Competition is a drag on earnings. Darn, but welcome to life. The key to success comes from reducing or eliminating competition legally.
Some companies eliminate competition by being the very lowest cost to meet requirements to be considered by a customer group. High-end bed linen and mattresses are pursuing this strategy with a direct-to-consumer business model, displacing high-end brands sold through retail stores.
An approach beyond competing on price is to offer something no one else can do as well. You may be more expensive, but you are worth it. Think of a plastic surgeon with the best reputation in a city. Build loyalty with the customer base you target and then get them to buy more things from you. Independent bookstores have taken this approach in light of Amazon, with Barnes and Noble stuck in an unattractive middle, especially as Amazon opens stores.
In either case, it’s critical to define a niche for your business. Define territory you will build and defend against all comers because you will serve it more efficiently and effectively than the competition. As large as Amazon is – it has historically been in the niches of
- Online retail
- Web services for B2B customers
- Distribution services for direct shipping of manufacturers’ products to customers purchasing on Amazon
Amazon’s niches are synergistic. If I am a manufacturer, Amazon can do many things for me to reach an audience. Moving into groceries through the acquisition of Whole Foods was a synergistic move that allows it to compete better against Walmart, who has upped its online business.
Part of GE’s problems arose from niches that are not synergistic and investors asking if the company would be worth more broken apart. Welch’s promise of “management synergies” never held up once the curtain came off after the 2008 recession and GE Capital almost took the company down.
Nuvasive in San Diego specializes in the spine, competing against companies that serve broader surgical markets. Illumina, also in San Diego, specializes in technology that reads the human genome, competing against broader-offering companies like Thermo Fischer, which offers a huge array of biotech tools and services.
Being a specialist in rapidly changing technologies is always a plus in my book. Once the technology starts to commoditize, then a broader offering may become a requirement to participate in a market. Illumina is adding kits, reagents, selection tools, and software services to better serve its instrument customers. Would you work with an accounting firm if it did not do tax preparation?
New companies have to find a niche – solving a problem no one else has solved or solved well. My favorite recent example is an Australian company who makes mother’s milk substitutes for different animals. Who knew? Not sure what the growth opportunities are, but if the aim is a meaningful business that turns out a profit, the company is a great niche.
Too many start-ups fail by trying to pursue too many applications of technology; they do not focus exclusively on the killer APP. If your focus is not working, what pivot will lead to a killer application? Madison, Wisconsin’s Bluetree Network, a healthcare IT company started out as a temporary staffing services company for healthcare systems using the Epic medical record system. Sensing growing commoditization of staffing, Bluetree added consulting services and solutions to help its clients get more value from their Epic investment. Bluetree just had an impressive exit as a result of effectively evolving its business model.
What is your niche? What is the broader market of which you are a part? Is your niche defensible? Attractive? Does it offer synergistic growth opportunities? Are you working to be efficient in this market space and at the same time offer benefits competitors cannot? Who might enter your niche?
These questions must be front and center for the leadership team.
To learn more about selecting a niche, read my book Beyond Price: How to Differentiate Your Company in Ways that Really Matter