By Cliff Ennico
As my readers know, I frequently judge business plan competitions throughout the United States.
Just about every time I do one of these, I hear an entrepreneur say that his business plan “has no competition.”
Every time this happens, the audience laughs. Why? Because they know better. Every business has competition. If you don’t have competition, you are probably so far ahead of where things are now that nobody will understand or buy understands your product or service. As the saying goes, you are “so far ahead of the curve” that you have “disappeared from view.” Home-delivery drones, anyone?
Seriously, though, I understand why some entrepreneurs think they will not encounter competition. There are two basic reasons for this delusion:
- Younger entrepreneurs have been taught to believe that competition and aggression of any kind is evil – they believe we are now living in the world of John Lennon’s “Imagine,” and that everyone will fall down and worship the entrepreneur’s plan as soon as it is made public;
- More commonly, though, the entrepreneur who says he or she “has no competition” simply hasn’t looked hard enough to find them.
Competitors come in four basic varieties. Let’s look at each of them.
The “Enemy.” These are the easiest competitors to spot. They are doing exactly the same things you are doing, targeting the same customers, and trying to satisfy the same fears and passions you are trying to satisfy (if you doubt that marketplaces are ruled by people’s fears and passions, check out my award-winning video at https://www.youtube.com/watch?v=mNe7hUAkx4M – it will change your life)
If you are operating a pizza parlor on Main Street, all of the pizza parlors within a five mile radius of your business are “enemies.”
The “Substitute.” This is a trickier competitor to spot. The “substitute” doesn’t look anything like you, but targets the same customers and tries to satisfy the same fears and passions you are.
If you are operating a pizza parlor on Main Street, the other local pizza parlors are “enemies,” but the Chinese takeout place across the street may well be a “substitute” – if people are looking for a quick lunch, they can choose between a slice of pizza and an eggroll, can’t they?
To find “substitutes,” ask the question: if people can no longer afford my products and services, what cheaper products and services would they buy instead?
The “Big Box.” A “big box” competitor is someone who is much larger than you, who targets the same customers, and tries to satisfy the same fears and passions. They may not be in your market as yet, but if they ever did come into your market, they would use their economies of scale to wipe you out.
Examples of “big box” competitors are:
- “Big box” retailers such as Home Depot, WalMart and Costco;
- “Casual dining” restaurant chains such as Olive Garden, Chipotle’s, and Applebee’s;
- Chain stores such as “The Gap”;
- Franchises of any kind (yes, these are “Mom and Pop” businesses at the local level, but they are backed by a national advertising program and can do things to promote their businesses you can only dream of).
The only way to compete with a “big box” is to offer your customers something they don’t. Here are some examples:
- There’s a Home Depot within 10 miles, but your local hardware store sells light bulbs, garden hoses and other common household items and is more conveniently located than the Home Depot – the local contractors will always go to the Home Depot to save money when they buy pallets of lumber, but if someone is looking to buy just one light bulb to replace the one in the bathroom that just burned out, they will not travel 15 miles and wait on long lines to save 25 cents – they will buy from the local store;
- Brick-and-mortar bookstores are disappearing from the landscape, except in one place. Airports. If you are flying to Europe or Asia and forgot to bring a book with you for the flight . . .
- You always want to know where the nearest “big box” competitor is, and how soon it will be before they open an outlet in your face.
The “Obsoleter.” Yes, I know. That’s not a real word (unless I’ve just coined it now). But it’s the best word I can think of to describe the most insidious, and sometimes the most powerful, type of competitor.
An “obsoleter” is a person, a company or a technological innovation that will make your products and services obsolete.
Right now, the Internet is the biggest “obsoleter” for many brick and mortar businesses. Buying online is so much more convenient (and often cheaper) than buying in the physical world. You can find anything you want online, often with free shipping. If people can buy the stuff you sell online, you will sooner or later be out of business.
More next week . . .
Cliff Ennico (www.succeedinginyourbusiness.com), a leading expert on small business law and taxes, is the author of Small Business Survival Guide, The eBay Seller’s Tax and Legal Answer Book and 15 other books. Follow him at @cliffennico.