How to maintain competitive edge with bigger companies

The big corporations of the world seem to have endless resources, unlike smaller companies that must run on fewer luxuries.

Giant companies usually have in-house marketing teams, if not, they are able to afford and hire advertising agencies to create marketing collaterals, websites, messaging, advertising, direct mail and email campaigns. They test and retest, conduct quantitative analyses to measure market share, develop new creative messaging, focus on brand development and more. They hire the best and brightest from top business schools and they pay them hefty salaries. Their marketing budgets are extravagant – TV advertising budgets alone are in the hundreds of thousands to millions of dollars.

Small firms, for the most part, do not have access to as many resources to do any of these things. So how can small businesses possibly compete and importantly, survive and get the word out about their own products and services? Is it a losing battle from the very beginning? The answer is, of course not! Small businesses can most certainly find a competitive edge to compete with bigger companies.

Alibaba – The Crocodile in the Yangtze River

Jack Ma’s Alibaba overcame giants eBay to become the leading e-commerce website company in China. Back in 2003, eBay paid $150 million to buy EachNet, which was China’s top e-commerce site at the time. Their CEO was Meg Whitman, a Harvard Graduate with a distinguished resume which included being the former Vice President of The Walt Disney Company. The American behemoth entered the Chinese market backed with an abundance of resources, a talented workforce, and a strong brand reputation. On the other hand, Alibaba’s CEO was Jack Ma, a 10-time Harvard reject whose resume included two failed businesses and a stint as an English school teacher. The odds were stacked against the local Chinese company.

So what was Jack Ma’s solution to eBay’s competitive threat? He pioneered Taobao, a Chinese online shopping website that offered free listings to sellers and introduced website features designed to act in local consumers’ best interests, such as instant messaging to facilitate buyer-seller communication and an escrow-based payment tool, Alipay. As a result, Taobao became a mainland China’s undisputed market leader within two years. Its market share surged from 8% to 59% between 2003 and 2005, while eBay China plunged from 79% to 36%.

eBay on the other hand, suffered from a combination of poor management which included, for example, not giving enough power to local executives, which in turn crippled the business. “It’s very hard to compete with free,” said Jay Lee, eBay’s senior vice-president and managing director for the Asia Pacific. eBay shut down its operations in China in 2006, 3 years after entering the Chinese market. After this astounding victory, Jack Ma famously said, “eBay is a shark in the ocean. We are a crocodile in the Yangtze River. If we fight in the ocean, we will lose. But if we fight in the river, we will win.” Today, Alibaba is the world’s largest retailer and e-commerce company with online sales and profits surpassing all US retailers combined (including Walmart, Amazon, and eBay) since 2015.

How to create your competitive edge

Many say size matters, but when it comes to business, it’s all about how you position yourself. Warren Buffett has been fairly successful in picking winners. He says the key to successful investing is not assessing how much an industry is going to affect society or how much it will grow, but rather in determining the competitive advantage of any given company as well as the durability of that advantage.

The term competitive advantage refers to a unique advantage a company has over other companies offering similar goods or services. A competitive advantage should allow a company to generate higher sales volumes or attract more customers as compared to their competitors. Jim Collins, in his book, “From Good to Great: Why Some Companies Make the Leap…and Others Don’t“, asked these three questions to unravel one’s competitive advantage:

1. What can your business be the first at?
2. What is that unique thing only your business can offer?
3. What can your business be the best at?

Any of the above will give you an idea of your competitive advantage. Once you can identify it, you must be able to communicate it to your employees and your customers.

Here are three steps that will help you discover your competitive advantage:

1. Make a brag list

   This simply refers to a list of all the positive claims you can make through your marketing messages, advertisements or sales pitches. Here is where a true in-depth understanding of your business process is important. As you compile a list of all key activities that your business is good at, brainstorm as many as possible and list down every single one. For example, you may claim that you offer overnight shipping like Amazon Prime, or have highly skilled service staff with a decade of experience. You might even emphasise your excellent customer reviews online, or highlight that your pricing is very attractive.

2. List the things that your competitors do well and differentiate yourself from them

   You must understand the strengths and weaknesses of your competitors before you can beat them. Review your competitors and make a list of all the things they do well. As you build the list, you may also notice some commonalities that between their businesses and yours. After building the list, cross out any activity that you and your competitors both do well in. This does not mean that you stop doing them, – rather, it helps to clarify that it can’t be your exclusive claim. As Jack Ma said, “you should learn from your competitor, but never copy them. Copy and you die.”

3. Create a fresh list of advantages only your company can do exceptionally well

   One way of filling this list is to interact with your customers and find out why they choose you over your competitors. This might lead to big revelations you might not have thought of yourself. At the end of this step, you should only be left with two or three true competitive advantages of your business. Choose the best one by crossing out the following: anything that can easily be copied by a competitor or any new entrants to the industry; things that cannot be marketed or advertised; or any advantage could be used against you by a competitor. Essentially, any activity that you excel in that is valued by your customers and which your competitors are not good at becomes your competitive advantage.

Once you have selected your competitive advantages, make sure that you quantify them. For example, instead of claiming that you have the fastest service, say you have a “one hour response time that is five times faster than your immediate competitors“. Instead of saying “excellent customer satisfaction,” quantify it with specifications like “we have a 98.8% customer satisfaction rating which is the highest in the industry“. Make sure that your unique claims are validated by quantifiable data. Your competitive advantages should from what your people do, and not from what they know. Performance and resolve are the keys to measuring your competitive advantages. Always remember that most advantages can be duplicated within a certain period. Approximately 70% of all new products can be duplicated within one year and 60-90% of process improvements eventually spread to your competitors.

Capitalise on your advantage

Maintaining your competitive advantage is a dynamic process that demands constant attention. If you want to make your competitive advantage sustainable, you need to keep refining them from time to time. Simply knowing what your competitive advantage is not be enough if you do not capitalise on them. In business, it is natural to take risks to grow your business and remain competitive by trying new business strategies. To execute and realise them, an injection of funds is usually required. However, some businesses lack the necessary funds. If you are such a business, one good approach to source funding is to apply for a business loan. Once you begin capitalising on your advantage, you can watch your business start to grow even further. Just remember to re-assess your advantages against your competitors periodically by repeating the process outlined above to stay competitive!

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