Stacking The Deck – Where New Businesses Can Win!

Let’s be clear about one thing: with few exceptions, almost anyone buying a product or service has options. They can buy the same item from someone else. They can look to buy a different item that serves the same need. Or they can find a way to do without it or produce it themselves. We’ve certainly done a lot of that in quarantine lately.

You will need to compete for this business. Demonstrate that you offer a better option than the incumbent provider. By the way, in most cases incumbents enjoy advantages against new entrants. (In the long run this is good: – after you become an incumbent).

With that in mind, I’m going to share some perspective on areas of any industry where new operators have an easier opportunity to carve out a space of their own. These are often fertile fields for new entrants.

There is no such thing as a free lunch. There are, however, many delicious items on the dollar menu if you pick the right restaurant!

Opportunity – Pick Your Competitors Wisely

As a small fish in a new market, you can rarely go wrong with a careful study of the incumbent competitors. What are they offering? What are they charging? What do customers think of them? Define competitors broadly – address every alternative to using your services.

For example, if you’re selling IT consulting services, you’re not just competing against other IT consultants. You’re also competing against the client’s internal development team. Or not doing the work at all. How do you position against those two alternatives? Identify the gaps – and make sure to call them out.

Remember: as a small operator, you’ve got advantages too….

  • You can often operate below the minimum bid of a large player. Most agencies have a minimum amount that they need to make money on a project ($10,000+). Many lone-wolf freelancers can happily operate well below that level.
  • You can pick and choose your battles, focusing on the customers which are a good fit with your terms of service and looking for ways to tap into freelancers and avoid spending money on logistics.
  • You can pivot faster in response to innovative ideas and deliver a consistent message to your clients. You’re training one person (plus any helpers), not a 50+ person agency with three levels of management.
  • You can make fast decisions and offer highly engaged personal service…

Many beautiful small businesses can be created by understanding the typical cost and quality of a service from the existing providers and creatively organizing your team to do it cheaper, faster, and with less drama.

Opportunity – Exploit Discrepancies In Customer Needs

The same kind of careful study also works with customers. The closer you can get to the customer base, the more you will start to appreciate the diversity of their needs. This is particularly true for businesses which sell delivered products and productized services.

For example, the following four customers are completely different markets for the same item:

  • Retailer – Wants Case of Product Delivered To Loading Dock
  • Hospital – Wants Case of Product Delivered To Specific Room
  • Wholesaler – Case of Product Picked Up At Your Facility
  • Government Buyer – Full Truck of Product Direct From Factory

The same set of competitors likely cannot service all of these options. Some of them may not even be able to compete at all.

Within B2B customers, there is a massive and wonderful universe of crazy which can cause your competitors to shun an account or lock them out entirely.

  • Clueless About Technology (or Business)
  • Long, Slow, Painful Selling Processes
  • Insane Customer Service Expectations
  • Wants Touch Free “Self Service” and “Done For You” Offerings
  • Custom Supply Chain Systems or Payment Mechanisms
  • Custom Labels and Logistics (winces painfully, bane of my existence)

Sometimes there is great value in putting up with a customer’s dysfunctional culture – if you get paid for it. Remember to price against the relevant competitors and not your cost; it is especially sweet when you take a high priced client with a dysfunctional process and automate the crazy away…

Do this correctly and you’ll quickly find yourself occupying a unique place in the market…

Opportunity – Waste and Inefficiency is Everywhere

While I dearly love competitive analysis as a means of understanding opportunities, the insights are limited to the capabilities of the smartest company. What if the entire industry is run by disorganized morons?

A simple question: what would a perfectly efficient process look like?

The Lean approach to quality looks to eliminate seven basic forms of waste.

  • Defects – Item Doesn’t Meet Customer Requirements
  • Overproduction – Process Makes Too Many of An Item; Forecasting Errors
  • Transportation – Logistics Cost of Moving Things Around, Sending Data
  • Waiting – Increases Work In Process Inventory, Uses Space
  • Inventory – Reduce Safety Stock, Free Up Cash
  • Motion – Look For Ways To Reduce Handoffs
  • Processing – Look For Ways To Eliminate Steps

How do you reduce waste? That is left as an exercise to the student. But a lean efficient process can give you massive cost and service advantages, which is first step towards a profitable and sustainable business.

Opportunity – Human Sloth & Inefficiency

Sloth. My Favorite Sin.

Truth be told, most employees aren’t terribly motivated to pay close attention to the business they are operating. On many days, you should just be happy they showed up for work. As a boss this will be the bane of your existence… but as an entrepreneur or side-hustler, this can be a lovely source of opportunities.

Great things happen when you RTFM (Read The Freakin Manual) and follow its wisdom, especially if this occurs automatically. Are you a software whiz? Automate all the things. Process Expert? Simplify how things work. Control freak? Lead from the front. Think about how you can make the efficient way the only way.

The same goes for managing customer relationships. Many sales representatives ignore accounts, particularly small ones. I’ve walked into large accounts where it was obvious there hadn’t been face-to-face client meetings for years, let alone asking the client how much business they could give us..

All of this can create opportunity and competitive advantage for the hungry startup.

Opportunity – Invest in Lost Causes

“I Love The Smell of Fresh Money
Burning In The Morning!”

You know what always perks up my ears?

A huge pile of negative comments and YouTube videos about an business opportunity, particularly the last epic sigh of toxic disillusionment which follows the newbies exiting the building. Often accompanied by a rapidly declining chart on Google trends for search term interest.

That stuff is absolutely brutal. I mean no sane person will invest in that space for the next decade.

I mean, look at this utter mess! Human sacrifice, dogs and cats living together, mass hysteria! Fire Sale Prices on Talent! Cheap Infrastructure! Zero Investment in Innovation! No New Entrants!

(By the way, this was the entry point for the most lucrative business opportunity I’ve ever invested in…)

When you see a disaster like that, you may have found a place where there will be a competitive void for a couple of years. Generally for extremely good reasons. Hey, we never promised this would be easy!

The playbook for this sort of dumpster diving is pretty straightforward:

  • The long term business model for the niche needs to be reinvented.
  • Run lots of cheap tests early in the game with organic investment.
  • Watch competitors closely and replicate any tests they scale up.
  • Use acquisitions to quickly scale your winners later in the cycle.
  • Be cheap and greedy. This junk bottoms at pennies on the dollar.

Set your expectations appropriately. This is usually a five to seven year play. It takes 2 – 3 years to get profitable. You may be able to make money a lot faster if you can spot an adjacent market where you can clone the best ideas of the niche which melted down.

This is an opportunity, not a solution. No guru has the right answer – you need to find it yourself.

But unlike a “hot niche”, this is a great place for an independent small operator to rethink the business model. For once, you are the biggest fish in the pond…

Summation

This is not one of those hokey “You Must Take Action” talks. For a large portion of our readers, action is probably the last thing you should be taking right now. You’re utterly unprepared, have unrealistic expectations, and are not ready for the inevitable setbacks. And there will be setbacks. There always are.

Relax, spend time studying opportunities, and you’ll know when you’re ready.