Competition, like profitability, is one of those issues where every aspiring entrepreneur has already learned all the folk wisdom before they start their company. And, of course, because it is folk wisdom we do not lose any time stoppping to validate the correctness.
Lately I have been thinking about competition and how to properly understand it. Fortunately, whenever a subject starts to bother me along come 3-4 good articles to stimulate my thinking.
The first article I saw was "The Achilles Heel of Every Great Idea" which does a beautiful job of discussing the restaurant industry to describe competition, differentiation and target customer/market. There are 1 million restaurants in the U.S. with combined annual revenue of $650 billion. This would clearly be a competitive market with 300 million customers as restaurant patrons. Yet this large number of companies succeed by differentiating their offering to match their taregt market. So perhaps the conclusion is focus on the customer and not the competition.
In an article on ROBGO.ORG entitled "Competition", the author says:
"Sometimes you can be too paranoid and get way too focused on competitors, to the point that they cause you to take your eye off the ball."
The author recommends focus on the customer and do not obsess over competition
In another good article, "Why I Don’t Stress Over Competition Anymore", the author makes two good points:
- Competition validates the market and reduces the investment to educate customers about a new need.
- "Don’t get caught focusing on your competitors at the cost of making wise decisions about your own business." Point 2 above again.
My own thoughts on competition go back to this post on strategy. Effective battles are fought where you can set the stage and bring the most resources to bear. Focusing on competition allows them to determine the battlefield. Better to pick a market segment, differentiate a product to meet those target customer needs and let the competition react.
Second, competitors help to pay to educate customers about a new product. I actually know of a company that kept their competition in business for that reason after the competitor plant was rendered inoperable by the Fukushima nuclear power plant. Like everything, there are good things about competitors.
The last thought comes from Clayton Christensen's concept of disruptive innovation. Christensen says that there is an 80% chance of failure if you compete directly with the market incumbent. One should serve a set of customers who cannot afford the incumbent product. Christensen is advocating for a focus on new market segments.
More to follow.