21
The Most Competitive Time Ever
THERE HAS NEVER BEEN a worse time to try to start a business. Why, you ask? Because there has never been a time in history where there has been more business competition. Ever. We have come off one of the most innovative centuries in all of time. Virtually everything imaginable, useful or not, has been thought of, as well as at least a dozen derivative products or services for each innovation. Pop on over to the U.S. Patent and Trademark Office website at www.uspto.gov and take a look through the registrations for patents, trademarks, and servicemarks for new product innovations, brand marks for goods, and brand marks for services, respectively. Think of anything you can imagine and then look at how many patents and trademarks have been filed related to that topic. It is a staggering amount that will make your head spin.
We have more choices for every product and service you can think of than we will ever need. From hamburger joints to toothpaste to child care options, we have myriad choices for everything we want, everything we need and even for things we don’t give a crap about. Plus, because historically there has been no screening process for entrepreneurship, all kinds of people jump into business. While it is very difficult to make a business succeed, it is really easy to try and start one.
For anyone legitimately trying to start a business, the competition faced by entrepreneurs today creates all sorts of issues. For one, novelty isn’t going to carry your business the way it did fifty years ago. With the perceived ease of trying to start a business, even if you come up with a somewhat novel idea, the chances are that there are dozens of people working on the same thing or something that is similar. If not, the moment you launch your business, there will be dozens of imitators—and, if there is any hint of success, hundreds more.
Your business competes for customers’ time, attention, and money against indirect competition as well. If you come up with a new food product, you are still competing against the tens of thousands of existing food products out there. Even if your food product is slightly different, it is still food and has to compete with all of the other food choices, because there are only so many occasions each day that people eat and only so much money they will allocate to food.
If the companies you are competing against are good competitors, this is bad for you. They will be slugging it out with you for market share on a daily basis. You will have to innovate at lightning speed in every aspect of your business because there will always be at least one business right there (and likely multiple businesses) trying to steal your customers and your market share. This may include larger businesses that have more capital, more resources, and a better brand name than you.
You may think that a large company wouldn’t bother competing with a small player; however, this happens all of the time and is happening more frequently as competition has increased. Instead of just competing with their larger competitors, big companies will sometimes go “down market” and compete against small competitors.
This happens in every industry and across industry segments. When my husband and I started Intercap Merchant Partners’ investment banking practice, we started an investment bank to fill a void in the market. At the time, most large investment banks wouldn’t take on mergers and acquisition transactions under $75 million in value, because smaller transactions didn’t generate the minimum fees required by the larger investment banks to take care of their staff and overhead. Most large investment banks had a fee minimum of at least $1 million per transaction and wouldn’t even consider something below $500,000. Therefore, smaller and middle market clients whose deal sizes didn’t reach that range had to find other merger and acquisition advisors, many of which didn’t have the same expertise as the large investment banks. Having been trained by and using the same standards as large investment banks, Intercap Merchant Partners set out to service those lower middle market businesses. We could offer bulge-bracket investment banking capabilities for those smaller businesses whose deals were in the $20–50 million value range that netted fees of $250,000 to $500,000 per transaction.
This was a great differentiator for a small period of time. However, once the large investment banking niche got ultra-competitive, the large investment banks started coming after our niche. Where before they wouldn’t touch deals that had a potential fee under $500,000, now they were vigorously pursuing those exact transactions. So, instead of competing against Joe Schmo advisory firm, Intercap Merchant Partners was now competing against Banc of America Securities (the very firm we had left years earlier and which previously would have never thought of doing the size deals we were doing). That is how quickly the marketplace moves, and if there is money to be made, lots of competitors, including some formidable ones, will be flocking there.
This example with Banc of America Securities is not an isolated incident. When a big company’s growth opportunities start to slow in its traditional marketplaces, it will go after the smaller niches. There are many instances of this, such as mega-retailer PetSmart going after the traditionally mom-and-pop pet-lodging and pet-watching niches with its PetSmart PetsHotel and Doggie Day Camp services. We all have seen Hershey’s go from a mass-market chocolate manufacturer to the ultra-premium artisan chocolate niche with its acquisitions of upscale chocolatiers Scharffen Berger and Joseph Schmidt. If there is a growth opportunity, even a small one, all potential competitors will be aware of it and most likely, some will come after it.
Bad Competitors Are Bad for You, Too
You will face a lot of strife from good competition. However, bad competitors can be even worse. Bad competitors can screw up a market opportunity for you as much as, if not more than, good competitors. Bad competitors can give consumers such a bad experience that they never want to try a similar good or service again. Customers will trade to an indirect competitor’s product or service simply because you are guilty by association of serving the same niche as your bad competitor. For example, if you make a natural cola and a potential customer tried one of your competitor’s products first, which happened to taste like dirt combined with vomit, the customer may get a bad association with natural cola in general and never try your superior product. If a potential customer was scammed by a company that supposedly provided debt consolidation services, even if your debt consolidation company is legitimate and effective, you may be lumped in with the scammer in the customer’s mind. Bad competitors poison the well, which can spell real trouble for you. With the ease of starting businesses, this is a growing concern for aspiring entrepreneurs.
Wade Beavers and Joe Sriver of DoApp couldn’t believe how fast a market can move and change. Their team began to create concepts for iPhone applications (“apps”) prior to the launch of Apple’s App Store. By the launch date, they had conceptualized four hundred and fifty different apps. Wade estimates that somewhere between eight to twelve weeks after Apple’s launch of the App Store, 90 percent of those apps had already been created by competitors. He says, “You may think your idea is brilliant, but the chances are that someone has already thought of it. Take for example our ‘Whoopee Cushion’ app, which was initially banned. By the time it was approved, there were already fifty other flatulence apps available!”
While the market may move quickly in the technology industry, every industry is exposed to the same issues, at varying degrees of speed. Business is a daily war, and you have to defend your turf against the competition. There is no room for complacency or taking a break. Just as you celebrate a victory, you have to get back in the trenches, as there is always someone trying to one-up you.
Hey Mr. Customer, I’m Over Here . . .
But to celebrate a victory, you have to reach your customers. Competition is so fierce that it has become very difficult to reach your target customers in the first place. The amount of business products in any given market is staggering. Whether you are targeting end-consumers or businesses, mass market or a niche, people are hard to find, and it is even harder to get their attention once you do find them. There is so much noise in the marketplace that every business competing for your customers’ attention makes it that much harder for you to get your message across.
Think about your daily life and how many marketing messages you see every day. You get flyers in the mail. You see billboards on the sides of roads, on buses, and at train stations. There are commercials on the radio and television, and in magazines and periodicals. If you have an email account, no doubt you have received email from companies you have done business with, as well as those who are spamming you, peddling everything from advanced degrees to penis enlargements. Online, banner ads, pop-up ads, and advertorials litter the web. Now, for all of those advertisements and marketing pieces you have seen, how many do you remember, and how many have encouraged you to try a product or service? The answer is probably a tiny fraction of what you have been exposed to. In fact, you and I see so many marketing pieces each day that we are starting to become desensitized to marketing in general.
I know our company receives all sorts of mail solicitations, many of which have no relation to our businesses whatsoever. We get glossy brochures on everything from recycling programs and corporate gifting to janitorial services and venues to host client events. We get letters, phone calls, and emails, as well as advertisements disguised as flyers, keychains, mousepads, magazines, coupons, gift certificates, and more. I am sure that there are probably some gems hidden amongst all of the rocks—that is, services and goods that we actually want or need—but most of the solicitations get put into the circular file (a.k.a. the trash can) because we simply don’t have the time to go through the sheer volume of solicitations. These advertisements have become so omnipresent and intrusive that everyone is predisposed to either say no, or totally ignore your message in the first place, even if you have a good or service with merit.
And on top of the noise in the market, your potential customers are more fragmented than ever, so it is hard to target them in the first place. It may have been obvious twenty years ago to target a certain business group through an industry conference. Now there are dozens of smaller conferences servicing the same industry. Instead of going to one big event, there is an event in every major city twice a year. Consumer products companies used the television for advertising when there were only a few channels and few distractions. Now people are spending less time watching television, and their viewership is split among hundreds of channels. Finding the customers is a challenge, and then, if you do find them, you may not be able to get their attention. Not exactly what you would call “fun,” right?
A World Wide Web of Choices
Many aspiring entrepreneurs don’t think through the issues regarding competition and reaching customers before starting a business. For example, one entrepreneur (I will call her Katy) who was referred to me made custom purses. I asked her how she was planning to sell them. Katy told me she’d do it through websites like eBay and on “the internet.” I then asked her how the customer was going to find the purses on eBay and the internet.
To make my point, I went straight to eBay. When I typed “purse” into eBay’s search box, there were 229,888 listings that included the word “purse.” I am sure it varies a bit depending on when you check the site, but there are still hundreds of thousands of purses on eBay every day. I then narrowed the eBay search by putting the more descriptive “black purse” into the search box and that narrowed it to a mere 34,067 black purses available on eBay. Switching from using the search function to the category function, there were 195,978 listings in eBay’s purse-equivalent category called “handbags and bags.”
Going to Google was even worse. The word “purse” returned 32.7 million results and “black purse” returned 1.13 million results. Katy could put the purses on eBay or on her website all day long, but how the heck was anyone going to find them?
Clearly what Katy didn’t realize is that on eBay or anywhere else online, if a business wants a customer to be able to find its products, it needs to be very specific. Most of the time, the search for a black purse is done with a specific brand name attached, such as “Louis Vuitton black purse” or “Gucci black purse,” or even more specific with a style attached like “Coach black soho ski hobo purse.” This is to hone the search results to a more reasonable number of options.
Unfortunately, nobody has heard of Katy’s new business, so nobody will be typing “Katy’s black purse” into any search engine, and certainly nobody is going to take the time to browse through thousands of results and just magically discover Katy’s purses. She has to build her brand first and that, given all of the competition and noise we have been talking about, is neither easy nor inexpensive to do.
So, if you like the idea of never-ending competition with major competitors with tons of resources and bad competitors who could damage your reputation, all to gain the attention of customers who are hard to find and even when you do find them they are so overloaded with information that they ignore you anyways, you are going to love being in business. If that doesn’t sound fun, start heading in another direction.
EXERCISE 13
TARGET FOCUS—OPPORTUNITY:
Do You Have a Competitive Advantage?
Write down the answers to the following:
- What other businesses are you or will you be competing with either directly (i.e., providing the same types of goods and services) or indirectly (i.e., providing a different type of goods or services to the same target customers, like movies and video games both competing for customers’ entertainment spending)?
- If you are having trouble identifying competitors, you can ask friends, visit stores where similar products would be sold, and search for key words related to your business in Google, among other research options.
- Write down next to each competitor how your business will compete with those businesses. You should include what you will bring to the table that is innovative and difficult to replicate in terms of:
- Value
- Customer service
- Relationships
- Functionality
- Marketing
- Intellectual property
- Technology
- Or any other competitive advantages that would be hard for another competitor to reproduce
- How easy is it for another company to enter your business segment and compete with you?
A large number of competitors, ease of entry into your industry segment, and fewer competitive barriers for your opportunity will make it more difficult to succeed and decrease the upside potential of the opportunity. Use your evaluation of the competitive landscape for your business model to assess whether your assumptions about your business are realistic. You may need to adjust the business model to make it more viable and attractive before you get to your risk and reward evaluation.
RECOMMENDATION
If you do decide to move forward and want to learn about the slow but effective process of building relationships with your customers, I recommend The Contrarian Effect by Michael Port and Elizabeth Marshall.