Some markets are highly competitive, while others are a lot less so. Competition is rivalry in business, as for customers or markets. It occurs when two or more organisations act independently to supply their products to the same group of consumers. It could be direct or indirect competition.
Competition is an inevitable aspect of business. In building a business you work diligently to identify and capitalize on what sets you apart from others that currently occupy the marketplace.
While it may be hard to believe, competition may be good for you. It drives innovation, inspires perseverance and builds team spirit. And that’s not all. Of course, competition isn’t all good. In the presence of threatening rivals, you have to make sure your competitors aren’t going to steal your customers. Also, you’ll be doing everything you can to grab sales from your rivals. Step one in both of these processes is to identify and know your competitors.
Determining exactly who your competition is, is pretty easy. Companies that offer the same or similar products as you do may be competitors. If their geographical market areas overlaps with yours and their price points also resemble yours, it’s almost a certainty they’re competitors. But you may also be in competition with companies that offer products that are substitutes for yours. In general, it’s safe to say that anyone who sells anything that’s related to your offerings, either as an accessory or a replacement, is an actual or potential competitor.
But competition is challenging. When you have strong competitors, you could lose business to them, often frequently. That increases sales costs, time to close, and makes it harder to grow rapidly.
Competition could be bad for business especially when business owners:
1. Are too concerned with competing and neglect business growth.
2. Lose focus of the customers and fail to consistently meet their needs.
3. Are involved in an unfair fight.
4. Allow the stress of competition deter them from their passion.
5. Allow it result ultimately in loss of the business.
Competitors will also impact your fundraising. For instance, if an investor puts money into your competitor, most likely they will not invest in your company. This kind of competition is particularly anxiety infusing in the minds of entrepreneurs.
Businesses are strongly affected by competition:
* The price they charge is limited by the extent of the competition.
* The range of services and the nature of the product they sell are influenced by the level of competition.
* Stress: Having to be playing catch-up in an increasingly competitive business environment could be so demanding. Also, having to respond well to pressurized environments, relatively to competitors against being judged by a clear-cut set of personal targets could result in frustration, exhausted, burn out and, or stress (with its many well-documented negative effects).
* Morale: Should a person repeatedly fall short of the competition then it’s likely that he or she will lose motivation rather than gain it and throw in the towel than continue.
* Harm to teamwork and collaboration: One unwanted side effect is that the overarching goals of the company – in order to stay competitive or viable – may become lost in the scramble of individual workers to come out on top and the needs of the individual or department might take priority over that of the larger organisation.
More competition means fewer sales because the other companies take some market share. Competitors can become allies with other competitors and become more powerful in the market – and this is not really good news. Competitors can be fierce! Some companies may try to convince consumers why your brand or product is inferior to theirs, potentially damaging your reputation. This damage may last so long after you have been proved to the contrary.
But in a number of respects, small businesses and, or startups are at a distinct disadvantage compared with their larger competitors as seen in the following:
1. Raising Capital
At some point, businesses need to raise outside capital if they want to expand. If a large corporation plans to hire new workers or build a new factory, it has the ability to sell bonds or issue stock to the public. But smaller organizations don’t have that flexibility.
One of the reasons big corporations have a leg up on smaller rivals is that they benefit from “economies of scale” – that is, the cost for each product or service they deliver is lower.
Imagine trying to build just one table. Chances are, you’d spend a lot of money investing in tools and purchasing the raw materials – and a good deal of time getting the pieces to fit just right. But, almost invariably, building a second table is cheaper than the first because you can buy all the materials at once and depreciate the cost of the equipment. The third one? You guessed it – cheaper still. You’re developing efficiency.
Large businesses produce large quantities.
3. Purchasing Power
Another way large corporations keep costs down is by negotiating for lower prices. Take, for example, a big auto maker that has to buy steel in order to make its cars and trucks. Because of the large volume the car maker is ordering, the supplier has an incentive to lower its price per ton.
It would hard for a much smaller competitor to get the same deal; the steel company simply doesn’t have as much reason to bend its price. And if the firm is paying more for raw materials, it’s receiving a slimmer profit on each car that it sells.
The lack of purchasing power affects virtually every cost that a business takes on.
4. The Talent Gap
Every business owner knows that in order to excel, you need the best workers available. But it’s much easier for big players to attract the high-level employees because, in most cases, they can afford to pay them more.
5. Name Recognition
The easiest way to get a sale is to make sure the customer already has your brand in mind before they even start shopping. That’s often the case with big corporations, which have the marketing muscle to advertise much more than their smaller rivals.
The Bottom Line
Some people think that bigger companies take advantage of small businesses, which are the underdogs. While that depiction might be a stretch, smaller companies have a number of factors working against them that they may have to overcome in order to be successful.
Clearly, competition could be bad for startup; yet is something you can learn to live with and still operate successfully. On how to do this see our earlier post here.
What are some things you’ve learned? Let’s chat below!