Case studies from small firms in America’s heartland provide the key to winning against large competitors.
How can small companies compete and win against behemoths? According to Paul Oyer, co-author of the newly published book “Roadside MBA: Back Road Lessons for Entrepreneurs, Executives, and Small Business Owners,” a small size isn’t necessarily a handicap.
As research, Oyer and co-authors Michael Mazzeo and Scott Schaefer visited successful small companies in America’s heartland and interviewed the people who ran them. What they discovered is that successful small firms use their size to their advantage.
“It’s usually assumed that big firms have the competitive advantage because they have economies of scale, can purchase at a discount, cut favourable lease deals, and so forth, Oyer explains. “The key to winning against them is differentiating yourself.”
During a recent conversation, Oyer provided four ways to do this:
1. Provide better service.
OK, you already knew this one, but it’s a major factor. Large companies are all about making big numbers. Individual customers often get the sense (correctly) that their individual needs aren’t all that important in the large firm’s scheme of things.
Smaller companies can reverse that equation because they’re closer to the customers. For example, a local coffee shop might compete against Starbucks by learning what individual customers typically order or by carrying locally-grown food items.
2. Specialize in high-end products.
Large companies typically go after broad markets because that’s where economies of scale are most useful. Smaller companies, however, have more freedom to offer customers unusual (and more costly) items.
In big cities, this strategy manifests itself in the boutiques that cater to the wealthy. In small town America, however, it’s more likely to take the form of a small firm that carries, for example, high-end appliances that would never be found at Walmart.
3. Appeal to a local demographic.
Large companies think in terms of serving entire countries or (if the country is large like the U.S.) an entire region. Smaller firms, however, can position themselves as something genuinely local.
Oyer cited the example of Mug shots, a small chain deployed in Mississippi and Alabama, but what came to my mind were the family-owned Brazilian BBQ restaurants near where I live, which seem to have no problem competing against the big chain franchises.
4. Leverage your personal presence.
I don’t like using the word “leverage” but in this case I think it’s the mot juste. Large firms expend a lot of time and effort trying to align the personal goals of management and employees with overarching corporate goals.
By contrast, small business owners automatically have incentives that are perfectly aligned with the company’s goals. As such, the entrepreneur can provide better on-site management at a lower cost.
For example, a small jewellery store doesn’t need an expensive monitoring system to prevent employee theft, because the owner is typically in the store all the time.
By Geoffrey James