Survival Mode

Small business owners often have to make tough decisions about their brand, target market, and pricing structure and unfortunately, I’ve seen time after time that businesses that try to be all things to all people fail as they have no traits where they’re the most competitive.

So what is the right strategy for a business? Do they want to be the cheapest? The business with the best customer service? or even the highest quality product?

If you’ve been networking recently you may have heard people saying that quality and customers service are the only things that matter. Perhaps they’re right, after all competing on price can often be a race to the bottom and there will always be someone cheaper.

But then why would someone want to be the cheapest?

When you consider that 55% of new businesses won’t survive more than 5 years perhaps it’s easy to imagine that it might not just be the high volume businesses with the lowest price that fail. From my experience, the businesses that survive are the ones that can use multiple strategies over their lifespans.

One of the main reasons we’ve seen for the failure of a new business comes down to them being unable to cover their overheads and provide the owner enough to live off. After all, if it comes down to running their own business and starving or getting a job then they may not have a choice.

For this type of start-up, it’s clear that they need to get customers in through the door as quickly as possible and focus on volume. This can be achieved by lowering their prices or even by spending large amounts on marketing. As a result, their margins will be significantly lower than that of a more established business.

The other side of this coin represents a more established business with great experience and reputation. Their key constraint will be time and the number of customers they can deal with, they could grow their capacity, but this often comes with quality issues. So they will be looking to sell their product to the highest bidder at the best value.

From these scenarios, it’s clear that the best strategy for a business will depend on whether they are in survival mode or profitability mode and whether the owner correctly identifies this.

It should also be considered that it’s very difficult for a business to flip a switch, rebrand and then go from being a price competitor to selling based on their reputation and quality. This has to be done gradually and it can involve losing some clients and then gaining others, which is not a risk to be taken all in one go.

The most important thing though is for a business to be honest with their customers. I.e. If their product is the cheapest with reduced support or functionality, then steps should be taken to ensure its suitable for the customer’s needs. On the other side of that, a business selling a premium brand should aim to do so at a fair price that represents the value they are adding.

I hope this article has been helpful to you, were a firm of accountants based in Northampton, if you would like to discuss this issue then please get in touch.

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