The More, the Merrier
An industry isn't mature--and you can't be secure--until a lot of other people are doing what you do.
Published September 2005
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COMMENT ON THIS ARTICLEEvery partnership has its ups and downs, and the one I have with Bob Feinstein hit rough water last spring. Back in 2000, he and his son Trace joined me in starting a document-destruction business. About a year ago, the demand for that type of service began to explode, thanks mainly to the implementation of several new privacy laws. As a result, hundreds of small operators poured into our market, undercutting our prices, going after our customers, and generally doing all they could to tear down what we'd spent five years building up. I was absolutely thrilled. Bob thought I'd lost my mind.
It's natural to feel a twinge of panic when faced with a swarm of new businesses willing to do what you do for a lot less money. But I didn't think most of these companies were actually competitors of ours, and I believed their presence in the market signaled a critical transition in the industry that would greatly benefit us in the long run.
The truth is, our biggest problem from the beginning had been a shortage of competition. I'd even gone so far as to help other people get started in the business, knowing that they might someday compete against us for new accounts. (See "A Few Good Competitors," August 2002.) Why did I want more competitors? Because they'd help us educate the market about the need for document-destruction services. In a young industry like ours, you have to spend an inordinate amount of time and money just explaining what you do and why prospective customers should pay you to do it. The more competitors you have, the easier that task becomes. As the industry matures, the market expands, and customers focus on the type of service they want rather than whether they need the service at all. And then you can spend more time explaining why they should buy your service rather than somebody else's. That's a lot less time-consuming--and leads to a lot more sales--than having to explain the whole concept.
But there's a scary phase you have to go through before you get there, and we're in the middle of it right now. I call it "free fall." It begins when there's a dramatic increase in the general awareness of the opportunity to make money in a given market. In our case, the explosion was triggered by new laws and regulations making businesses responsible for protecting their customers' confidential information by, among other things, disposing of it in a secure manner. Suddenly the floodgates opened. In rushed all kinds of service providers, a lot of them operating with little or no overhead. Working out of their homes, they would put a shredder on a truck and drive from location to location, destroying documents as they went. They could charge a lot less, which meant prices began to fall and margins to shrink.
That can be unsettling, especially if you think the trend is going to continue. As the competition heats up, you find yourself having to work harder to get and keep customers. If the price of a product or service drops by a third, you have to sell 50% more just to stay at the same level of sales. With lower gross margins, you'll have to increase your sales even more to earn the same profit as before.
Even though the market is expanding, and there are more customers for everyone to go after, you tend to focus instead on the increased competition. You notice that accounts you could have landed easily in the past are now subject to intense bidding, and you win a smaller percentage of them. You may also lose some customers who are willing to accept a lower level of service to save money. Meanwhile, every day you hear of a new player entering the market and some new, ridiculously low price being offered for more or less the same service you provide. As the months go by, the situation continues to deteriorate. If you don't keep the big picture in mind, it can feel as if your business is crumbling around you. Under the circumstances, it's not surprising that a lot of people panic. They try to compete with everyone instead of focusing on their niche. They also start jumping to conclusions about what customers must be thinking, which is always a bad idea.
Recently, for example, we heard that one of our largest customers, a hospital, had assigned its toughest compliance officer to review what it was paying for various services, including document destruction. We knew that other companies were after the business, and that they would offer a lower price than we were charging. We realized we'd have to move quickly if we wanted to hold on to the account.
We decided to ask the customer for a meeting and send in a team composed of our ace saleswoman, Patty Kanner Post; our sales manager, Brad Clinton; and Trace. I suggested that they present a plan to help the hospital save money. We'd been monitoring its service, and we knew it could have us do fewer pickups without any loss of security. We'd just have to educate the hospital's people.
