Do you React to Your Competition or Do They React to You?

Circuit City’s announcement that all of their remaining electronics retail stores are closing exposes a fundamental but often overlooked lesson that all small business owners need to know and understand.

Before reading on, ask yourself a simple questions – does my business respond to the actions of our competitors, or do we make our competitors respond to us?

Best Buy’s Changing Plans – Background

A massive Q3 2008 downturn in Best Buy’s sales forced electronics retail giant to reassess their plans of placing new stores within 5 miles of Circuit City locations in an effort to grab more market share from their rivals.

Best Buy was aggressively working to choke off competition from Circuit City by saturating only the markets where Circuit City had a retail presence.

With Circuit City calling it quits, Best Buy is cutting their capital investments by 50%, scaling back new store openings domestically, while pressing on with its China expansion plans.

Lessons for a Small Business Owner

Understanding that most small business owners are not Best Buy, there are some valuable lessons that can be learned from Best Buy’s need to radically change a long-term plan that made perfect sense just a month before.

There are only two ways a small business owner can run a business.  Either you respond to the actions of your competitors, or they respond to yours.

Best Buy was on the hunt to dominate their local marketplaces by driving Circuit City into extinction.  Circuit City was forced to respond to Best Buy’s actions, and their final response was to retire from the field of battle.

Looking back at the decisions you have made for your business over the past two years, have you been making decisions because they were the right course for your business, or were you simply reacting to the decisions that your competitors made?

Why Responding to Others’ Decisions Can Be Fatal

When you base your decisions off the actions of your competitors you are choosing to attack their strength.  If your competitor starts offering a service that you do not, chances are they have researched and invested the necessary resources required to offer that service on a long-term basis.

Don’t rush to mimic them.  You have not done the research or set aside the resources that your competitors have.  Your competitor has a temporary strength over your company, and small businesses should never attack the strengths of their competitors.  Instead they should attack the weaknesses that those strengths create.

To bring this into perspective, imagine you are fighting a giant who is bigger, stronger, and more experienced than you are.  If you charge straight at the giant and try to win in a standard fight you will most definitely lose.

The same size and brawn elements that put you at a disadvantage also create a weakness in the giant.  He is slow and his motions are deliberate.  Because you are smaller and faster you should be able to dodge the giant’s blows and inflict several small counter punches to key spots.  These wounds won’t kill the giant, but they will eventually shake him and might even convince him to respond to your actions (this is the best possible outcome as explained below).

Real World Example of Attacking a Competitor’s Weakness

I own a computer repair company in Nebraska.  We compete directly with Best Buy’s Geek Squad.  They have a heavy marketing, manpower, and economies of scale advantage on their side.  There is literally no way that my company could ever hope to take them on head to head and drive them from our marketplace.

Instead, we elected to attack the Geek Squad’s weaknesses that are created by their strengths.  We do the things that the they simply can’t or won’t do.  For example:

• We can take extra time to hire smart, skilled technicians
• We can expend resources to create personal relationships with our customers
• We can focus our marketing efforts on micro-niches in the local community
• We can shift in and out of product lines more quickly
• We CAN beat their prices SOME of the time
• We can compete as a service provider instead of a cost leader in bad economic times
• We can use the power of social proof

These might seem to be small advantages, but when you put them together you can create a 10-year old company with a following of thousands of extremely loyal customers just as I did.

You can use these advantages to hit your competition in ways that underscore the weaknesses they can’t eliminate.  For them to eliminate their weaknesses they would have to abandon their strength as well.  Either way your company wins.

Schrock Innovations used this technique in a commercial we aired for just one week on local TV that underscored the fact that the Geek Squad will hire under-qualified technicians.  We also never miss an opportunity to illustrate how the company’s size makes it HARDER for them to provide good service.

While these small wounds might have gone unnoticed by the Geek Squad gaint, the customers we take from them every day are my company’s measure of success.

Yes, it Does Apply to Your Business Too

I am certain that some people reading this post will tell themselves “Thor doesn’t know my industry,” and that the information here simply doesn’t apply as a result.

They would be wrong.

Every business has competition form somewhere.  It is the cornerstone of a capitalist economy.  TV competes with the Internet and radio stations compete with newspapers, etc…

The more quickly you can look at your competitions’ weaknesses and begin to exploit them, the more quickly you will set your own business on a path to success over the long term.

Small businesses don’t have the luxury of cutting 50% of their capital expenses because the circumstances on the field change.  We need to get it right the first time, and the only way to do that is to do what’s best for your business in a way that attacks the weaknesses of your competition.