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STREET SMARTS

A Few Good Competitors

Every company needs a few good competitors. Not only do they keep you on your toes, but they can help you set high industry standards.

Norm Brodsky is a veteran entrepreneur.

Regular readers of this column may recall an invitation I extended last October. In that month's Street Smarts column (titled " Barriers to Entry"), I discussed the document-destruction business I'd started with my friends Bob and Trace and, in particular, the challenge we faced in educating the market. Because the industry was still in its infancy, we found that most prospective customers had no idea what we did or why they needed our services.

What would really help, I noted, would be to have four or five tough new competitors who could share the expense of bringing the market up to speed. "So," I asked, "are there any takers?"

One of those who responded was a New York City fireman named Brian. He sent me an E-mail message saying he was looking to develop a sideline business that he could move into full-time when he retired from the department in eight years, and he thought document destruction might be just the ticket. Would I be willing to meet with him and give him some advice? Sure, I replied, and invited him to come visit me in Brooklyn.

He stopped by a couple of weeks later, and we spent an hour or so together. Brian told me about himself, and I gave him an overview of the document-destruction industry, outlining the various approaches companies use, the choices he'd have to make, the approximate amount of money he'd have to invest, and so on.

First, however, he had to do some research. He could begin, I said, by going to see two experienced document-destruction people I knew -- one in Pittsburgh, the other in Philadelphia -- whom I'd found particularly helpful when Bob, Trace, and I were doing our initial research. They were both now friends of mine. I told Brian to call them and arrange appointments. He should say that I referred him. We'd talk again after he returned.

I didn't think much more about it until my Pittsburgh friend, John, rang me up 10 days later. "Are you completely out of your mind?" he said. "I just heard from a guy who wants to open a shredding business near you, and he said you gave him my name!"

"Is that a problem?" I asked. "I just thought you could meet with him and tell him what you know about the business."

"Why would you want me to do that?" John asked. "He's going to be competing with you for customers."

"Listen, John," I said, "New York City is a giant market. I've got only two or three competitors here, and I could use a few more. There's plenty of room for all of us. Just treat him the way you'd treat me."

"Are you positive?" he asked. I assured him that I was. "Well," he said, obviously unconvinced that I knew what I was doing, "you can call me anytime, and I'll stop the process."

There are many entrepreneurs, I'm sure, who would agree with John that I must be crazy to help a competitor get started, but I've never shared the conventional wisdom about competition. Unlike most people, I like having lots of competitors, and I particularly like having good competitors. By that I mean people who approach the business the way I do -- competing fairly, running a clean operation, treating employees well, showing respect for other companies in the industry.

Good competitors not only keep you on your toes but also help you set high industry standards. You can provide better services and charge a fair price for those services because other companies are doing the same thing. That would be much tougher to pull off if your only competitors were low-margin operations. It wouldn't matter that you were providing a level of service far superior to theirs. If the other companies were charging half as much as you were, customers would think you were ripping them off.

The records-storage industry is a good example. My records-storage company competes against two or three others that offer services similar to ours and charge about the same prices we do. Although other companies will store records for less, they don't even come close to providing the services that the top-tier businesses can deliver.

But customers always want a choice, and they're unhappy if they don't have one. They like to do comparison shopping. It's obviously better for me if they compare us with other companies that compete on our level. Because I have good, strong, full-service competitors, I don't have to compete against the low-margin, minimal-service providers. When a prospective customer asks me about one of them, I can simply say, "We don't consider that company to be a competitor of ours."

For our direct competitors, however, I have nothing but praise. I tell all our prospects this about our rivals: "They're all fine companies, and you will be happy with any one of us. Of course, I think that you will be happier if you decide to go with my company." Then I talk about our strong points and don't even mention what I consider to be our competitors' weaknesses. I trust the prospect to compare and decide.

Frankly, we benefit from those comparisons even though we don't always win the account. The more closely prospects look at us and our direct competition, the better they understand what we all provide and why we charge what we do. In that way, the market becomes educated.

It will be many years before the document-destruction industry reaches that level of maturity. Until then, I have a clear interest in promoting competition by bringing in people like Brian, who can assist in the process of educating the market and who have the potential to become good competitors.

To be sure, that's not the only reason I'm working with Brian. I also get tremendous satisfaction from helping people go into business for themselves. I love watching the start-up process unfold, seeing the problems and the struggles, and hearing the deep, intelligent questions that people ask as they come to grips with the challenges they face.

Brian's biggest challenge right now is to figure out how he wants to enter the business. He has three options. One possibility would be to buy a truck equipped to do on-site document shredding. Alternatively, Brian could do a deal with an off-site shredder who would dispose of the documents that he and his employees collect from customers.

Then there's the third option: he could decide to focus on sales and customer relations for the time being and outsource everything else to the company I own with Bob and Trace. At the moment we have plenty of unused capacity, and our gross margins are large enough that we could afford to pay Brian a sizable commission on any business he brought in. But the customers would belong to him. Whenever he was ready to take the next step, he could move to his own facility, taking with him a substantial customer base to build on.

I've made that offer to Brian. Now he has to decide what he wants to do. To some extent, his decision will depend on the location of the customers he plans to go after. If he's going to be focusing on Manhattan, he probably won't want to have an on-site shredding truck, mainly because of the hassle of parking and getting around. On the other hand, if his customer base is likely to be in Queens, Staten Island, or the Bronx -- where he does, in fact, have promising leads -- on-site shredding may be exactly the way to go.

I really don't care which option Brian chooses. I just want him to be successful, and I'll help him in any way I can. The sooner he can get his company up and running, the better off my company will be.

Then we can both look forward to the day when we go head-to-head in the market. By that time, I trust, Brian's company will be a good, strong, high-margin competitor, able to take care of itself. I can promise you I won't give him an inch.

And yet I have to admit that I'll probably feel a twinge of pride whenever both of our companies go after the same account -- and his company wins.


Norm Brodsky is a veteran entrepreneur whose six businesses include an Inc 100 company and a three-time Inc 500 company. This column was coauthored by Bo Burlingham. Previous Street Smarts columns are available on-line at www.inc.com/incmagazine/columns/streetsmarts.

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Last updated: Aug 1, 2002

NORM BRODSKY | Columnist

Street Smarts columnist and senior contributing editor Norm Brodsky is a veteran entrepreneur who has founded and expanded six businesses.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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