PA strategy

Research Paper: Development of a Strategic Plan for Peoplearound
Marmi Maramot and Alexandre Le
MGMT 560 Strategic Planning, Professor Laura Whitcomb
March 9, 2009
Introduction
Our project will be to develop a strategic plan for Alex’s for-profit company,
Peoplearound, Inc. (PA). There are three SBUs within PA. Peoplearound.com, the main
SBU, is an online community for small businesses where they can get referrals, barter
services, and be listed in a directory. Peoplearound.net is the web marketing division of
PA. The newest SBU is nooget.com, a search engine that will devote 99% of its profits
to nonprofit organizations. However, this paper will focus on peoplearound.com.
The company’s first incarnation was as a website developer in 2004, and at that time
Alex had no educational background in business (his masters degree is in software
engineering). Therefore, he had neither the knowledge nor experience needed to develop
a strategic plan for PA. Now that the both of us have enrolled in Cal State LA’s MBA
program and signed up for this class, we will be able to accomplish this task.
Mission, Core Values, and Goals
The mission statement is absolutely a requirement to place at the top of any strategic
plan, since it clearly states the purpose for a company’s very existence. And the first step
in formulating a mission statement is to assess both PA’s internal characteristics and the
external forces affecting the company. Hence, both Gregory Hoffmann in his article
“Effective Strategic Planning – Alice and Yogi Provide Some Insights” and Kenneth
Cook in his book AMA Complete Guide to Strategic Planning for Small Business
advocate doing a SWOT analysis to begin the strategic planning process. We will also do
a VRIO analysis to further assess PA’s ability to sustain competitive advantage. Next we
will identify the core values that we possess and deem important. Finally, we will
establish quantitative goals to guide our future activities. The complete mission
statement can be found in the formal strategic plan document at the end of this paper.
SWOT Analysis
Strengths:
• The main strength is the quality of PA’s services relative to their price.
• Deep knowledge of the technologies required to develop and run the websites
• Flexibility to adapt to clients’ needs
Weaknesses:
• Limited financial and human resources
M. Maramot and A. Le
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Opportunities:
• Because of the economy, many people are being laid off from corporate jobs and may
start their own small businesses, which means more potential community members.
Also, existing small businesses are looking for alternative ways to increase their sales
in order to survive in this new economy.
• Huge potential for international growth, e.g. Brazil where there are 5.4 million small
businesses (Entrepreneur August 2007)
Threats:
• Established barter companies, business directories, and referral networks
VRIO Analysis
Is it Valuable?
By helping small businesses gain new sales through bartering, referrals, and promotion
(coupons, publication in our business directory, free advertising on nooget.com for one
year), PA is definitely providing them a valuable service, especially in this current
economy.
Is it Rare?
While there currently exist businesses that offer services similar to PA’s, there is no
single company that offers all of the services provided by PA all in one place.
Furthermore, unlike many bartering communities and referral networks, PA does not
charge any membership or listing fees. PA is able to have low costs due to outsourcing
of technical operations.
Is it hard to Imitate?
For existing organizations offering only one kind of service, PA’s business model would
be difficult to imitate, by virtue of the fact that they would have to undergo a major
organizational change to expand their portfolio of services. Admittedly, it would not be
hard for future organizations to jump on the bandwagon. However, being the first such
one-stop shop for small businesses would afford us some advantage since existing
customers would stay with us and potential customers would rather go with an
established business than with an unproven one.
Is it supported by the Organization?
PA’s SBUs are all supportive of the objective of helping small businesses.
Peoplearound.com is the most closely connected to this objective of the three SBUs.
Peoplearound.net can also help. For example, if a small business would like to be a part
of the PA community but lacks a good website, and therefore would not be able to link its
business directory listing to a company website that it can be proud of, then
Peoplearound.net not only offers high-quality website design at an affordable price, it
will also accept barter credits from peoplearound.com as payment. Finally, small
businesses can advertise on nooget.com for a much cheaper price than on any of the
larger search engines.
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Core Values
• We will provide our community members with the highest quality of service.
• We strive to help as many people as possible: small businesses which all deserve a
chance to become successful and consumers in search of excellent providers of goods
and services to patronize.
Statement of Goals
• To build a community with a membership of 10,000 U.S. small businesses by the end
of 2010.
• To build a community with a membership of 20,000 North and South American small
businesses by the end of 2011.
• To build a community with a membership of 5,000 British, French, German, and
Spanish small businesses by the end of 2013.
Understanding Our Business
The two most important components of a business are the products/services that it offers
and the customers who buy them. Therefore, it is crucial to get a view of PA from the
perspective of a small business. First we will do an analysis of the services that PA
provides, and second we will look at who makes up our market base.
Description of Services Offered
Peoplearound.com offers four services:
• Referral reward system: Small businesses will offer a cash reward to a community
member who refers a customer their way. PA holds the payment for the referral until
the company completes the service or delivers the product to the customer, then
releases the payment to the member who referred the customer. PA collects a very
small percentage of the reward.
• Free referral network: Community members can form their own local networking
groups where members would not be competing against each other (i.e. a group
would have only one plumber, one accountant, etc.). Referrals exchanged among
members of a networking group would be free, as would the ability to organize social
and business events.
• Barter exchange: Small businesses low on operating cash can barter with other
community members to obtain the products and services they need. It is not
necessary to have an exact match between two members since the currency used is
barter credits, not money. In other words, a small business offers its products or
services in exchange for barter credits, which it can then use to purchase the products
or services it needs. It is free to post a barter offer. PA only charges a low
transaction fee when an exchange takes place.
• Business directory: This is a searchable listing of all small businesses that are
community members, organized by the type of service they provide. Members can
give ratings, and the small businesses can include promotional coupons in their entry.
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So, users can filter their search to include only businesses over a certain rating or who
are offering coupons, for example. It is free to be listed in the directory and to post
coupons.
Analysis of Services
One-stop shop. As mentioned previously, Peoplearound.com is the only company that
offers a referral network, barter exchange, and a business directory all from one website.
It would be very convenient and time-saving for a small business to be able to do all
these things with one account, rather than to maintain registrations at multiple websites.
Low cost. Also as mentioned previously, Peoplearound.com charges no membership or
listing fees, only small transaction fees for completed bartering and referral deals. Also,
community members can get the same benefits that they would receive from joining their
local chamber of commerce or professional networking group, without having to pay the
annual dues that these other organizations charge.
Win-win situation. Peoplearound.com is the only company offering a paid referral
system that is free to sign up. Small businesses get new customers who can generate
good word of mouth, referrers get paid for sending the customers (actual customers, not
just potential leads), PA gets a cut, and customers are provided with a needed product or
service from a small business trusted by the referrer. Because referrers get cash, this
provides a continuous motivation to drum up more business for the providers that they
like and want to help.
Analysis of Market Base
Following is a list of the kind of customers that PA will target:
1. Small businesses with limited advertising budgets
2. Small businesses with little or no free cash flow and idle inventory/capacity
3. Small businesses currently paying to be members of referral networks such as local
chambers of commerce
4. Patrons wishing to help promote their favorite small businesses and get rewarded for
it
All of these market segments have huge potential in terms of the number of possible
customers. #1 and #2 would be especially likely to be a big market, due to the current
state of the economy. Since most people would agree that helping others is a good thing
and would likely do so if it were painless and especially if they were to be compensated,
then #4 is particularly ripe for the picking. There are millions of people who post
positive reviews on websites like Yelp for free, so why wouldn’t some of these people
take the extra step to refer a specific customer to their favorite small business in order to
get a cash reward?
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Understanding Our Industry
Next we will analyze the industry PA is in, which plays a major role in determining if PA
can be an effective player. To do this, we will use the Porter’s Five Forces model.
Ease of Entry
Capital requirements. Small businesses that can conduct their operations entirely over
the Internet have very low capital requirements. Cloud computing eliminates the need to
purchase and maintain expensive servers. This factors negatively in Industry
Attractiveness.
Switching costs for the customer. Small businesses incur no monetary costs to switch
over to a new online community from an existing one. Negative factor.
Industry growth rate. Because the number of small businesses and thus the need for
services catered to them has high potential growth, there may be many more entrants who
will want a slice of the pie. Negative factor.
Clearly, the overall contribution to Industry Attractiveness from the force Ease of Entry is
Negative.
Supplier Power
Since PA is not in the business of selling physical products, then the only kind of supplier
that is relevant to this industry is a supplier of labor, i.e. people with computer skills who
can do coding and website development and maintenance. Because workers from such
places as India can be hired cheaply, the supplier power for this industry is low.
Therefore, the contribution to Industry Attractiveness from the force Supplier Power is
Positive.
Buyer Power
As mentioned previously, it is easy for buyers to switch from one competitor to another
in the online services industry, which is a negative factor. However, because quality is
very important to buyers of services, and PA is absolutely committed to providing high
quality service to small businesses, then the power they can wield in terms of dictating
price is limited. Because this positive factor cancels out the negative factor, then the
overall contribution to Industry Attractiveness from the force Buyer Power is Neutral.
Product Substitution
Theoretically, the processes of paid referrals, networking, and bartering could be
conducted entirely offline, and there are hardcopy directories such as the phone book.
But in practice, this is simply not done. Therefore, the contribution to Industry
Attractiveness from the force Product Substitution is Positive.
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Industry Competitors
The number of competitors in the online services industry is very high. Also, as noted
previously in the SWOT analysis, there are already established providers of the kinds of
services that PA provides. Therefore, the contribution to Industry Attractiveness from the
force Industry Competitors is Strongly Negative. We will discuss our competitors
further in the next section.
Below is a table summarizing our Porter’s Five Forces analysis.
Force Contribution to Industry Attractiveness Rating
Ease of Entry Negative
Supplier Power Positive
Buyer Power Neutral
Product Substitution Positive
Industry Competitors Strongly Negative
According to our analysis, the overall Industry Attractiveness Rating is Negative.
However, a new entrant can survive in the online services industry by differentiating
itself in the eyes of consumers, which we feel PA can accomplish. We will discuss
differentiation in more detail in later sections.
Understanding Our Competitors
As mentioned previously, there are numerous competitors in the online services industry.
To determine if PA indeed offers small businesses something different than the rest, we
will identify who a sample of our competitors are and compare them with PA in terms of
quality and price.
Product Competitor Quality Price
www.uRefer.com Equal Higher
www.SparkReferrals.com Higher Higher
www.lachamber.com Higher Higher
www.bni.com Higher Higher
www.imsbarter.com Higher Higher
www.itex.com Higher Higher
www.mytradeamerica.com Higher Higher
yellowpages.com Higher Higher
craigslist.com Higher Equal
yelp.com Higher Equal
citysearch.com Higher Equal
Referral reward system
Referral network
Barter exchange
Business directory
In general, if a competitor offers higher quality than PA, it is because not only is it more
established and experienced, but it also charges a higher price. In the case of PA’s
business directory competitors, since Craigslist, Yelp, and Citysearch are also free to be
listed, then their price is equal to PA’s. However, as mentioned earlier, PA is the only
community where all four services are offered conveniently in one place, without
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any membership or listing fees. This is the main point of differentiation for PA. So,
while other companies may offer higher quality due to the fact that they are specialists in
providing a particular service, none of them deliver it for a lower price, and none offer all
of these four services. Therefore, PA can still compete effectively in its industry.
Last Thoughts on Differentiation
Differentiation is not just about being unique. A business has to be unique in a way that
is valued by customers. PA’s point of differentiation bolded above satisfies this
condition as well as two others mentioned in the AMA book.
Customer-focused. From simple observation of established businesses, it seems that
customers have shown that they do appreciate being able to get multiple services all
from the same place. For example, at Costco, not only can you buy a wide range of
physical goods, you can also get an eye exam and prescription glasses, have new tires
installed, fill up your gas tank, and have your photos developed. At banks you can have
not only basic checking and savings accounts, but also have your mortgage with them.
The Auto Club offers travel and insurance services in addition to its signature roadside
assistance.
While a stand-alone photo lab or optometrist may provide better photos and eyeglasses, it
seems Costco customers are willing to forego having the absolute best in quality in order
to save time and trouble, as long as the quality is good enough for them. Less places to
deal with means less information to have to keep track of and therefore makes managing
one’s affairs simpler. This is true for individual consumers, so why wouldn’t it also be
true for small businesses?
Cannot be easily copied. Differentiating solely on price is not effective, because once
one business announces a sale or other such event or promotion involving discounts,
competitors will just rush in and do the same thing. As mentioned in our VRIO analysis,
existing competitors offering just bartering or just a referral system/network or just a
business directory will not be able to easily replicate PA’s entire portfolio of services,
due to the substantial changes that would need to made in their organizational structure
and computer systems.
Must be simple and straightforward. Two examples in the AMA book best illustrate this.
“Domino’s offers home delivery in thirty minutes or less. Burger King offers broiled, not
fried.” In the case of PA, everyone can “get” the concepts of a one-stop shop and no
membership or listing fees. Small businesses currently using multiple companies for
ways to increase sales or paying $2,500 in annual membership dues to Itex.com would
immediately understand PA’s point of differentiation.
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Formulating Strategies
Kenneth Cook suggests that small businesses place themselves in one of the squares of
the BCG Growth-Share Matrix, since the quadrant you are in has certain implications
for which strategic direction you should move in. To do this, first we need to determine
the growth rate and PA’s market share of the small business market.
U.S. Market growth rate
The Knowledge@Emory article “Is Small Business the Future of America?” from May
2007 implies that small business is a growing economic trend. According to the U.S.
Small Business Administration (SBA), companies with fewer than 20 employees:
• account for more than half of nonfarm gross domestic product, and
• generated 60% to 80% of the new jobs in the past decade.
As Edward Hess of Emory University’s Goizueta Business School sees it, “Globalization,
corporate efficiency, and the tendency toward ever-greater consolidation keep pushing
more and more people out of the largest corporations and that encourages more people to
start their own businesses.” And as we pointed out earlier in our SWOT analysis, the
current state of the economy can only hasten this shift away from large firms towards
small businesses.
Market growth rate outside the U.S.
In terms of international small business growth, the best example is Brazil, which has
made major strides in creating a hospitable environment for the development of small
businesses. The government reduced the minimum value for foreign investment from
US$ 200,000 to US$ 50,000 in 2004, and in 2007 new legislation was enacted giving
preferential treatment to small and micro-businesses in the awarding of government
contracts. For example, in the event of a tie in bidding or even if the smaller business’
bid is 10% over the winning bid, the small business would get the contract. “The
government must stimulate economic growth through awarding tenders to the micro-
businesses and small companies in sensitive and strategic sectors of the economy in the
interest of generating jobs and income,” said Rogerio Santanna of the Planning Ministry.
Peoplearound’s share of the small business market
PA has a near-term goal of signing up 10,000 small businesses as community members.
To put this in perspective, currently Visa’s Small Business Network, an application on
Facebook, has a membership of 30,000. Therefore even if PA does achieve its goal
before the 2010 target, this is still only a third of what Visa has now. So, we will say that
PA has a low market share.
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PA is in the high market growth/low market share quadrant, or “Question Mark.” So
while it’s good that PA is not an out-and-out Dog, it will take a considerable amount of
effort to avoid veering into that quadrant and move closer to Star territory instead. In
order to increase market share, PA will employ the following tactics:
• Build a strong business directory and invite all of the listed businesses to complete
their registration.
• Give free barter credits for registering and for signing up other small businesses as
members.
• As an introductory offer, give free advertising on nooget.com for a limited time.
• Create partnerships with the SBA, banks, and other institutions that small businesses
use.
• Advertise on the websites of such organizations as local chambers of commerce,
national small business networks, business magazines, etc.
• Direct marketing such as email campaigns and cold calling.
Implementation and Evaluation
As the volume of PA’s community of small businesses grows, more employees will be
added to handle customer service and marketing functions. (Currently there are only the
two of us, and we are not working on PA full-time.) The strategic plan will be updated
every four years, and strategic review sessions will be held every quarter to assess our
progress towards PA’s goals.
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References
Cook, AMA Complete Guide to Strategic Planning for Small Business 1994.
Hoffman, “Effective Strategic Planning – Alice and Yogi Provide Some Insights,” The
Licensing Journal February 2007.
Knowledge@Emory, “Is Small Business the Future of America?” May 9, 2007.
Pfeifer, “Seeds of growth: with new laws in play, Brazil’s small businesses are earning
more and more selling to the government,” Entrepreneur.com August 2007.
Rocha, “Brazil Makes It Much Easier for Foreign Investor,” Brazzil Magazine October
11, 2004.
SBA Frequently Asked Questions (http://www.sba.gov/advo/stats/sbfaq.pdf)
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Four-Year Strategic Plan
March 2009
I. Mission
Peoplearound is an online community for small businesses that is committed
to helping them gain new sales by offering a paid referral system, professional
networking capabilities, barter exchange, and a business directory including
coupons, without any membership or listing fees.
II. Core Values
A. We will provide our community members with the highest quality of
service.
B. We strive to help as many people as possible: small businesses which all
deserve a chance to become successful and consumers in search of
excellent providers of goods and services to patronize.
III. Goals
A. To build a community with a membership of 10,000 U.S. small businesses
by the end of 2010.
B. To build a community with a membership of 20,000 North and South
American small businesses by the end of 2011.
C. To build a community with a membership of 5,000 British, French,
German, and Spanish small businesses by the end of 2013.
IV. Planned Activities
A. Build a strong business directory and invite all of the listed businesses to
complete their registration.
B. Give free barter credits for registering and for signing up other small
businesses as members.
C. As an introductory offer, give free advertising on nooget.com for a limited
time.
D. Create partnerships with the SBA, banks, and other institutions that small
businesses use.
E. Advertise on the websites of such organizations as local chambers of
commerce, national small business networks, business magazines, etc.
F. Direct marketing such as email campaigns and cold calling.
V. Frequency of Strategic Plan Review
A. This Strategic Plan will be updated every four years.
B. Strategic review sessions will be held every quarter to assess our progress
towards Peoplearound’s goals.
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