Local Business Strategies To Stay Competitive And Make A Profit

How do local ventures stay competitive in today’s hyperintense business climate?

Small businesses are the heart and soul. Most of the giants of business today started right there. Small.

The past 20 years has seen a renaissance for small business. Finding new channels through social media and technology. The rise of boutique shops. An increased generational appreciation of shopping small.

A tough economy really tightens the screws on small operators, however. The big box players with their big pockets constantly tout price and selection, backed by massive marketing budgets.

It can be easy for small operators to lose focus, become discouraged, and turn into a statistic.

About 20 years ago, Walmart announced they were opening a store in a small community close to where I lived. What immediately followed were stories of local businesses deciding to hang it up.

Throwing in the towel before the first shovel ever hit the dirt.

That frustrated me. Especially, when most of those business owners assumed there was no way to compete.

While there are certainly 800-pound business gorillas, like Walmart, Amazon, and Dollar General, these companies aren’t perfect.

Walmart, for example, has closed hundreds of stores in the US in the past five years. Outlets in places like Merkel, Texas, and Kimball, West Virginia.

Small businesses certainly face unique challenges, but they also enjoy unique opportunities. Taking those occasions for granted is often the first mistake.

First Things First

I want to emphasize, earning business from local customers should always be viewed as an extraordinary privilege. Never expected; always appreciated.

Money is tight, especially in this economy. No one owes anyone their business loyalty.

I get very discouraged when I see struggling entrepreneurs, who lack order and systems, playing the “buy local” card. Chiding instead of inviting potential customers.

Founders also should not automatically assume that a lack of customers is a price issue either. That there is a lack of customer loyalty simply because they’re shopping for the lowest price.

Price

I was taught, in the retail powersports business, “don’t make price an issue until it’s an issue.”

I think there is an automatic assumption that price is always the Achilles heel of local businesses. Small founders wave the white flag before customers ever look at a price tag.

There’s no question, on paper, that big box stores achieve economies of scale that small businesses can’t always match.

That’s when small founders need to get smart.

According to the National Cooperative Business Association, there are over 250 purchasing coops in the US. Small firms can acquire goods and supplies in larger quantities by banding together, increasing purchasing power and economies of scale.

BrandSource, for example, is a coop for small appliance, furniture, and electronics retailers. I found that BrandSource stores were usually within a few bucks of huge retailers like Best Buy, product-for-product.

The service a small store can provide, for many buyers, can make up for a relatively small price difference.

In the absence of formal organizations, like coops, small businesses must rely on each other to stay competitive.

The BoutiqueBox, for instance, is an organized community of small boutique owners. There’s even a sub-Reddit for a community of small drop shipping retailers.

Small entrepreneurs can organize their own informal coops. Get together with fellow independent shop owners and figure out what’s needed to succeed. Make it happen.

I’ve discussed 20 clubs before in my stories. An old General Motors concept of bringing 20 dealers from different parts of the country together to discuss their businesses.

There are formal 20-club organizations in a few different spaces. If not, why wait?

Use a community, like the BoutiqueBox, to assemble a group. Formally meet a couple of times each year. Share what works and what doesn’t. The change in your business mindset will be immediate.

And 20 clubs can help small founders develop systems like pricing strategies and effective inventory procurement. Those are the roots of small business success.

Systems First

Big companies and franchises achieve success, in part, because of systems. A uniform set of procedures and rules for how to do business.

From dress codes to customer service; inventory to employee training. Systems equal consistency. Systems equal satisfied customers.

And systems often equal why small businesses struggle.

When five entrées leave the kitchen and each one looks and tastes different. When three separate employees execute the same process with zero regularity. When inventory controls are a shambles.

They say kids love structure; adults aren’t much different. Systems are that structure.

Small businesses must first identify the key processes that make customers happy. Assemble an informal focus group of customers. If a specific customer offers five stars on Yelp, find out why. What buttons did your business push with customers that satisfied their needs?

Standardize those “buttons.” Document them in an operation manual. Make the contents of that manual an integral part of employee training.

Develop your own systems, but don’t forget what your competitors do that your business can also replicate.

Embrace the Competition

When I first entered the powersports business as a dealer, there was one competitor that was like a bogeyman to me. Undercutting me on price. Advertising heavily in my market. Generally, just being a pain in my behind.

I was a newbie; they had been around for decades. Experienced and intimidating.

Then, one day, for some reason, I decided to pick up the phone and call them as a courtesy. Later, I was in the area and decided to stop in to introduce myself in person.

And all the intimidation and worry stopped. They were good guys. There was no personal vendetta against me. They said, “if there’s anything you need, call us.”

And they meant it.

A big step for small business owners is recognizing that their competitors, big and small, are human beings.

Reach out to them. Even big box store general managers have bills to pay and mouths to feed. Meet up for coffee, introduce yourself, and learn about each other.

Those large-scale managers are often also charged with connecting in their community. Many big companies no longer want to be perceived as the bogeyman either. The ruthless killer of small businesses.

Humanizing yourself and your competitors is key.

There might be a difference in scale, but it’s still a business in a community. Big or small.

And there’s a difference between accepting the competition and worrying about them. Worry about what you can control, and you can’t control your competitors.

Big Sales, Big Bills, Big Decisions

The advantage big companies are perceived to possess is, obviously, driven by sales volume. A volume that looks like an unscalable mountain to a small operator.

However, don’t forget, that big box volume also comes with big-time infrastructure. Which ultimately leads to big-time bills for staffing, fixed assets, technology, and facilities.

While comparing small and large enterprises is more challenging, operational expenses, as a percentage of sales, are often quite similar.

In other words, as with most things, it’s all relative.

Except, in small businesses, there’s no board of directors to appease. No endless explanations to higher-ups. Testing ideas is easier because experiments can be run on a much smaller scale.

Small firms are incredibly agile. Decision-making can happen in seconds versus weeks or months. “Smallness” offers a variety of advantages.

And one-to-one service is often where it all starts.

Service is Value

The go-to argument for why small ventures can compete with the “bigs” is typically service.

And it shouldn’t be taken as some tired old cliché.

I like to see small operators take a strategic approach to service. Simply put, analyze what competitors are great at—and what they suck at. Use tools I’ve discussed before, like Porter’s Value Chain to pinpoint competitive weaknesses.

Capitalize on those soft spots.

And stop thinking that because you’re small that you’re exempt from the basic needs and wants of the market.

For example, what are your competitors’ business hours? There is a compelling case to be made that you should mimic those times. The customer’s king. Ultimately, they determine the hours of operation, not the business.

Low prices are not only a product of volume but also low overhead. Great service on a large-scale costs money. Great service can drive up overhead for big box stores.

Small operators know their customers’ names. They remember their favorite colors and preferences. That kind of service costs small businesses little but is difficult for big ventures to replicate.

For instance, I have done business with a regional big-box home improvement store for years. I spend tens of thousands of dollars there annually and I have yet to be personally recognized by anyone.

And not just name recognition, but even a friendly acknowledgment of “hey, I’ve seen this guy in here before.”

THAT is the primary competitive advantage small businesses have.

Acknowledgment goes a long way. Sometimes even further than the price. People like to be appreciated; to be recognized.

The very least we can offer customers is “hello,” "great to see you again," and “thank you for your business.”

…And Then There’s Amazon

When I start to preach about small businesses staying competitive, people often cross their arms and say, “yeah, but what about Amazon?”

The closest thing in most people’s minds to a ruthless killer of small businesses. A monster, hiding behind layers of technological red tape.

A major stressor to a huge population of small operators is the seemingly insurmountable competitive advantage Amazon brings. Massive selection. Next-level algorithms track seemly everything in their customers’ lives. Almost laughably accommodating shipping and return policies.

So, let’s talk about what people tell me they don’t like about Amazon.

They’re creepy. The way they’ve invaded our retail privacy, in “big brother” fashion, is unnerving. And it’s starting to cause a backlash.

Their confusing inventory and search tools. It’s hard to find the right deal on Amazon. Plus, there’s a lot of fakery to watch out for. For example, carefully reading every word of a product listing is essential. As there are so many cheap, knock-off products on Amazon masquerading as the real deal.

Returns are getting more cumbersome too. Amazon needs to make money and they’re realizing that extra-lenient return policies are costing big bucks. Expect changes soon.

And then there’s pricing. Does Amazon kill it on the price of a lot of products? You bet. They’re also higher than a kite on just as many. They’re hoping people won’t notice, but they are.

Let’s be real, there are dozens of reasons your company can’t compete with Amazon. So, focus on the dozens of reasons you can.

What small businesspeople can ultimately control is their space. Embrace that niche and work hard to be the best in it. Your community will notice.

Reach out to colleagues, business coaches, and community leaders for advice and support.

And have fun.

Customers, cool products and services, and serving your community. What else could be better?

______

Immersed in a life of entrepreneurship, Tom Clement offers LinkedIn readers the insights of an entrepreneur, academic, contractor, author, venture coach, and consultant. Clement is an assistant professor at Minnesota State University, Mankato. He specializes in the “how” and “why” questions that help entrepreneurs discover their customers, business models, and passion.