Slaying Goliath: How Small Companies Can Compete Against Their Large Competitors

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You may know the story of David and Goliath, but do you have a clear understanding of how your small company can compete and win against your large competitors?

If you are an entrepreneur, you may wonder how small companies can compete and win against their big competitors. It can seem like nothing short of a daunting challenge. After all, big companies have more money, more resources, and more market share. But that doesn’t mean that they are invulnerable. The trick is to successfully identify their weaknesses and formulate a plan of attack, leveraging a variety of competitive advantage strategies. You can start by asking yourself questions like: What can you do better than those competitors? What market pain point are they ignoring? What advantages does your smaller, nimbler business have relative to customer engagement, talent management, or new market opportunities?
Your Company May Be Small, But it Can Compete

The reality is that small companies have numerous advantages that, in concert with the right business strategies, they can capitalize on to compete effectively. For example, they are typically much closer to their customers than large companies are, which can be leveraged to create an information advantage. They are also able to be more nimble, giving them a time advantage, and more focused, giving them both a scope and scale advantage. It comes down to understanding the benefits of being a smaller company and making sure that you fully exploit them.

But it’s not just about taking advantage of being small. It’s also about undermining some of your large competitors’ natural strengths. Having great senior managers, well-established customer relationships, and fantastic distribution channels are often among the benefits of being a large company. Yet there are ways that small companies can minimize these strengths and, in many cases, even create an edge. At the same time, there are specific steps that small companies can take to defend themselves against attacks from their larger competitors.

Slaying Goliath: How Small Companies Can Compete Against Their Large Competitors demonstrates that the key to winning against larger companies is to understand your own strengths, identify and exploit your larger competitors’ weaknesses, successfully defend against their attacks, and execute against your goals better — and faster — than most bigger businesses are capable of doing. It stresses that once you develop some momentum, it is important to never take your foot off the gas.

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Slaying Goliath: How Small Companies Can Compete Against Their Large Competitors

  1. 1. SLAYING GOLIATH:How Small Companies Can CompeteAgainst Their Large Competitors
  2. 2. Foreword........................................................................................................................ 1Chapter 1: Capitalizing on Your Advantages....................................................................... 2Strategy 1: Creating an Information Advantage.................................................................. 3 11 Ways to Maximize the Information You Generate from the Outside World ................... 4Strategy 2: Creating a Time Advantage ............................................................................. 7Strategy 3: Creating a Scope Advantage.......................................................................... 10Strategy 4: Creating a Scale Advantage........................................................................... 12Strategy 5: Creating an Innovation Advantage.................................................................. 14 Why Innovation is Challenging for Large Companies................................................... 15Strategy 6: Setting Your Operating Point Closer to the Funnel Singularity........................... 17Chapter 2: Attenuating Larger Companies’ Strengths........................................................ 20Strength 1: Great Senior Managers and Top Technical Talent............................................ 21 5 Tips for Leveraging a Smaller Team of Technical Talent............................................ 22Strength 2: A Technology Platform in Place with Customers.............................................. 23Strength 3: A Deep Patent Portfolio and Ongoing New Patents.......................................... 25Strength 4: User Comfort with a Product’s User Interface Look and Feel............................ 26Strength 5: Well-Established and Plentiful Customer Relationships................................... 27 3 Types of Large Company Customer Relationships..................................................... 28Strength 6: Well-Developed Distribution Channels........................................................... 29Strength 7: A Brand Name and Reputation..................................................................... 31 A Template for Creating and Understanding Brand Associations................................... 33Chapter 3: Defending Against Larger Companies’ Attacks................................................. 34The Nature of Large Company Attacks............................................................................ 35 5 Factors that Influence How Aggressively Large Companies Attack............................. 36How to Defend Against Large Company Attacks............................................................... 37
  3. 3. Chapter 4: Executing Against Execution.......................................................................... 41Genetically Engineer Your Organization........................................................................... 43Create Challenging Focal Points..................................................................................... 44 Sample Goals for Every Department.......................................................................... 45Measure Progress and Make Frequent Adjustments to Close Gaps .................................... 46Be Flexible................................................................................................................... 46Wake Up to Your Current Situation................................................................................. 47End Note..................................................................................................................... 49Appendix..................................................................................................................... 50
  4. 4. ForewordWe’ve all heard the story of David and Goliath. It’s a classic If you are going to succeed in a David versus Goliath type ofmetaphor for small versus big, smarts and strategy versus battle, you must be able to show your customers and pros-power and resources. It’s an allegory that promotes hope for pects the value of a business that’s focused on one productthe little guy. When bigger competitors appear too large to and one pain point. You’re not going to try to sell them aattack, David’s triumph is a reminder that there’s vulnerabil- suite of solutions that they don’t need — just the thing thatity somewhere — you just have to identify and attack it. fixes their problem.Of course, that’s often much easier said than done. David “Slaying Goliath: How Small Companies Can Competenever had to go up against the likes of IBM, Computer Against Their Large Competitors” is intended for CEOs andAssociates, BMC, or Microsoft. Some expansion-stage tech- senior executives of expansion-stage companies and showsnology companies wage that war every day and it’s not one you how to build a long-term defensible competitive advan-that most of them win. That doesn’t mean that there aren’t tage over larger companies. Specifically, you’ll learn how toopportunities in markets where Goliaths exist, however. capitalize on the natural advantage your smaller company has over its larger competitors, minimize those larger corpo-Let’s say that you’re the CEO of an expansion-stage com- rations’ inherent strengths, and execute against your visionpany in a $2 billion market and your behemoth competitor in a way that allows you to keep your foot on the gas and thealready owns 60 percent of it. Yes, they’re dominating, and pressure on bigger competitors to respond.trying to defeat them is an uphill battle you can’t — andprobably shouldn’t — fight. However, there’s still 40 percent The bottom line is that winning in a market that’s dominatedof that $2 billion market that your behemoth competitor by a big business isn’t easy. But it’s not impossible. Remem-does not control. If you can manage to take 5 percent of the ber, all you need to excel is a very small piece of their pie.total remaining market and steal as little as 1 percent away So, what’s your Goliath’s biggest weakness (or your crowdedfrom that big competitor, you’re looking at potential revenue market’s biggest need) and how well is your company posi-that exceeds $50 million. tioned to go after it?The challenge is actually identifying your biggest competi- Scott Maxwelltors’ vulnerabilities and formulating a plan of attack. What Senior Managing Director and Founder OpenView Venture Partnerscan you do better than those competitors? What market painpoint are they ignoring? What advantages does your smaller,nimbler business have relative to customer engagement, tal-ent management, or new market opportunities? Slaying Goliath: How Small Companies Can Compete Against Their Large Competitors | 1
  5. 5. Chapter 1:Capitalizing onYour AdvantagesIn theory, David shouldn’t have had a chance against Goliath. After all, Goliath was a grizzledwarrior with a coat of armor and a massive sword. David, on the other hand, was at least halfGoliath’s size and showed up to the battle with little more than a sling and five stones.But that didn’t seem to hinder his confidence. That’s probably because David recognized that hisopponent’s advantages (brute strength and size) could also be turned into disadvantages that hecould capitalize on. The same principle holds true for expansion-stage technology companies. Thischapter outlines six strategies that can help small, expansion-stage technology businesses recog-nize and take advantage of their competitive advantages and use them to expose their muchlarger competitors. In the end, that’s the fastest and easiest path to winning the battle againstany proverbial Goliath. Slaying Goliath: How Small Companies Can Compete Against Their Large Competitors | 2
  6. 6. Strategy 1: Creating an Information AdvantageExpansion-stage companies have the natural advantageof being closer to their customers than large companiesare. Make the most of this by increasing the flow ofinformation into your company.What melts more slowly, a small snowball or a large one? All things being equal,the large snowball will melt more slowly because its outer layer of snow insulatesthe snow inside. By contrast, more of the snow in the small snowball is exposed tothe outside world, and it therefore reacts to the environment faster.Big companies have the same basic geometry as a large snowball. Most of them have amuch harder time getting a true feel for their outside world (i.e., their customers, market,and competition) than small companies do. This has nothing to do with the quality of the people who work there or the com-pany itself, it’s just a natural disadvantage that large companies have relative to small ones.So how can you exploit this opportunity? First, create an advantage by maximizing the information you generate from the outsideworld (i.e., your customers, non-customers, competitors, suppliers, and others outside of your company’s walls). Then exploit thatadvantage by using this information to make adjustments to all aspects of your business (e.g., product features/functions, pricingapproaches, specific technologies, customer service process, marketing messages, distribution approaches, etc.).Unfortunately, as companies evolve, they naturally lose touch with their customers. The good news is that every company hasthe opportunity to increase the flow of information coming in. If you address this issue early in your company’s life, you willhave a tremendous advantage not only against larger companies, but competitors your own size, too. Slaying Goliath: How Small Companies Can Compete Against Their Large Competitors | 3
  7. 7. 11 Ways to Maximize the Information You Generate from the Outside WorldIn a rapidly expanding digital world, it’s tempting to gather exceedingly large amounts of data simply for the sake of collectingand having access to it. However, hoarding volumes of data won’t do you much good if it’s not actually useful.In fact, it will likely just overwhelm your team. Instead, the key to maximizing your information-gathering efforts is to uncovertruly valuable information — not data — that is contextually relevant and beneficial. Ultimately, that can be achieved byperforming one or all of these activities: Your employees walk around with mental models of your customers, including their needs, the tech-ONE. nology that will best meet their needs, how they interact with your product, the best approaches toExpose all of your helping them resolve issues, and the marketing messages that will best resonate with them. Youremployees to yourcustomers. employees use this mental model to help them make decisions. The better their mental model aligns with reality, the better their decision-making. That’s why everyone in your organization, or at least all key decision makers, should be interacting with customers to better their understanding of them. Salespeople generally have a very good view of how prospects and customers perceive all aspects ofTWO. your company. Speak to several of them to help separate the overarching themes from the one-offAsk your situations. Conduct pipeline reviews to study each prospect situation to see where you stand in thesalespeople. process. Perform loss reviews as well. Most loss reviews come from the salesperson’s presumptions. A better approach is to ask the prospect why he or she chose a competitor and for feedback on what you can do better.THREE. Tracking trouble tickets is one of the best ways to determine how your customers are doing with your product and how you are servicing them. If you have customer service reps, listen to the phone calls,Study yourcustomer service ask them about their interactions, give them a few questions to ask your customers, and then gatherinteractions. the feedback. Once a trouble ticket is closed, ask your customer for feedback on the process. Slaying Goliath: How Small Companies Can Compete Against Their Large Competitors | 4
  8. 8. Monitor social networking sites, Internet forums, message boards, blogs, and other sites. There is aFOUR. tremendous amount of information available online. Most people reading this already know what toMonitor the do. If you don’t, enter your company and product name into Google and start reading.Internet. Once customers have purchased your product, most will be willing to give you detailed feedbackFIVE. because they want you to continue getting better. User conferences, advisory boards, and surveysAsk your are great ways to get information. Another approach is to sit down with customers periodically tocustomers. really get to know them. Some product markets have industry analysts who cover providers, customers, and prospects.SIX. Good analysts tend to have an accurate pulse on the perceptions in the market. Be careful,Ask industry though, because they often have a large-company bias.analysts. Incorporate Web analytics into your website and then mine the results for useful information.SEVEN. Beyond building better usability and conversion into your website, the Web data can be very usefulUse your website. for improving various functions. For example, visitor interaction with your product pages can tell you a lot about their interests. Interaction with your customer self-service pages can tell you a lot about their issues with your products. Incorporate data gathering into your product and then mine that data for useful information. WhenEIGHT. the product is browser-based, it’s a pretty straightforward process of instrumenting your Web inter-Use your product. actions with the customer using Web analytics. When the product is on the customer site, the issues become trickier because privacy issues are more amplified and many customers do not want infor- mation flowing out of their computer systems. That said, many customers will still allow the infor- mation sharing if it’s done properly. Slaying Goliath: How Small Companies Can Compete Against Their Large Competitors | 5
  9. 9. Make a list of things you would like to know about your competitors and then get creative about howNINE. you are going to (legally and ethically) get the information. Study their websites, visit their booths atFind out what conferences, and use resources such as Hitwise, Compete, and Alexa.your competitorsare doing.TEN. Do the same things you would do to find out more about your competitors, but also call the person who shares your role at a related company and invite them to lunch. Ask about their best practices.Find out whatrelated companies You can probably get and share some good ideas, as both sides will be more open given you are notare doing. competitors.ELEVEN. Work this knowledge into your management meetings, company wiki, e-mail, management reports,Share what employee feedback systems, and all other vehicles you have to manage/monitor progress and commu-you’ve learned. nicate internally.This list is intended to generate ideas, not mandate all of the things you need to do right away. If you try to do too much, youwill water down your efforts and actually get less useful information. Remember it is information, not data, that you are lookingfor. Also, you need to spend the vast majority of your time building a great product and then selling and servicing it. Start withthe easy steps, and increase the activities as you grow.A natural question is, why can’t large companies execute against the same tactics? They can, and some do. But they still havethe natural disadvantage of being the large snowball. If the large company and the small company execute these tactics equallywell, the small company will have the edge. Slaying Goliath: How Small Companies Can Compete Against Their Large Competitors | 6
  10. 10. Strategy 2: Creating a Time AdvantageLarge companies have a natural disadvantage as they grow because it takes themlonger to get things done. An expansion-stage company, however, can turn on a dime.As companies grow, solid communication between employees becomes much more difficult. To try to have perfect communication,the employees would have to spend all their time communicating internally, rather than focusing on customers.To solve this problem, people divide up into departments and communicate at the department level rather than at the individuallevel. They use all kinds of vehicles (phone calls, meetings, e-mails, business process software, blogs, content/information man-agement systems, and videoconferencing) and a host of other approaches to discuss, review, approve, adjust, and so on.Even so, department members still have trouble communicating. So they organize into divisions. The divisions communicatethrough a low-bandwidth communication pipe called a VP (or an SVP, EVP, or a president), using all of the communicationvehicles noted above. Even then, there are meetings to contend with — the ultimate bottleneck for large companies — whereall of the most important decisions are made.What are the implications of that departmental culture? One of the most obvious is the production of poorly filtered informationthat lacks a prioritized, efficient process for acting on it. For instance, think about the old summer camp game of “Telephone,”where a number of people sit in a circle and one person whispers a story into the ear of the person sitting next to them. Thatprocess continues until the story reaches the person who originally told it. By then, the story has been interpreted and verballyannotated to the point where the person who created the story doesn’t recognize it anymore. Slaying Goliath: How Small Companies Can Compete Against Their Large Competitors | 7
  11. 11. The information flow in larger corporations is very similar. As information makes its way through the organizational pipeline,it typically is filtered and stripped of key details and nuance, and boiled down to only its most important elements. In the pro-cess, good information can be lost and bad information can embed itself into the company.Departmental politics can also create internal issues that eat away at senior managers’ time, forcing them into meeting orinbox gridlock, and killing their productivity. That not only impacts those managers’ ability to make key long-term decisions onsmaller products or newer markets, it also causes them to lose focus on the one thing that really matters — the biggest needsof their customers. Even if those senior managers are able to determine the right course of action, corporate hierarchy and orga-nizational change management can make it difficult to actually get it done.The result of all these issues is that planning horizons tend to be in years, rather than days, weeks, or even months. It’s the onlyway to keep all the groups in rough alignment. So how do you capitalize on the larger company’s disadvantage? By being nimbleand able to pivot. Here are some ways to do so: 1 2 3 Pick a product market that is Pick a product market that has Build your market before the rapidly evolving or has dynamic significant long-term innovation large companies know what hit needs or tastes. Markets with potential. The innovations that them. The extreme approach needs or interests that change can take place between a large would be staying in stealth mode quickly are perfect for small company’s release cycles are until all the release details are companies — the video gaming tremendous. The large company worked out, and then exploding industry is a great example. It essentially designs and launches into the market. This is much is difficult for large companies its missiles, but by the time they easier said than done, but the- to move at the pace of change hit, the innovation has moved matically the idea is to build your required to meet the needs of significantly beyond where they early market quickly before large these types of markets. were aimed. companies have time to act. 4 Use newer technologies and business model components. You are probably aiming at the early adopters, at least initially, so this approach will be advantageous, or at least somewhat expected, for a smaller company. Also, although both you and the large company have to go up the learning curve on the new technology, you should be able to do so more quickly due to your small size. Slaying Goliath: How Small Companies Can Compete Against Their Large Competitors | 8
  12. 12. 5 6 7 Package your whole product Rapidly evolve all aspects of Put your senior management, offering to include innovations your business. Use your informa- particularly your CEO, out in the in product, marketing, sales, tion advantage — and the obser- field as much as possible. Get and service all at once. When vation that large companies must outside the company and meet large companies must create have long time horizons — to with customers, prospects, the change in multiple departments rapidly move forward all aspects press, industry analysts, and and divisions, small companies’ of your business, such as your others. It will give you better time-based advantage is amplified product, marketing messages, dis- information and another edge over (due to the communication and tribution approach, and customer large companies. decision-making issues). service. The key is to get ahead of the target before the large com- pany’s missiles land.The bottom line is that it takes large companies a significant amount of time to get important things accomplished, and changeis difficult, even for the best companies. Use your smaller size to capitalize on opportunities quickly, change direction rapidlywhen you need to, and improve your strategic position. Slaying Goliath: How Small Companies Can Compete Against Their Large Competitors | 9

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