Small business owners naturally dislike negative surprises in monthly, quarterly, and annual results. While some events are genuinely unpredictable — a “storm of the century” weather disaster, government shutdown, or last minute delay in a long-time customer’s planned order — plenty of others should come as no surprise.
In my experience a frequent source of avoidable surprises is the natural tendency to expect future results to mirror past business outcomes despite fundamentally changing circumstances. That this can and often does produce unexpected results should not be — but all too often is — surprising. In the extreme, this situation is like the fable of the frogsitting in a pot of slowly warming water who could have jumped out if only it had noticed it was about to be cooked. Of course good businesses establish practices, policies, plans, and budgets that define “business as usual” and generally produce good results. Great businesses, however, try to anticipate and plan for the unexpected.
Given the need to deal with day-to-day demands as well as decision-making tendencies and biases that favor the routine, implementing measures that enable systematic, proactive planning for potentially game changing shifts in your business’ environment is easier said than done. The first step is awareness; use these five questions as your starting point to minimize surprises.
How will a new law, regulation, certification, or industry standard impact your business, its customers, or suppliers? Stricter regulations may increase costs, create barriers to entry that can protect or limit a business, and/or significantly change customers’ needs. Early recognition of these externally imposed changes could give your leadership team time to contest potentially problematic developments, advocate for advantageous changes, and make necessary adjustments before less agile competitors do.
How likely is it that the cost and/or availability of raw materials, labor or some other essential resource will change significantly? Recognizing potential cost increases in raw materials might suggest the need to plan for new pricing, consider building up inventory, or hedge to cushion the blow. Early recognition of a looming shortage of qualified workers would allow time to partner with local workforce development organizations to offer training.
Are the marketplaces or customers for your products or services changing?Changes in your customers’ preferences or requirements as well as changes that are not directly related to your business’ relationship with customers or position in the marketplace can have a profound impact. For example, consolidation in your customers’ industry could reduce the number of your potential customers and increase the bargaining power of those that remain.
What evolutionary or revolutionary changes might impact your competitive landscape? Changes in competition include the introduction of products, services, or business models that differ significantly from current choices. Retail booksellers are a prime example of this; big box stores disrupted local booksellers only to have Amazon threaten the big box business model.
What long accepted assumptions in your business plan are shaky? Each of the questions above seeks to identify changes based on external signs and developments. This last question focuses on the key assumptions upon which your business plans, programs, and projections are based. What are your core assumptions? They may be tactical or strategic depending upon the external environment or internal operations, and range from how quickly the economy is growing to how many unique visitors request information after viewing your online product demonstration. In any case, every business’ plans rests on foundational assumptions and when one or more are shaky, results may be unstable.
Not every unexpected result is negative. On the positive side, use these questions to help your management team identify opportunities. Wouldn’t it be better to prepare to take advantage of potential bright spots as well as avoiding unnecessary crises? If that makes sense to you, try building consideration of these five questions into your planning for 2014.
Karen Utgoff, principal of Karen Lauter Utgoff Consulting, is a market-oriented business strategist based in Amherst, MA. Learn more at http://www.utgoff.com.
© Karen Lauter Utgoff Consulting 2013. All rights reserved.