Innovate to Compete and Keep Your Business Alive

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"Even if you're on the right track, you'll get run over if you just sit there."
Will Rogers

Look at a ten-year-old snapshot of Main Street in any American town or big city and compare it to what you see today. Many of the old businesses probably no longer exist, and many of the survivors have no doubt expanded or updated their appearance. Look again after the current recession has finally ended and you are sure to see that more of the old-timers have either updated their style and offerings or gone out of business. The same sort of winnowing will occur on the directory board in the lobby of any office building.

Where are the missing businesses? A few will have moved, but, especially when economic headwinds are stiff, the majority will be kaput. Even in normal economic times, 80% of business start-ups don't reach their fifth birthday. During dicey economic times, one big reason so many enterprises stagnate or even flatline can be summed up this way: lack of innovation. Enterprises that build creative change into their structure are far more likely to survive a recession than those that look for a recipe for success and then hope to endlessly repeat it.

The reason innovation is crucial to long-term success in both good and bad times is simple. To establish and maintain a profit margin robust enough to survive a business-killing downturn, you need a true competitive advantage. And if you are smart or lucky enough to accomplish this, you must keep your competitive edge in the face of rivals who will inevitably try to copy it and customers whose thirst for the new and trendy will turn yesterday's brilliant innovation into tomorrow's big yawn.

When a small business does well and its product or service is temporarily in short supply, it will attract competitors. Unless the profitable business quickly smartens up and finds a way to distinguish itself, these competitors will quickly find a way to siphon off customers. This is just what happened in the last few decades to many pioneering video stores, quick oil changers, and photocopy shops. Businesses that entered these fields early, when the new service was in demand, often did very well in the short run. But because their business formulas were so easy to copy and few outlets took steps to distinguish themselves, only a minority survived when deep-pocketed chains flooded in.

Competition doesn't always come from big chains. For example, if you establish a small graphic design business to help businesses lay out advertising copy, you'll be competing with dozens, if not hundreds, of others who do much the same thing. And especially during a recession, all of you will be selling your services to business customers, most of whom are very price-sensitive. So to bring in business and charge the prices you'll need in order to support yourself, your design work must clearly be more desirable than your customers can buy down the street (or increasingly, on the Web). For instance, if you are the first local graphics shop to offer a library of popular art deco design elements, chances are your competitors will quickly offer similar motifs. To keep your edge, you'll need to be ready with fresh work, perhaps by turning the clock back to the creative design motifs of the 1930s when WPA artists and architects created a unique body of work. Or maybe you'll seek inspiration in wonderful 18th-century Japanese art. Either way, you'll have to constantly innovate.

You might think that the value of building a competitive edge would be obvious in good times and even more so when customers have a death grip on their wallets. Think again. It never seems to occur to many entrepreneurs to look for ways to aggressively outthink their competitors, which is a huge reason so many never become solidly profitable even in the best of times. For example, all over America, independent coffee shops, not savvy enough to give people a good reason to prefer them, struggle for survival in the shadow of mediocre chain outlets. Similarly, the typical pet food outlet, chiropractor, sandwich shop, or freelance bookkeeping service doesn't have the know-how to create and keep a competitive edge over the ever-present herd of similar businesses. True, because pets and people need to eat, and the IRS and sore feet are always with us, when times are good these look-alike businesses may make enough money to survive. But when the hammer of a deep recession falls, only those that offer customers something extra are likely to prosper.

Fortunately, there are lots of low-cost ways to distinguish your business in customers' minds. Depending on the business, that something extra might be high quality at a reasonable price, a clear technological edge, an accessible location, a superior website, or just really friendly, caring service.

The need to innovate never goes away. When you consider how to reconfigure your business so it will be best positioned to survive, think about not only whether a particular innovative new direction will be substantial enough to set you apart from the competition, but also about how you will be able to extend your advantage over time. And it should go without saying that it won't be enough to come up with a couple of clever ideas and then go back to business as usual. Especially if your profits have melted down to the point where you're not sure your little enterprise will survive, you'll need to build a culture that supports innovation, now and forever.

In my experience, innovation in the small business world occurs in three ways: following trends, copying other businesses' ideas, and paying attention to customer feedback

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