Businesses exist in a competitive environment. No matter how big the company, or how niche the product or service, competition can help nurture a business. Even companies with a monopoly over a product or industry strive to be bigger and better to ensure they don’t get side-lined, ensuring their number one position.
Competition is healthy, and makes for a more colourful market, which is essential for the discerning consumer in a globalised world. For small businesses however, the issue is how you can exist as a small fish in a big pond?
Competition in a business context is either direct or indirect for any startup or established company. Even if you have a product or business service that is completely niche or unique, it is impossible not to face some competition.
A direct competitor is more poignant for a startup than an indirect competitor. Direct competition comes from businesses producing or selling products or services comparable to another in the same market. Indirect competition on the other hand, happens when businesses compete for the same level of the profit margin, but they may be in different sectors of the same market. A cinema, for example, will face direct competition from other cinemas; however they will face indirect competition from other leisure providers, such as bowling alleys or arcades.
Many individuals have said of Start Up Loans that it is impossible to start a business on £5,000. How could a business with only £5,000 initial investment possibly compete in the market with businesses that have had hundreds of thousands of pounds worth of investment, and are turning over a healthy profit?
In the startup world, however, it is worth bearing in mind that, to set up a business, initial investment does not need to be huge, especially if it is not product or tech based. What is more important, initially, is support in the form of mentoring and advice. This is why Start Up Loans couples every loan with a mentor who can help with the initial business decisions; the very decisions that will determine the life and success of the company.
Once a business has set up and is entering the market, the key to success will be competitive advantage. What makes their business better than other people’s businesses and what is their USP? You must find a way to differentiate yourself. For example, a soda startup does not have to be daunted by companies such as Coca Cola if they have their own USP, a niche in the market that Coca Cola would not satiate. A small soda company that offers natural ingredients, and branding towards children specifically, will not face direct competition from a huge company because it has a USP. This is the key to entering a busy market – what do you have to offer that sets you apart from the rest?
Start Up Loan recipient Paul Gill has set up his own smartwatch company, Orsto Ltd, launching his first product, the Orsto X3 Smartwatch. With this product Paul faces serious competition from other companies, who already produce smartwatch designs. The market for such a product is not huge – however, Paul distinguishes his business from the rest by being strictly British designed and offering a suite of specifications individual to his product; this is his competitive advantage. Quality speaks volumes, and Paul’s company will last as long as he maintains a unique position in the market.
Ultimately, competition is what makes products and services appealing for a consumer. By driving performance and innovation, while bringing down prices and offering a wider and more vibrant variety of options, the consumer is at the forefront of all decisions.
As Eisenhower said, what counts is not necessarily the size of the dog in the fight; but the size of the fight in the dog, so competitive advantage ultimately will always triumph and elevate a startup from the shadows to the forefront of the market.
James Caan is chairman of the Start-Up Loans Company. Each fortnight he will be tackling a different business issue. Keep up to date by visiting the network and signing up to our weekly newsletter. We welcome your suggestions for future topics and questions regarding your own business – please share them in the comments thread below.
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