outside of your control that affect the success of your business. Many of these things happen in the external operating environment which is why it’s important to understand what is, or could be, happening in your external environment. We are going to look at how a PEST analysis can help with this.
PEST analysis is a tool that helps a business to understand the bigger picture. It helps provide insight into the way the market is changing, what is driving that change, and, if used well, how the business can take advantage of the change. PEST is an acronym for Political, Economic, Social and Technological. The analysis examines changes or trends in each of these areas.
Political is often grouped with Legal and looks at changes that may be occurring due to government structures, government policy, regulatory bodies, legislation … to name just a few.
Economic covers things like interest rates, inflation, unemployment, and consumer and business confidence. Think about the impact of exchange rates for example. For those of you importing & exporting the changes in the AUD will have either positive or negative effects on either your cost to import or the revenues from your exporting.
Changes in interest rates may affect your costs if you have significant borrowing but it can also affect business and consumer confidence which can affect your income. Regular analysis of economic factors such as these helps the business to identify any adverse effects or potential opportunities and plan for them.
Social aspects of the external environment are things like demographics, birth and death rates, consumer preferences, or environmental changes. The recent trend towards living a healthy lifestyle has seen many changes to the groceries we buy, and the menus in restaurants and take-away food stores. It’s also seen a significant increase in the number of gyms, and greater demand for people in occupations such as Personal Trainers.
Technological aspects of your external environment include things like technology advancement and the rate of change, increases in bandwidth, and investment in research and development. This is an aspect that is changing at an exponential rate at the moment, bringing growth or challenges to many industries.
So, PEST analysis is a useful tool when examining your external environment. While the main point of using a tool like this is to become aware of and identify things that could negatively affect the business and prepare for them, you can also use it to identify opportunities that the business could leverage to become more successful. It can be helpful to articulate to stakeholders what’s happening and show them that you have a clear understanding of what’s going on.
Now we can only take advantage of external trends and events through effective resource utilisation within our own business. To do that effectively, we need to understand what we are good at and what we could do better. Then, combining our own unique position with the analysis of the market, what are the things that stand out as opportunities and potential threats?
To help gain a better understanding of our internal environment we can use a SWOT analysis. SWOT analysis is a tool that helps a business to evaluate the fit between its internal resources and capabilities, that is, its strengths and weaknesses, and the possibilities that exist, its opportunities and threats.
As a tool it helps to evaluate whether you have the resources, skills and capabilities required whilst at the same time allowing you to prioritise and analyse the effects on the business if you don’t. Things such as …Will you lose profit? Or customers? Are there any legal consequences? And so on.
Strengths, of course, are those factors that make your business more effective in your market. Weaknesses are those things that can limit a business’s effectiveness or competitiveness. Opportunities are favourable situations or trends that can improve the business, while threats are unfavourable situations or trends that can impede or jeopardise the business.
For example, let’s say you’re a small software company that has skilled salespeople with strong client relationships as a strength, but possibly has a weakness of a limited product range. This can be viewed as a threat as there are many substitutes that are rapidly entering the market; however, it could also be viewed as an opportunity to utilise those relationship and negotiating skills to expand your supplier relationships and thus the product range.
By using a SWOT analysis to examine your business’s internal environment you are better placed to minimise threats, reduce weaknesses, use strengths, and optimise opportunities.
So, having completed your analysis of how your customers may have changed, how the external market has changed, and how your business is positioned internally, armed with this information you can now start developing your plan for the year, or years, ahead.
A business plan is most effective when it’s used as a living, breathing, ever evolving tool to keep the business on track and moving forward. It doesn’t matter how long or short it is, whether it has fancy graphs or hand-drawn pictures, whether it is complex or simple; it’s about what works best for you and your business.
While there are many different formats and processes for putting together a business plan, we encourage business owners to address 7 key areas is a way that suits their business.
It starts with thinking about “What is the purpose of this business?” What is it that business, or you as the owner, wants to achieve and why? There are then 5 tactical elements used to help achieve that purpose. Your product (or service), your people, your place, your price, and your promotion.
Then, to know whether the purpose has been achieved, the business needs to be able to measure its performance. By addressing these 7 key areas in a business plan you’ll be better placed to move ahead with confidence in the ‘new norm’ or ‘new now’ as it’s also termed. For more information on the 7Ps of planning, watch our video on Business Planning, available on the Davidson Institute website.
As I said at the outset, the past 12 months have seen many changes for individuals and businesses. Today’s session was about introducing, or reacquainting, you with a few tools that can help you analyse this new operating environment. We had a look at the strategic considerations, including your customers and your brand promise, the market you operate in, that is your external environment, and how your business uses its resources, the internal environment.
In closing, let me thank you for joining us today for ‘Getting to know the new norm’. I trust you found this information useful and relevant and I encourage you to check out the other resources on the Davidson Institute website to help build your financial confidence. We’d love to hear your thoughts on the webinar so there’s a short survey coming up that we’d really appreciate you taking a moment to complete.
Thanks again and I wish you every success in navigating the year ahead. Please, enjoy the rest of your day.