How to Beat Larger Competitors
How to Beat Larger Competitors
There is always a larger company that will try to compete with you. Here’s a playbook on how to handle it.
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It is inevitable that you will face competition from bigger companies. Any business that is growing and has happy customers becomes an attractive opportunity for a huge company looking for growth, or a threat they need to negate. It doesn’t matter how big your company is, there is always someone bigger.
These bigger companies have massive teams, plenty of money and marketing teams that ensure a high public profile. Even if your product is better and your customers happier, their ability to work at volume can drown you out. I’ve seen amazing teams fail because larger competitors claimed they offered the same product, even though it was a lie, and spent a lot of money ensuring everyone heard the lie. Big companies can outlast you, so they don’t need to win, they just need to wait for you to fail.
As a result, you cannot compete with large companies the same way you might compete with peers or smaller companies. You need to take the initiative and be aggressive. Here are a few common strategies that work well:
Strategy 1: Deposition
Bigger companies will try to frame your product as “a feature” and imply that your solution is incomplete or not reliable. You can use that same trick on them by framing their product as “last generation” or “table stakes”. This is called depositioning and it’s one of the best ways to take on a large competitor.
For example, let’s say you are building a new CRM product. Salesforce is the dominant player in the CRM space and you cannot beat them on sheer numbers of features or market share. However, you can deposition CRM as no longer a sufficient solution for modern business. Today’s businesses need actions and your product provides those features on top of the CRM, which is simply a feature.
This kind of approach might seem like misleading or distorting the truth, but it’s really just giving the audience an alternative way to interpret what they already know. If your product really does provide more than a CRM system and they need more, then you are helping them view you as the future of their tools and not just a weaker Salesforce.
If you are going to deposition the competition, you need to commit to it. This isn’t something you run an advertising campaign against, since your advertising budget will never compete with theirs. This is something you build into your product, bake into your sales and marketing messaging and train your team on. Depositioning a larger company needs to be part of the identity of your company.
Pros:
Extremely effective way to compete with larger companies whose products are often years (sometimes decades) old.
If you are successful, this becomes a compounding strategy. Your customers will start to repeat your depositioning of the bigger competitors and do your work for you.
Cons:
Requires complete commitment across all parts of your business.
The first company to deposition the competition wins, so you need to deposition the bigger company before they do it to you.
Strategy 2: Commoditize
Big companies are big because they have a specific business model that they have scaled up. Once a business is big, it cannot easily adjust to a new business model so that becomes a significant weakness. If you can offer a similar service for 1/10th of the price it’s unlikely they can find a way to compete since their business was built on the prices they charge.
This is a risky strategy, because competing on price can become a race to the bottom. It’s also possible for a big company to sell at a loss for a while until your business fails, and then raise their prices later (Amazon has perfected that competitive tactic).
At the same time, finding an entirely new business model is one of the most defensible competitive advantages. Assuming you can build a healthy business on a much lower price or different model, it will be almost impossible for big companies to match you without losing their advantages in the process.
Pros:
This is one of the most powerful weapons you have against bigger companies which are tied to their existing business model.
It’s very easy to do.
Cons:
Customers might see a lower priced product as inferior to much more expensive products. This is called the “luxury goods paradox” and you want to make sure it doesn’t apply to your product before trying this strategy.
Competing on price makes it hard to raise prices later, which in turn limits your margins. This means you might win market share but be unable to make enough money to profit.
Strategy 3: Disrupt
It’s very unlikely you will beat a large company by offering a similar product in a similar way. They have far too many systematic advantages over you. If you want to win, you need to do something different. If you do something that is radically different then you have a chance to disrupt their business.
A great example is using technology to solve a problem that competitors solve using people. Automated stock trading systems were vastly superior to human stock traders, and as a result the earliest adopters of that technology were able to beat their bigger competitors. Today, most stock trading is automated with software.
Another way to disrupt is to change how your product is bought. Cloud software is much faster and easier to buy than on-premise software, even if the features are equivalent. For example, in the business intelligence (BI) industry most BI software was historically purchased by IT because it required lengthy and complex installations. Modern BI software is in the cloud, which means they can sell to marketing or sales directly and avoid going to IT. This has disrupted many legacy BI vendors' models and made room for new competitors.
Disruption requires you to be ambitious and take big risks, the kinds of risks bigger companies are unlikely to take themselves. As a result, these risks rarely pay off but when they do there is almost nothing the bigger companies can do to defend themselves.
Pros:
Almost impossible to defend against if the disruption works.
When coupled with one of the other strategies, you have the formula for extremely high growth.
Cons:
You will need to take extreme risks, and the chance of failure is very high.
The Bigger They Are…
Even if you use these strategies, beating a larger competitor takes time. While a big company can afford to have a bad year or two, it’s unlikely your nascent business can survive that. Bigger companies also have the option of acquiring other companies in your space and in doing so protect themselves from your advances. The game is very unfair.
The good news is that smaller companies beat bigger companies all the time. Leaders in any given category are rarely leaders for more than a decade or two, as smaller competitors eventually find ways to chip away at their advantages.
Eventually someone is going to beat your biggest competitor. Why not you?
For more on competition, see:
It’s critical to know When Competition Matters
Everyone has a Weakness, and finding it is the key to winning
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