7 Independent Businesses Killers
Posted by Ryan Volberg at August 2, 2007 2:30 PM
Over the next few weeks, we'll be looking at some of the biggest killers of independent businesses. If you're a retailer or restaurateur, read on to discover what puts your business at risk and what you can do about it.
Business Killer 1: Big Box Retailers and Chain Restaurants (sort of) - Intro
More correctly, it's the wrong reaction of many independent businesses when a large competitor moves in, or the mistake that new businesses make in thinking that they can compete head on that ends up killing the business.
When a large company makes a move into your market, you have two choices: Find a niche; or die. Even large companies have found their niche as low cost providers. Buying at wholesale prices, and at large quantities to get price discounts is a niche all on its own. We don’t tend to define niche in terms of 40% market share, but that is exactly what those companies have found for themselves.
The irony is that large companies want to act small. Why? Because small businesses are much better at creating and maintaining customer loyalty. The trick for independent restaurants and retailers is to focus on the right customers.
The Pareto Principle (also known as the 80/20 Rule and the Rule of the Vital Few) has given rise to the business maxim "80% of your profits come from 20% of your customers". Before we get into how you can use the rule to be more profitable, let’s look at what the 80/20 Rule means in reality.
Consider your customers for the last month: You probably know some by name, just through your business and there are many others that you recognize. Most you'll never recognize. The first two groups represent your 20%. They're the ones that create the most amount of profit for your business. They brag to their friends about their latest visit and would identify themselves as "your customer" if asked. So how do you leverage those customers?
Your efforts in your business should reflect this important 20%. Everything, from your marketing, product offering, and location should be tailored to keep that vital few coming back.
Sometimes the top 20% won't even be the same customers all of the time. For example, if your business caters to tourists and of those tourists, the most profitable group are “conference attendees”, then “conference attendees” is your top 20%.
So how does the Pareto Principle help you to beat the big-box retailer that just moved into the neighborhood? Tune in next week when I’ll define 4 steps to help you focus on your 20%.
Ryan Volberg is the CEO of Vivonet, a company dedicated to ensuring retail and restaurant success.
 Category: Survival Tips
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