Friday, 29 May 2020

Being unique beats being efficient in small business

There’s a good rule in business, especially small business, not to make your product or service a commodity.

Adam Davidson makes this one of his 7 rules for thriving in business in the 21st Century in his book, 'The Passion Economy'.

Another way of expressing this is to ensure that you differentiate yourself from your competitors by more than just having the lowest price.

In a market where there is aggressive price competition lies a never-ending spiral of efficiency gains, cost cutting and wafer-thin margins.

There will always be a competitor who has lowers costs, uses technology better or gets better economies of scale. It’s a dog-eat-dog world and only the biggest, hungriest dogs survive.

So that’s great in theory but if you provide bookkeeping services or sell pizza or make widgets of some description, how can you stop them being commodities?

Bookkeeping is bookkeeping, right?

Well, not necessarily. 

At its most basic level, bookkeeping is just posting invoices, matching bank payments and receipts, maintaining sales and purchase ledgers and reconciling bank accounts. 

There are lots of possible variations in how this service is delivered - at client’s premises or remotely, using the latest technology or ‘old school’ manual ledgers, processing monthly or quarterly or daily, ‘real-time’ processing, with add on management information (what do the figures mean?) or without, digital dashboard or paper reports.

It is these variations which move the service on from being a commodity to a unique service which is valued by your unique group of customers.

If you can find your point of difference and find customers who place a higher value on this, you can move out of the commodity world to a place where there is less of a need to compete solely on price. 

The extra bits you do which are unique to you are harder for your competitors to copy so you can focus on client care and improving your offering, rather than the relentless pursuit of efficiency.

So in big commodity businesses, the focus may be on low prices, cost savings and productivity gains. 

For small businesses, I’d argue that what’s more important is making your product or service unique and for your customers to recognise the extra value which you provide in the price they are willing to pay.

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