Knowing your competition
Once you have purchased a business, get a solid understanding of how your competition thinks and behaves. Doing so will be critical to developing your strategy and tactics for profitable growth. It is often too easy to dismiss your competitor’s abilities and be lulled into thinking that you are outdistancing them.
The late Andy Grove famously said “only the paranoid survive”, which is a great mantra for any business. As CEO, be prepared to develop a “crick in your neck” as you spend time looking over your shoulder to see who is coming up in the fast lane behind you. Although a typical search business is not in crisis when you buy it, rallying your newly-acquired team to create an edge between yourselves and your competitors is a great way to develop a common purpose.
Recognize who they are
In preparing your financing CIM, you will have assessed the relative ranking of competitive offerings in your marketplace. This is a good start. In the first year of ownership you will want to verify your assumptions and collect intelligence about each of them and the others that you missed. Solicit and discuss your competitor’s activities regularly in your weekly management meetings. Develop a system to catalog the information and make it readily accessible inside your company.
Competitive risks can lurk outside your direct competitor list. Using Professor Michael Porter’s “5 forces” analysis is an especially useful tool in determining “substitutes” for your product or services. Don’t dismiss these alternatives, or presume that your customers will recognize your own company’s advantages.
It will be your job to ensure that your leadership team regularly surveys the landscape for newly developing or disruptive offerings. The key here is being open, honest and inclusive. The more open you are to consider potential threats to your business, the more you will learn about the cleverness, and even the selling playbooks, of your competitors.
Learn as much as you can about them
“Get into the heads” of your leading competitors. Profile their CEO, leadership and organization structure/competency to develop an understanding of their goals, perspectives, blind spots and repetitive practices. Where the competitor is in their own business life cycle is also important in predicting their reactions and future actions.
Translate what you find into an estimated cost structure that is similar yours to gauge any economic advantage they might have over you. Beyond product costs, delve into and examine their overhead structure and, importantly, their debt structure, which may or may not compel them to focus on EBITDA returns. Capital structure and ownership could give you a clue about how they might act. You can also benchmark their performance against industry standards and/or your own.
Taking a page from the automotive and consumer electronics industry, it is often helpful to “reverse engineer” their products or processes to better understand how they are providing similar solutions to yours. Customers generally react negatively to “bashing” the competition in your sales pitches. It is better to stay focused on your value proposition and arm your sales-force with factual “fight sheet” to highlight your own competitive edge.
Surprisingly, in addition to public/web sources and trade shows, your best source of information may come from your own customers, who may be willing to share competitive strengths and deficiencies. Even more valuable intelligence can come from your own vendors who also serve the competition. It is not unusual to have a supplier salesperson provide deep insight into your competition that would otherwise be difficult to get. Often, you just have to ask!
Review their promotional materials to determine who they are targeting for their own customer prospects. Understand the messages and solutions they are providing for customer problems. Evaluate all their targets so that you can formulate your own strategic goals to establish a strong, defensible position in very specific niches they are weak in or have ignored. Don’t focus just on their primary product offering, but also their entire value proposition in such areas as payment terms, convenience, warranty and on-going support.
You can choose to be even more bold and invite yourself in to visit a competitor. I learned over the years that even if our competitors knew what we were doing, it would take them years to catch up to where we were and by that time we would be still far out-pacing them. “Copy shamelessly” is a great tactic, but challenging to execute!
Certainly, you can take advantage of Google Alerts. Watch for competitors on job-search platforms to get a sense of their culture and HR needs. Evaluate their social media presence and their reviews on sites like Glassdoor or Career Bliss.
Myths to consider
You will hear “we are different”, or “they are not like us” once you have gathered data for analysis. Ignore this defensive reaction from your own organization. Keeping a fresh set of eyes and ears on what else is out there is critical for your company’s survival.
I don’t know how many times I was convinced that a specific competitor would go out of business within 6 months if they kept following their practices – whether it be poor delivery, bad quality, low or zero profits, or just bad management and teamwork. But, it just did not seem to happen, and I often mis-judged a company’s ability to survive during tough times.
Oftentimes their customers would be willing to give them more chances to retain the business; their pain of switching was much higher than I anticipated. Other times, a competitor’s cost and overhead structure was substantially different than ours, especially with the debt load I had taken on to purchase the business. Still other competitors appeared to be following a pricing strategy to take on additional volume at lower margins, a practice that we were unwilling to follow.
You don’t want all the business! It is “OK” to let your competitors have the difficult customers or the ones who will not pay for your value proposition. You want to be crystal clear about your own product strategy and profitability. Author Jonathan Brynes in “Island of profit in a sea of red ink“, points out that nearly 40% of a company’s revenue is unprofitable, and that 25% generally provides all the earnings and subsidizes all the losses. Let you competitors have that low profitability business!
An accurate and data-driven competitive review can provide clarity on the tactics and strategy you need to win profitable business for your company. Ignore the competitive landscape at your peril. It is your job as CEO to lead the organization off the burning platform of competitive attack. Keep looking in the rear-view mirror!
Feel free to share some of your own best practices or experiences in dealing with these issues in the blog comments. I encourage comments and dialog, allowing all to learn from both my views and the views of others – a virtuous learning cycle. Jump right in! I regularly update individual blog posts, add to the Reference section and Search tips, so visit the www.jimsteinsharpe.com website regularly.
Brilliant! Every leader should schedule a recurring 5 minute block of time to read this on the first Monday morning of the month. High ROI for an annual investment of just one-hour. Thanks and Happy New Year Jim.