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: sales, profit, and market share by offering the best practicable combination of price, quality, 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.
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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