How Small Businesses Can Deal With Competition

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Jay Cain was a promising engineering student at Georgia Tech. Coming into his sophomore year, Jay was ranked in the top of his engineering class. Having two high successful parents who were engineers themselves didn’t hurt his image among his peers. However, Jay was not happy with his projection in life. His passion was deejaying in front of an audience.  He had garnered a reputation in his high school and his local community for being a good talent in music. He even found himself deejaying parties in college while he was preparing for engineering exams and assignments. 

He told his parents several times he was thinking about leaving school in order to start his business full-time deejay. His parents dismissed the thought because they felt it was not realistic or practical given his abilities in engineering.  When the semester started at Georgia Tech, the school was missing one bright talented student…Jay Cain.  Leaving Georgia, Jay went to New York to make it big. Using money he saved, Jay found himself roomed with three unfamiliar roommates where the rent was cheap.  Jay found that working as a deejay was difficult because of the large competition among established deejays in the area.  Yet, Jay wasn’t about to give up with his dream. He just couldn’t go back to his parents or college.  Jay sat by himself trying to figure out how to meet the competition.

 As many millenniums start flooding the employment landscape, young adults are considering starting their own businesses.  Corporate downsizing and layoffs have thrust many individuals into a tough employment market while other employed workers who are unsatisfied with their jobs plot to fix a plausible exit strategy which will land them into their ideal job.

Sadly, many people run with these well intended ideas about starting a business with little insight into how to implement their plan so that the idea can be successful.  Most folks don’t realize that there is nothing new under the sun and found someone else who is doing what they set out to do. In fact, some people find themselves in a highly competitive environment with little or no plan for navigating this climate. In this issue, we will  examine the concepts of competition for small businesses fighting in global environments. Individuals will learn more about starting a business with competitive environment.

Small business sectors are quickly dominating the landscape in most local communities. Individuals who start their own businesses take control of their financial future. With technology and the Internet, today’s business owner can enjoy more access to information and expert to assist him/her endeavor.  According to the U.S.  Small Business Association, U.S. small businesses make-up about 54% (The 28 million) of all U.S. sales.  Since 1970s, small businesses provide 55% of all jobs and 66% of all net new jobs.[1]

While the corporate landscape has been contracting, small business “start-ups” has grown. Since 90s, the small businesses sector has added 8 million new jobs. [2]  Realistically speaking, some individuals are not good candidates for new start-ups because their personality is built on someone telling them what to do.  We call this an external locus of control where the individual does not have control of their lives; things happen to them as a matter of luck or chance.[3]

Entrepreneurs are cut from a different cloth with a high internal locus of control; they feel that their actions play a strong part in their destiny. Today’s next generation of business owners have this strong internal locus to drive their business ideas.  Millennials, with their techno savvy, are set to cause many to rethink what it means to start a new business from scratch.  According to the 2016 BNP Paribas Global Entrepreneur Report, Millennials are embracing entrepreneurship as a way of life faster than their Baby Boomer parents.[4]

The study was conducting with 2,600 entrepreneurs in 18 countries, in Asia, Europe, and the United States. The researchers of this study, Scorpio Partnership, discussed the emergence of new entrepreneurs under 35 years old called “The Millenniprenuers” born between 1980 and 1995. Comparing Millennials to Baby Boomers, the study showed an increased number of companies, both in the new economy and traditional sectors from Millennials .They average launched about 8 companies compared with 3.5 by Baby Boomers. In fact, Millennials have a turnover of more than 43% that of their counterparts. [5]

Small businesses must understand the tenants of competition.  According to Businessdictionary.com, competition can be defined as ‘rivalry in which every seller tries to get what other sellers are seeking at the same time: salesprofit, and market share by offering the best practicable combination of pricequality, and service.’  The competitive environment should be considered when planning a business venture.  In general, there are four basic climates for businesses environments which include monopoly, oligopoly, pure competition, and monopolistic competition.[6]

In a monopoly, the company is the sole provider where competitors are none existence.  This situation is highly favorable to start-ups and very rare.  One example of a monopoly would be utility companies in local areas.  Most businesses operate in a pure competition or oligopoly where businesses with similar products and services compete for the same customers who have an array of options before them.

Given this scenarios, businesses must worker harder to attract customers by attempting to differentiate their offerings from their competitors. Lastly, a monopolistic environment, different companies offer products and services that customers see the differences.  In fact, businesses seek to build a niche (monopoly) where they can control a specific target market. [7]  One good example would be Dell Companies entry into the computer industry.  Instead of entering the computer business and facing IBM, the market leader head on, Dell Company utilized niche strategy by having customers place their company orders online, phone, or fax.  The concept caught IBM off guard and revolutionize how computers were sold in the industry.[8]

Unfortunately, some new business start-ups do not spend enough time thinking about their market and the level of competition they will face.  That reality is a tragic mistake for many businesses.  According to 2015 Forbes column, nine out of ten new start-up businesses fail.[9]  Most new companies would do well to avoid stiff competition on the onset or at least spending the necessary time in evaluating the competitive environment before entering the market.

Management guru Dr. Michael E. Porter notes the importance of planning out a business strategy for success: “If all you’re trying to do is essentially the same thing as your rivals, then it’s unlikely that you’ll be very successful.”  Thus, the initial step of a competitor analysis is to identify potential competitors and then compare your current marketing strategy (i.e. marketing mix) with what other competitors are doing or likely to do in response to your actions in this particular market.

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Dr. William Perreault, Dr. Joseph Cannon, and Dr. Jerome McCarthy, authors of Essential of Marketing argue for strong strategies to combat market competition:  “So marketing managers should actively seek sustainable competitive advantage, a marketing mix that customers see as better than a competitor’s mix and cannot be quickly or easily copied.” [10] Additionally, Dr. Porter has spent his whole career analyzing strategy and competition in various industries. Competitive environments should not be taken lightly.

In 1979, Harvard Business School professor Michael Porter developed a model to help explain how businesses could be more profitable faced with competition.[11]  Porter’s Five Forces provides a method for analyzing competition for the entrepreneur or business owner; Porter’s approach reviews the following five driving forces related to competitive power:  (a) Threat of intense competitive rivalry, (b) Threat of new entrants, (c) Threat of buyer’s growing bargaining power, (d) Threat of substitution, and (e) Threat of suppliers’ growing power.[12]  This competitive model can be a strategic tool for organizations to evaluate the attractiveness and profitability of a marketing in varying industry sectors.[13]

The following questions should be considered when entering a new market with potential competition:

  • What is the level of competition in potential markets?
  • Do all the competitors offer similar products and services where there is little differentiation?
  • Can other new businesses easily start-up with little cost or experience?
  • Are there rules, regulations, or certification that make it difficult for new businesses to easily enter?
  • Are there barriers for entry that give you a distinct advantage over new competitors?
  • Is it a market where there are few buyers so that they have more influence to dictate terms and conditions to sellers?
  • Do buyers have other alternatives to your product or services? Are those substitutes cheaper or more convenient than your product or services?
  • Is it a market where there are limited suppliers for your products so that suppliers have more influence in impacting your bottom line?

In a world described by hypercompetiveness, small business and new start-ups need to understand how to built strategies that provide them market advantages.  Understanding how competitor act and react goes to this market advantage.

Discuss how competitor analysis can assist small businesses/entrepreneurs target favorable markets.

 

© 2016 by Daryl D. Green

 

[1]“ Small business trends” by U.S. SBA

[2]“ Small business trends” by U.S. SBA

[3] Leadership by Richard Daft

[4] “2016 BNP Paribas Global Entrepreneur Report” by Scorpio Partnership

 

[5] “2016 BNP Paribas Global Entrepreneur Report” by Scorpio Partnership

 

[6] Essentials of Marketing by William Perreault, Joseph Cannon, and Jerome McCarthy

[7] Essentials of Marketing by William Perreault, Joseph Cannon, and Jerome McCarthy

[8] “Market entry strategies: pioneers versus late arrivals” by Gurumurthy Kalyanaram and Ragu Gurumurthy

 

[9] “90% of startups fail: Here’s what you need to know about the 10% by Neil Patel.

 

[10] Essentials of Marketing by William Perreault, Joseph Cannon, and Jerome McCarthy

[11] “Porter’s Five Forces: Analyzing the competition”  by  Katherine Arline

[12] “Porter’s Five Forces: Assessing the balance of power in a business situation” by Mindtools.com.

[13] “How to use Porter’s Five Forces” by Annmarie Hanlon

 

[14] Essentials of Marketing by William Perreault, Joseph Cannon, and Jerome McCarthy

[15] Marketing Management by Phillip Kotler and Kevin Keller

[16] Marketing Management by Phillip Kotler and Kevin Keller

[17] Marketing Management by Phillip Kotler and Kevin Keller

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13 thoughts on “How Small Businesses Can Deal With Competition

  1. Jay Cain story was very appealing. I think he just made a thorough research in the deejaying industries. I think the market is a small one but has over populated workers so its so hard for an in coming Deejays to find their ways without proper guidance and someone to help them through.

    There is definitely the non-satisfaction from employees now, due to overcrowding in the job place and the sense of needing to be paid more. But little do we know that corporates has little interest in meeting employees needs because everyone is replaceable. Employees are always leaving their job places with the intent of starting their own business and not even taking into considering how much money it will take to start their this business they intend do. They rush into this process and later release they are neglecting the market: one of the most important aspect to consider during a start up.

    Corporate contracting has be a stepping-stone encouraging people to enter the start up market more and more. I am still start still having a hard time figuring out how starts ups will survive monopoly market, since there is no room of entry.

    {WC 198}

    11 challenges startups face – teamwork.com. (2016, June 1). Retrieved from https://blog.teamwork.com/11-challenges-startups-face/

    • Hi Gideon,

      You bring up a great point; anyone considering a startup must consider the capital needed to do so. Something that we take for granted though, something Mr Cain has, is the passion, desire and oftentimes reckless abandon it requires to step out and risk it all. Having good counsel, which Mr Cain may have ignored, access to resources, the right motivation and drive are required for any good business to get off the ground.

      Thanks

  2. Dr. Green,

    In your article, it is a good point that you have stated the origin of small business, when big company starts contracting small business start-ups (Para. 6). The small business is the back bone of the U.S. economy. “The five forces model highlights the key factors that determine an industry’s overall competitive rivalry and attractiveness for new entrants.” (Art Daniel, (2016), “Use of Five Forces Model in Industry Analysis”). I suggest, before starting up the small business need to know the niche market and do research on online with the key factors. Analyze the potential competitors with the Michael Porter’s five force model competitive strategy. Jayson Demers, (2014), Founder and CEO, Audience Bloom in his article he says, even if our business is not running on a national or international level, we can still capture the niche market by edging out our competitors in at least one area of our key factors. In addition, he says attending the events and community will bring our product or service much attention to the public. The author says, if we are trying to take down our biggest competitors, it is better to focus on niche. Personalizing your social engagement creates an awareness of your product or services with loyalty, credibility and trust.

    Sources:
    1. Art Daniel, studioD, (2016), “Use of Five Forces Model in Industry Analysis”, Retrieved from
    http://smallbusiness.chron.com/use-five-forces-model-industry-analysis-3290.html

    2. Jayson Demers, (2014), Founder and CEO, Audience Bloom, “5 Ways Small Businesses Can Compete With Giants in SEO” Retrieved from https://www.entrepreneur.com/article/238620

    (WC- 250)

    • Hi Lakshminarayanan,

      Thanks for your response! You have good insight on this matter. I believe that in a fierce, global market businesses must compete with a niche. Countries with less low labor cost, limit regulations, and lots of raw materials can better compete on price.

      All,
      How does one assess their core competencies to determine where to target a niche market?

      Dr. Green

      • Hi Dr Green

        Big companies have a huge disadvantage “They’re big” an enormous drawback of large businesses is in their size. (Carol Ostow, Wall Street Journal 2014, pp4-5) notes” Remember that small means agile and that is a huge competitive advantage”
        In my opinion a small business can outperform its larger counterparts in customer service, trend identification, product output and quality control. Find a niche you are most comfortable in, a distinctive niche for a small business would be to personalize their services, write personal letters to their customers as a form of appreciation, deal with charities in person etc
        Zara’s incredible success is due in large part to the fact that they perform like a small business –swiftly producing products to capitalize on trends and removing product if that trend is underperforming. Most large businesses aren’t so skilled.
        A famous quote by Charles Darwin further emphasises my thoughts. “It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change” – Charles Darwin
        Sources
        1. Carol Ostow, Producing director Flea Theatre, (2014) “ Small businesses and competitive advantage”, Retrieved from: The Wall Street Journal Article – http://www.wsj.com/articles/SB10001424052702303562904579228501899410702
        [WC- 200]

  3. Hi Dr Green

    Jay Cain story is interesting but he ought to have conducted a competitive market analysis, analysed all factors that would affect his choice of business both negatively and positively, carefully mapped out a market entry strategy before leaving everything to chase a world he had very little information about. Whilst we all have our passions that can be a strong force in the choice of our career, the harsh truth is that not all passions are marketable.
    One major challenge small businesses face is sustainability, (David Sederholt, December 30 2014, pp. 1-2) in his article on INC notes” If your business doesn’t respond to changes in the market, economy, technology or other factors, it will simply go the way of the dinosaur. Your competitors are constantly evolving and your business must remain aggressive in the marketplace”
    Evaluate the strengths and weaknesses of your competitors, identify the potential customer’s needs and figure out where your business has a competitive edge and use it to your advantage. A well tuned small business can easily outperform its larger counterparts in customer service.
    References
    http://www.inc.com/david-sederholt/staying-alive-sustaining-a-small-business.html
    The Wall Street Journal Article – http://www.wsj.com/articles/SB10001424052702303562904579228501899410702
    [WC – 190]

  4. Hi Dr Green

    Jay Cain story is interesting but he ought to have conducted a competitive market analysis, analysed all factors that would affect his passion both negatively and positively, carefully mapped out a market entry strategy before leaving everything to chase a world he had very little information about. Whilst we all have our passions that can be a strong force in the choice of our career, the harsh truth is that not all passions are marketable.
    One major challenge small businesses face is sustainability, (David Sederholt, December 30 2014, pp. 1-2) in his article on INC notes” If your business doesn’t respond to changes in the market, economy, technology or other factors, it will simply go the way of the dinosaur. Your competitors are constantly evolving and your business must remain aggressive in the marketplace”
    Evaluate the strengths and weaknesses of your competitors, identify the potential customer’s needs and figure out where your business has a competitive edge and use it to your advantage. A well tuned small business can easily outperform its larger counterparts in customer service.
    References
    http://www.inc.com/david-sederholt/staying-alive-sustaining-a-small-business.html
    The Wall Street Journal Article – http://www.wsj.com/articles/SB10001424052702303562904579228501899410702
    [WC – 190]

    • Hello Amina,

      Thanks for your comments! Yes, Jay Cain let his passion get ahead of his common sense.
      However, many entrepreneurs operate on just passion to get them over the business hurdle.

      All,

      Is passion ever a bad thing for a business owner?
      Professor Green

      • Passion is a requirement for doing anything well. Not that you cannot do anything without passion, but I don’t believe you can do it WELL without passion. At the same time that does not mean that passion is all it takes. Passion can drive an entrepreneur deep into bankruptcy. Passion + good counsel + the right resources at the right time = success. “Every successful small-business owner and entrepreneur must have a passion that drives them forward — a core belief that keeps them pressing on, even though others don’t necessarily have the same vision.” (Mask, n.d.)

        Mask, C. (n.d). Passion, Freedom and Impact: The 3 Ingredients of Business Success. Retrieved from Entrepreneur.com: https://www.entrepreneur.com/article/240396

  5. You stated “According to 2015 Forbes column, nine out of ten new start-up businesses fail.[9] Most new companies would do well to avoid stiff competition on the onset or at least spending the necessary time in evaluating the competitive environment before entering the market.” I think that this is interesting because even though people know how all the odds are stacked against them how people still decide to create their own business. Financially, it seems too risky to take a chance on that and yet so many people do. Coming from a relatively small town, it is interesting to see how many business where started by anyone of any kind of background. I believe that people who start businesses have two very important things: confidence and bravery. They are driven to do whatever they want and they are not afraid to fail. I think it is important to fail sometimes because we learn better from our mistakes and from our successes.

    Green, D. D. (2016, September 03). How Small Businesses Can Deal With Competition. Retrieved October 05, 2016, from https://nuleadership.com/2016/10/03/how-small-businesses-can-deal-with-competition/

    [WC 182]

  6. Hi Dr. Green,

    Jay Cain is a really interesting example for people who desire to start a business. Jay Cain was pursuing his dream and passion, which is a good thing for start-up to have a target in their life. However, he will be successful and achieve his goal if he is more active and ready to make change and adapt to trends customer requests and connect on a more personal level with customers.

    There is benefit of competition, it forces you to give your best. Having that challenger right on your heels pushes you to run faster, work harder and think deeper. As well as an opportunity to strengthen and expand your business.

    Competitive analysis will help Cain to determine the strengths and weaknesses of the competitors within the market and provide him with a distinct advantage, the barriers that can be developed in order to prevent competition from entering the market. Fleisher & Bensoussan (2015) stated “competitive analysis serves a variety of important, longstanding needs for organizations” (Fleisher & Bensoussan, 2015, p. 10).

    Reference:
    Fleisher, C., Bensoussan, B. (2015). Business and Competitive Analysis: Effective Application of New and Classic Methods. New Jersey: FT Press. P. 10.
    [WC-199]

  7. Entrepreneurial business owners often have something that their established competitors do not; a passionate drive for success. Just as Dr. Green says above, “Entrepreneurs are cut from a different cloth with a high internal locus of control; they feel that their actions play a strong part in their destiny.” (Green, 2016)

    That locus of control, or internal drive, propels small business owners deep into competitor research and analysis finding ways to differentiate themselves and stand out. One method of differentiation might be to build a better product or service. Another could be focused on service and “designing a better and faster delivery system” (Keller, 2012)

    The only way an entrepreneur will know how to differentiate is by knowing his market. A SWOT analysis is arguably the first place to start and should be performed before beginning any new venture.
    According to the Kauffman Foundation a SWOT analysis will help a new business identify its core strengths and areas for differentiation, “looking at your business’s strengths is a starting point to identify its core competencies. Once core competencies are identified, they can form the cornerstone of your business strategy.” (Kaufmman Foundation, n.d.)
    [WC – 191]

    Sources:

    Green, D. D. (2016, October 3). How Small Businesses Can Deal With Competition. Retrieved from Nu Leadership Revolution Blog: https://nuleadership.com/2016/10/03/how-small-businesses-can-deal-with-competition/
    Kaufmman Foundation. (n.d.). SWOT Analysis. Retrieved from Entrepreneurship.org : http://entrepreneurship.org/resource-center/swot-analysis.aspx
    Keller, P. K. (2012). Marketing Management (14 ed.). Upper Saddle River, NJ: Prentice Hall.

  8. Does anyone else notice that it appears a large number of entrepreneurs are immigrants? Particularly in Oklahoma there is a strong Latino influence on small business. According Governor Mary Faillin, “Oklahoma City and Tulsa have been recognized in the top 10 cities for Hispanic entrepreneurs.” (Blair, 2016)

    Further, a recent article posted by the Harvard Business Review posits a disproportionate number of immigrants are entrepreneurs, “Immigrants constitute 15% of the general U.S. workforce, but they account for around a quarter of U.S. entrepreneurs (which we define as the top three initial earners in a new business). This is comparable to what we see in innovation and patent filings, where immigrants also account for about a quarter of U.S. inventors.” (Kerr, 2016) The article remarks that immigrant businesses are generally more successful, but the authors are uncertain as to the reasons why.

    It is my privilege to study international business at Oklahoma Baptist University Graduate School where a large percentage, 75 percent by my guess, are international students. I see motivation in them that is not present in most Americans. International students believe they can do anything; and they can!
    Any theories as to why immigrants are more successful entrepreneurs?

    [WC – 199]

    Sources:

    Blair, L. (2016, June 3). Oklahoma City, Tulsa in Top Ten Best Cities for Hispanic Entrepreneurs. Retrieved from News Room Oklahoma Government: http://services.ok.gov/triton/modules/newsroom/newsroom_article.php?id=223&article_id=22301

    Kerr, S. P. (2016, October 3). Immigrants Play a Disproportionate Role in American Entrepreneurship. Retrieved from Harvard Business Review: https://hbr.org/2016/10/immigrants-play-a-disproportionate-role-in-american-entrepreneurship?cm_sp=Article-_-Links-_-Comment#comment-section

    United States Census Bureau. (2015). Quick Facts Oklahoma County. Retrieved from United States Census Bureau: http://www.census.gov/quickfacts/table/PST045215/40109,4055000

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