Jacques Mattheij

Technology, Coding and Business

How David can beat Goliath, smaller companies competing with larger companies

When you’re a small company and you get a large competitor in your niche that starts to go after your customers it can look pretty scary. Goliath approaching is an awesome sight, and some people tend to give up right there and then in order to avoid the confrontation.

But that’s a mistake, in my opinion.

One of the sentences that used to be bandied around to describe the ‘worst case scenario’ for a start-up company is the ‘what if microsoft enters our niche’, today most of the times when you hear someone say that sort of thing microsoft has been replaced with google.

Having a big competitor enter your market is not a drama per-se, in fact it does you the service of validating your market for you. If you play your cards well what seems to be a disaster can actually help you tremendously.

Youtube is a nice example of that.

The following tips may help you in a situation like this, or the comparable one where you go up against an entrenched but larger competitor. Some of them are just plain good business advice, but when applied to this situation they can really make a difference.

(1) Care about your customers!

It seems so obvious, but big companies as a rule are not very caring, they don’t know their customers and as a rule lump them together on a big heap. Account managers at big companies tend to be fairly unresponsive, they’re fighting for their lunch, you are fighting for your life. Trying to get some customer service from a big company is like trying to squeeze water from a rock. If you do this right you will be able to position yourself against a much larger company in a way they will not be able to match.

In a business-to-consumer situation this means goodwill in the market expressed in forums and blog postings, where you will be compared with your much larger competitor. In a business-to-business situation it will become a deciding factor in pitches against your competitor and it will help win over a skeptical customer looking at the ‘continuity’ issues because you are perceived as a more risky choice.

(2) communicate in person

When a big company talks to its users it may be through the media or mass messages. Craft your communications by hand, and unique for every customer that you have. Build a personal relationship using these communications and make sure that that relationship remains solid. Big companies have a hard time doing this because as a rule it does not scale very well. Keep a file on your customers in case you ever lose the thread of the communication and keep every email so you can read back what went before at a later date.

(3) keep your costs down

Large companies carry lots of overhead and small companies can cut some corners here which will give them a lot of resilience against both market fluctuations as well as giving you the room to undercut your large competitor in a way they probably can’t follow unless they start subsidizing the product.

You don’t need a fancy office, corporate perks, nice front desks and overpriced office furniture as well as slogans on the wall. Let big companies spend their money in this way, they think they can afford it, as a much smaller company you probably can’t afford it anyway, and such money is probably better spent on making your customers extra happy.

Competing against a larger company that is selling their product can sometimes be done by running extremely lean and finding a business model that allows you to give away your product where the competitor has to sell it, or by creating a freemium product. This needs very careful planning because you really don’t want to be caught in a situation like this when you start growing very fast, you’ll need a lot of capital to stay afloat then.

(4) personalize your pricing

Big companies are one-size-fits-all, they usually can’t afford to spend the time to customize the price to the customers ability to pay, which means they may lose out on some customers that would have otherwise bought their product.

(5) be very agile

Small companies can move fast in response to customer wishes, which means that you can serve your customer better, and this can easily turn in to a revenue stream all by itself when doing business-to-business, and again will translate in to very happy customers serving as your word-of-mouth advertising when doing business-to-consumer stuff.

(6) be daring

Large companies take time to change course to adapt to market demand, if you dare to take risks, to act fast and to be willing to chalk up some spent time as a loss in order to win over a potential customer then chances are that you will win over that customer.

For instance, I once took a risk by building the final product and presenting it to the customer after the first meeting, and at a price that could not be beat (a small percentage of their gross take).

For each of the scenarios above you can find a lot of good examples, my own, closest to home example is how during the .com bust several competitors went bust because they couldn’t change course fast enough, their backers lost interest and the companies tanked.

More recent examples are as mentioned before youtube.com up against google video and mint.com against intuit. Both companies were later acquired by their larger competitor.

And nibbling away at the customer base of an established competitor is a great way to aim for an exit, if you make it on to their radar as the cause of a loss of growth and you find yourself taking over key accounts the possibility of a takeover bid is very real.

David against Goliath does not always end well, but it offers some unique opportunities by the simple fact that large companies can’t compete with smaller companies in key aspects of the corporate dance, and in those cases where the founders of the smaller companies manned up and took to the fight with gusto they came out on top in a surprising number of cases. And sometimes they discovered completely new niches while doing that which their bigger competitors found it impossible to enter.

Real businessmen and women rise to the challenge, they don’t flee, they man up and compete on their strengths searching out their opponents weaknesses.