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Welcome to our webinar series on essential strategy and planning tools for small and medium size Canadian businesses.
After our first few webinars that discussed the what and the why of strategy, I’d like to get into the how of strategy.
I’d like to give you some tools to implement helpful strategies in your business.
I’ll start with a really easy, but powerful, analysis to apply to your business, the BCG Matrix- a 2 dimensional x-y axis graph that maps where your business lies relative to the industry it is a part of. Essentially, the graph has 4 quadrants:
• Low market growth- low market share, or called a dog
• Low market growth- high market share, or called a cash cow
• High market growth- Low market share, or called a question mark
• High market growth- high market share, or called a star
Try to look at and apply this table to your business. Look at it not as a descriptive measure, but rather as a prescriptive tool to gain insights as to where your business lies and what that means to your business strategically.
If your business is a dog, low market share and low market growth, then are you wasting your time, throwing good money after bad?
If your business is a cash cow, high market share even though that particular industry is fully matured with little to no future growth, then by all means continue to reap the profits but are you wasting valuable resources by re-investing in that business? Perhaps those resources will be better spent and re-invested in another business or even expanding the existing business into other product lines?
Further, as a question mark, being a small player in a large and ever growing pond, some of the logical strategic take-a-ways could be to utilize business resources to expand marketing efforts, find competitive advantages that your competitors do not have or hire talented people that will make a difference all in an effort to move you from a question mark to a star. Getting a bigger chunk of that exciting growth industry.
The interesting thing about this 2 dimensional graph is that it can be used to compare the relationship between any 2 important strategical variables. As an example, the same graph can be used to compare over-all gross profitability in your business with your market share. Namely, if your return or profit per sale is low and your market share is low, you’ll never make money! If your return or profit per sale is high but your market share is low, or these 2 factors are reversed, the result is average returns. Of course, the best position it to be in is the quadrant where your gross profits are great and your market share is also great!
Again, its nice to be able to plot where your business stands on the graph, but try to go that extra step and ask the “so what question”. What are the implications.
This is the first basic business strategy tool of the how segment of our business strategy webinar series. Next time we’ll be introducing some other great and easy to use models for your business.
Future Balance CPAs is a Toronto, Canada based online CPA firm. For more help and guidance related to online bookkeeping, online accounting, tax or business advise, feel free to contact us at futurebalance.ca or call one of our CPAs at 1-844-7-FB-CPAS to help you work smarter today.