Small Beats Big

A Small Business Can Have A Competitive Advantage

by Paul Simister on November 27, 2020

I’m shocked when I talk to business owners who are under the mistaken belief that only big businesses can have a competitive advantage.

It’s not true – you can have a small business with a strong and compelling competitive advantage and in many ways I think it’s much easier to develop a competitive edge in a small business.

Why Business Owners Think Competitive Advantage Belongs To Big Business

First I think there’s “the grass is greener on the other side” problem.

If you believe that you need a big business with a big bank balance to create a strong competitive advantage then it absolves you of the responsibility to develop one. Superficially it makes life easier although I believe it actually makes things much tougher. You get stuck as a commodity seller with low prices and that usually means that profits are low and hours worked are high.

The grass is greener problem usually comes because you see the advantages that come from being a big business but not the disadvantages. You may be surprised to know that the CEO of the big business you envy is probably very aware of the advantages that you have and hopes that you never apply them in the market.

Second there are some advantages that do come with size.

Economies of scale from purchasing, marketing and product development usually create significant cost savings when spread over a large volume. Big businesses often have well known brands precisely because they are big businesses, even if the brand doesn’t come with a clear positioning or meaning.

Economies of scale for production and administration fall as volume increases and then start to rise as dis-economies set in. A large production plant is more likely to have a strong union presence. Administration is replaced with bureaucracy and endless meetings about whether you should change the rules and if so, how.

Big businesses often create a lot of their own problems because they are big businesses.

The Competitive Advantages Of Small Businesses

The ability to niche and differentiate.
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The ability to move with speed.
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The closer relationship, trust and intimacy with customers.
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The closer, relationship, trust and involvement of the team of employees.

Let’s take a look at each.

The Competitive Advantage For A Small Business In Niching

Niching or bullseye marketing lets you develop a particular solution for a particular group of customers with a tightly defined problem to solve. The closer to the customer’s bullseye solution your offering is, the more likely the customer will be convinced to buy.

This is much easier to do in a small business which can prosper in a small niche while a bigger business may need volume that only comes from several market niches.

While bigger businesses can operate in multiple niches, it increases the complexity of the business, reduces focus and increases costs. Competing across several niches may force larger businesses to make compromises in what they offer, forcing their products away from the bullseye.

There are only two main ways to create a competitive advantage and that’s by either having a cost advantage or by differentiating your products and services in ways that are meaningful to your target customers.

The diagram above is the summary of the generic strategies from Michael Porter and his classic strategy book Competitive Strategy. Businesses that fail to choose risk being “stuck in the middle.”

Niche marketing and differentiation are related concepts and rely on you accurately matching the key success factors of suppliers and customers.

The Competitive Advantage That Comes From Speed

Speed is good in business for a number of reasons.

Speed in supplying customers and helping customers to get the benefits of what you sell is a major advantage which is often of vital importance for buyers. We live in the age of “I want it now”. This is why faster is one of the main dimensions in my ABCDEF Model for advantages.

Speed of decision is also vital. I used to work with corporates but there always seemed to be somebody with a reason to delay taking action – another approval stage, another presentation to a committee, the wait to do it out of next year’s budget… Much of it was nonsense and involved people playing with office politics.

This has been a tough year and all indications are that they are going to get tougher as a recession bites. The huge increase in personal and public debt that has been the underlying growth for the last 20 years needs to first be stopped and then repaid. Austerity is likely to be the theme for many years as we see the effects of the artificial bubble.

In these situations the speed to start, to stop, to do more or to do less will make a huge difference in performance. These are management judgements where facts and decisions have to be closely interlinked. Big businesses with long chains of command and company policies will struggle to adapt quickly to what is happening.

The Competitive Advantage For A Small Business In Closer Customer Relationships

Work with a small business and you’re talking directly to the owner and chief decision maker or someone who is close to them.

You can have more faith that they will do what they promise and if they don’t, you have an easy channel to follow to get things fixed.

But deal with big businesses and it’s very different. I hate it when I have to deal with my bank or any utility and go through call centre hell, explaining the problem to person after person. It’s extremely frustrating and time-consuming and where possible, I will choose to work with a small business.

The Competitive Advantage For A Small Business In Closer Employee Relationships

Unless you work as a one man band – like I do – you will rely on your staff to attract, convert and keep customers.

Small businesses have a huge advantage in being able to create a strong connection between the business owner and the employees and with a clear focus on the purpose of the business. In a small business, staff feel more involved in what is happening but in a big business, they normally feel isolated.

This makes it much easier to develop themes and high customer service standards in a small business. The staff feel happier, customers feel happier and you feel happier.

Most Big Businesses Used To Be Small Businesses

Getting bigger is usually the reward for success.

If a small business performs well, then it will usually grow but as it gets bigger, it may be losing the very factors that made it successful.

That’s why I like business owners to focus on profit rather than turnover.

There’s an old saying – sales is vanity, profit is sanity – and it’s very true. You just have to look at the dreadful results of many acquisitions to see that getting bigger is often an illusion for getting better.

There are traps to business growth but, forearmed is forewarned.

in 3 – Your Strategic Positioning, Business Start-Ups

3 Marketing Secrets Stolen From My Local Coffee Shop

by Paul Simister on June 18, 2011

My first guest blogging article goes to my friend and mastermind partner Ian Brodie, of IanBrodie.com. Ian is an expert in helping consultants, coaches and other professionals to get more clients with his practical marketing and sales advice.

When you read it, you’ll immediately see why I wanted to publish it.

Over to Ian.

3 Marketing Secrets Stolen From My Local Coffee Shop

About 2 years ago, a new coffee shop called Caffe Latte opened in our local village.

It was a bit of a risk: we had a bypass built a decade ago and since then the village centre has slowly died. And I must admit, I didn’t rate its chances of success highly.

But it’s worked brilliantly. Not only is it thriving, but it’s revitalised the centre of the village. Far more people come in to town and use the local shops – and there’s a real sense of community returning.
Kathy and I love to take a walk up there a couple of times a week. We often take a book or some work to do and just sit there for a couple of hours.

I’ve been in there so often I kind of know the business inside out now. And I’ve picked out three lessons from how Francesca, the owner, has marketed Caffe Latte that I think we consultants and coaches and other professionals can learn from. Particularly if we’re a small firm or one-man-band.

Francesca competes against the big chains in other local towns – Starbucks, Costa, Cafe Nero. Just as we might compete against Accenture, KPMG or Linklaters.

Positioning. The first thing Francesca got right was the positioning of the business. It’s not just a “like Starbucks but cheaper” – pricing is roughly at the same level. She recognised that we don’t choose a coffee shop because it’s a few pence cheaper than the alternative. We choose it for taste, atmosphere, food – a whole range of reasons.

Yet so many professionals position themselves as “like X, but cheaper” (substitute the name of a big firm for X – usually the firm the professional used to work for).

The thing is, you’re not like Accenture or KPMG or Linklaters. You’re not a big name that no one got fired for hiring. You’re not a bland but safe bet. You’re an individual with a whole load of things to offer that you need to focus on rather than just being a cheap version of a big firm.

Personality. What Caffe Latte has in abundance is personality. It’s a reflection of Francesca really. Quirky, fun. You go there and you feel part of the family – like Norm in Cheers. The staff are all like that too.

As solo professionals or small firms that’s something we can do too. We don’t have to conform to a bland corporate image. We don’t have to please everyone. We just need to find a few clients who can love us for life.

If we put our personality and our passion into our business we can stand out a mile compared to our corporate competitors. Yet so few of us do so.

Instead, we hide behind our smart suits and corporate websites. We speak in corporate tongue rather than in the plain English we’d use at home or with our friends. How many solo professional’s websites have you seen that say “we” when there’s only the one of them in the firm (sadly, mine used to be like that too – though thankfully I’ve grown out of it).

We shouldn’t be trying to copy the corporates – we should be trying to find our own unique personality and voice.

Innovation. That’s a big word. Can a coffee shop really innovate? Well, yes in the sense of constantly trying out new things to see what works and abandoning things that don’t.

Francesca started up with a big kids area and creche. Didn’t work. So she changed it.

She tried hosting themed days and celebrations. Worked brilliantly.

She tried live music. Didn’t work. Stopped it.

She tried changing the menu, adding new food and sweets no one else was doing. Worked brilliantly.

She’s used Facebook for marketing. Installed free wifi. Worked brilliantly.

The big chains don’t have the flexibility or the bravery to allow their stores to try out new stuff like this. They all have to be the same.

And that’s a huge advantage you can have over your big competitors too. In the time it would take them to set up a committee to look into doing a feasibility study to develop a business case to maybe think about something new – you can have tried it out and figured out whether it will work or not.

Yet how many of use that advantage? How many of us are constantly trying out new offers, new services, new marketing tactics?

Caffe Latte has been such a success they’re now franchising the model out across the country. Maybe we ought to think about what we can learn and apply to get our own equivalent success.

And, of course, if you’re ever in the little town of Handforth just South of Manchester – do pop in to Caffe Latte and you might well see me in there.

Ian

You can learn more about Ian and his marketing and sales ideas at IanBrodie.com

in 4 – Lead Generation