Forget Big Business: Start-ups Have the Competitive Edge
Sure your start-up lacks cash, but with the right mindset, your start-up’s hunger gives you considerable advantages over big companies that are larded with people, capital, and assets.
No, really. Hear me out.
That’s because big companies have public shareholders, who demand that they exceed Wall Street expectations every quarter. And the quarterly demand to beat earnings targets and raise expectations means that big companies are vulnerable. Your start-up can take advantage of their narrow range of decision routines to take their market share.
But your start-up also enjoys tremendous freedom to go after entirely new markets--only if you tap into your skills and passions. And with the right mindset, you have the opportunity to turn superficial scarcity into long-term abundance.
Here are five great resources that your start-up should take advantage of:
1. You can attack big competitor vulnerabilities.
Your start-up needs to go after big markets or create them. If you go after a big market, it’s big because there are huge competitors who are likely dominating it.
You might be tempted to think that those big companies will do anything to defend their market share. But you would be wrong. They won’t cut price below their costs because that would threaten their quarterly profits--which would crater their stock price.
Since you have virtually no costs, you can sell your product at a much lower price than they do and still make a profit. If you start to gain market share, the big company won’t match your price unless they can cut their costs enough to preserve their currently fat profit margins.
Since they will not do that, a big company’s high price and bloated costs are a resource for your start-up. Exploit it or die.
2. You can win the war for talent by making work meaningful.
While some people love working for a big company, I don’t know any of them. Most people I know who work for big companies feel like powerless drones whose work has very little personal or professional meaning. Big companies think of them as costs to be cut--so that more mindless drudgery can be piled onto fewer shoulders to boost the CEO’s bonus.
This means that your start-up has a chance to lure some of the best talent, even though you won’t be able to pay high salaries. How so? Many people crave the chance to do work that they find personally meaningful. They want to change the world and work with other people who feel the same way.
If you can convince talented people that your start-up can create that kind of profound meaning, they will gladly give up a chance for a high salary in a big company. But you can only do that if you believe that your start-up is going to change the world and you can persuade talented people that you have what it takes to turn your vision into a thriving start-up. Your offer of stock options or equity won’t hurt either.
3. You can learn faster than big companies.
Big companies take a long time to make decisions. The reason is pretty simple. There are lots of people who need to be consulted with before a big company can introduce a new product, raise its prices, lower its costs, or go after a new market opportunity.
And as long as it takes big companies to make decisions, it takes them even longer to implement those decisions, collect market feedback and decide whether their initial strategy was right or wrong.
But a start-up can go through seven such learning cycles in the time it takes a big company to complete one. This means that your start-up can get much smarter than a big company about a new opportunity because it can get prototypes to customers, find out fast what works and what does not, and adapt to what you’ve learned.
And since such learning is a matter of life and death for your start-up, you will take that feedback much more seriously than your big company competitors do. That appetite and ability to operate at a higher clock speed is a big untapped resource for your start-up.
4. You can tap your network to get needed resources.
If you’re a great start-up CEO, odds are good that other people who have much to offer are eager to help. It’s up to you, though, to figure out what resources your start-up needs in order to make it to the next level.
If you have a track record for winning, then the people in your network will want to give you their time and money (some more of each than others). If you need help making a marketing plan, raising capital, deciding who to hire and fire, which company to acquire, getting customers, forging partnerships, or designing products--people in your network are there to help.
All you have to do is show them how important their help is to making your vision a reality.
5. You can take market share by giving customers a bigger bang for the buck.
If you’ve picked the right market opportunity, big companies have set the bar pretty low by giving customers a product that is priced too high and does a mediocre job of meeting their needs.
Your start-up is poised to deliver them a quantum value leap--that is much more bang for the buck. Now, it’s true that most companies hesitate to do business with start-ups in general because there’s a good chance they could fold in a year or two.
Overcoming that problem is simple in concept. Find a problem that is causing that customer pain and that no other competitor is solving. If your start-up can solve that problem and do so at a lower price, you can boost your odds of taking market share.
These five start-up resources only look like nothing to a big company. But if you’re an entrepreneur worth your salt, you’re already exploiting them to scoop up that big company’s customers with a spoon.
Strategy consultant, startup investor, teacher, corporate speaker, pundit, and author of 11 books, Peter Cohan has invested in six startups, three of which were sold for a total of $2 billion. Before founding Peter S. Cohan & Associates in 1994, he worked with HBS strategy guru Michael E. Porter.