IN SEARCH OF higher gross margins

Doing Battle With The Mega-CompanyOne of my favorite pastimes is to write down quotes from well-known people. The ones worth remembering summarize a powerful,
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IN SEARCH OF higher gross margins

Jan 1, 2000 12:00 PM, Alan Kruglak

Doing Battle With The Mega-Company

One of my favorite pastimes is to write down quotes from well-known people.The ones worth remembering summarize a powerful, complex idea, which may bedifficult to communicate, into one or two short sentences. Or, they havethe power to evoke strong feelings, stirring the passions of human emotion.

Remember Dr. McCoy played by DeForrest Kelly from the original Star Trekseries? His most-notable quote, which stirred deep emotions from televisionaudiences, is now part of the curriculum of all medical schools. Alwayssaid when he was in a life-or-death situation, his standard retort toCaptain Kirk was, "Jim, I'm a doctor, not a mechanic."

One of my favorite quotes is from President Franklin D. Roosevelt. It wasright after the Japanese had bombed Pearl Harbor in 1941, when he uttered astatement that became part of history: "There is nothing to fear but fearitself." Think about it. Fear is a very common human emotion, created andcontrolled by the brain. And although FDR was probably feared the carnageto come, he knew that he had no choice but to overcome his emotions andfocus on the issue of the day.

FDR was right about fear. Most of us in business are afraid of the unknown,too, especially when it comes to the mega-companies. You're all familiarwith this new species of companies. They are the big companies withrevenues in the tens if not hundreds of millions of dollars, usuallygrowing by acquisition, amassing a huge war chest along the way. Theirmission is simple: grow, grow, then grow some more, by any means necessary.

Fear begins the moment they enter your nice comfy little market. You'rescared because you don't know how they will affect your business.Ultimately, the main question that races through your mind is: "How will Icompete against the mega-companies? Is all hope lost?"

No doubt about it, mega-companies can be tough competitors. Their majorselling features to clients are "We're large and have the financialresources to take care of you," and "We have a large technicalinfrastructure, with hundreds of customer-service personnel to supportclients."

Competing

Being scared when a mega-company (MC) enters your market is a normalreaction. However, being frozen like deer in the headlights guaranteesyou'll be mowed down. The best way to compete against an opponent is tofind their weak spots and make them your strengths. When we competedagainst the MCs, we used several successful strategies.

Strategy No. 1: Defuse the size advantage. For many prospects, company sizeis important because it conveys stability. One way to defuse size as anadvantage is to level the playing field by enhancing your "size" image andstability. Even if your company has been in business for 30 years, hearingit from your sales reps usually means very little to a client. An effectiveway to show stability is by having a quality brochure. It doesn't have tobe a ten-page glossy. It can be a simple 8.5" by 17" folded in half. Notonly does this project stability, but it also informs the client about allthe other services provided by your company.

Strategy No. 2: Make size a liability. To highlight the liability of beingtoo big, I actually took a large duffel bag full of ping-pong balls,labeled with different numbers, on a sales call. When asked the differencebetween my company and the MC, I put my hand in the bag and pulling out aping-pong ball, replying: "With our company, you won't be just anothernumber?every client is important." I usually followed this technique with asimple statement: "If you ever have a problem, you can talk directly to thepresident and owner of the company. Your interests are his interests."

Strategy No. 3: Service, service, service. The weakest link for many MCs isservice. Their service is weak because service revenues are usually toosmall to impact an MC's annual growth target. At best, service is anafter-thought.

At our company, we used service as a strong lever to squash ourcompetitors, both small or large. We developed a Full Service Agreementpackage, which guaranteed around-the-clock service, instant replacement ofdefective products, problem correction within 24 hours or less, all partsand labor covered, etc. By creating charts highlighting the features of ourservice program, we were able to educate the prospect that not all serviceprograms are the same. If you treat service as a commodity, you're onlygiving the MC an upper hand.

Strategy No. 4: Seek niche markets. As Captain Kirk once said, "The missionof the Starship Enterprise is to go where no others have gone before." Thesame concept applies to competing against MCs. If you compete head-to-headon the standard cookie-cutter projects, where price is the only determiningfactor, you're probably wasting your time. To enhance our win rate, as wellas increase gross margins, we only went after niches where price was notthe key factor and we could demonstrate added value. Sometimes, added valuemeant off-site software programming services or providing a product notavailable to our competitors.

Strategy No. 5: Drop your prices. One way to discourage a new competitorfrom entering your market is to reduce your prices on every major newproject where both companies are competing. It's not the preferred way, butit is an alternative. If your adversary can't make head-way, maybe they'llgive up and check out another market.

Just as there is no single way to skin a cat, there is no single set ofways to compete against the MCs. Their entry into your market means onlyone thing?you have to take the offensive. Although they're big and canafford to lose tons of money, you can leverage their size to youradvantage. As we learned at our company, being small can also have itsadvantages. Down the road, after the big ugly MC has packed its bags andleft town, you can be quoted as saying: "I've never seen anything that bigrun so fast."

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