Editor’s note: This article was first published in January 2012; its outlook for that year, its forecast for small businesses during 2012 and the case study from six months earlier reflect that time.
I’m sure 100% of entrepreneurs and business owners have the same goal for 2012: to increase sales and cut costs. In a nutshell, to make their business more profitable.
2012 is not going to be an easy year for small businesses. I don’t mean to be pessimistic, but small businesses are going to fall like front-line soldiers in a war against a stronger enemy. As we argued in a previous article, this will be the year of software, with several giants trying to take over the market and making survival very hard for small retailers. Then again, as an old saying goes, “You don’t need a big company to have a great company”. It is a matter of changing the small-business mindset, if only because, just as in the sea, the small fish usually gets eaten by the big one. Today I want to come back to something that small business owners in the Spanish-speaking world lack: the mindset to form the kind of strategic alliances that are very common in other countries.
Let’s apply the big companies’ model to our small business
Every small business needs the same things in order to grow: more customers, new markets and, sometimes, some investment in advertising. Of course, if to get all that a small shop had to pay for local advertising and hire sales reps in other provinces, it could run out of money before seeing the first results. Let’s change the mindset.
Remember the strategic alliance between El Corte Inglés and Repsol (Spain’s leading department store chain and its biggest oil and fuel company).
Imagine we have our small business on a street in a neighbourhood somewhere in the provinces. Let’s say it’s a clothes shop. Well, the shoe shop across the street is not our competitor (as long as we don’t sell shoes). In this case, we are El Corte Inglés and the shoe shop is Repsol. Has anyone ever looked at their neighbour as an ally rather than a competitor?
One kind of strategic alliance is offering joint coupons. For example: “For every €50 you spend on clothes, 10% off shoes at shop X”, and on the shoe shop’s side, “For every two pairs of shoes, 10% off clothes at shop Y”. That would be one form of alliance between small businesses, and it could not only increase sales at both shops but also bring more customers to that particular neighbourhood through word of mouth. And if they decided to advertise, the cost would be shared between the two shops.
The same example works just as well for a plumber and an electrician, a renovation company and a furniture shop, and so on.
Six months ago I met a renovation company that was going through a rough patch; in fact, they were thinking of closing for lack of work. That was when they had the idea of looking for some kind of alliance, because really, it’s all about getting moving. In this particular case, we looked at the big stores that sell building materials, doors, furniture, blinds and so on. The problem with these stores is that they sell the product but have nobody to install it, and not everyone knows how to do building work, so it is estimated that a big store of this kind loses a considerable number of sales over the year because it has no installers.
We managed to set up an alliance so that the products carried two prices: “with installation or without installation”. If the customer wants the product installed, the big store calls this renovation company that only a few months earlier had no work. The type of collaboration is “subcontracted installation”.
Result: Five months into the “experiment”, the big store has increased its sales by 12% and the renovation company has increased its revenue by 55%, to the point of hiring new staff to keep up with demand. It took just 72 hours to close the negotiation and reach an agreement that benefited both sides.
Other kinds of strategic alliances
I often receive emails from owners of small and medium-sized businesses. Why couldn’t a designer kitchen manufacturer in Granada reach an agreement with a kitchen distributor in Extremadura? Or a furniture seller in Murcia with a renovation company in Almería?
There are hundreds of small businesses eager to reach markets further afield, but they assume that hiring a sales rep in another province wouldn’t pay off. What if, instead of looking for a sales rep, they formed an alliance with another company whose product complements their own?
That way, the small business wouldn’t carry the cost of a sales rep and would only pay a commission each time the partner company sold its product. Company X would expand its product range without having to store anything, since company Y would take care of that.
Alliances can be formed in a thousand different ways without being a big company, and in fact, when it is between small businesses, the negotiation is quicker. You just have to find a way for both businesses to come out ahead from the deal.
Featured image: Daniel Sancho, CC BY 2.0, via Flickr.
