Managing a Small Business
Competing With The Giants - Ask Bob

Ask Bob About Competing With The Giants

?Should I consider selling my business?

If you sell your business knowing that a giant national competitor is opening in your area, and you don’t provide this information to your buyer, not only is it unethical but you risk being sued for fraud. So if you do sell your business, have the purchase and sales agreement include a clause that spells out the specifics of any impending competitive threats.

Better yet, stick around for long enough to show that your company can realize a profit despite the competition. Then, when you sell your business, you may even get a bit closer to your asking price, considering that the company has been able to hold its own against a giant national competitor.

You could even consider selling your business to the competition if it is interested in it. But try to hold off from this “surrender the ship before the battle begins” alternative.

?Can I join forces with other small firms to compete with the giant?

No. Amazingly, the giant firm, like any other company, is protected by law from attempts by a group of firms under different ownership that join forces specifically for the purpose of posing a competitive threat. You should certainly consult with an attorney before grouping with any other company or companies to create a competitive bloc.

The penalties for unlawful joint conduct are stiff, including triple damages and payment of the injured party’s legal fees. There may even be harsh criminal penalties.

Even trade associations are restricted from targeting some types of action against specific firms, although they will often pursue targeted actions by stating that they are simply trying to maintain an environment of equal competition.

?How can I work with other small firms to compete?

The key is that you can engage in normal business activities with other firms that don’t specifically target one competitor, large or small. So for example, you could team up with another firm in the same line of business to share a warehouse or sales force in an effort to cut costs.

One interesting arrangement conceived by two retailers was to share workload. Each retailer felt it was spending too much time buying product and not enough time with customers. So, they divided their product lines into two parts and each retailer bought half of the product type that was sold in each of the stores.

?Shouldn’t I cut expenses to save cash for a rainy day, such as when a giant competitor emerges?

Unfortunately, this is exactly what many firms do—at their peril. By cutting important expenses such as inventory or marketing, they become more vulnerable to competition and hasten their own decline. Don’t start cutting expenses until you work through a carefully detailed strategy.

?How could I work with larger firms to compete with a giant?

The possibilities are endless. Here are a few examples.

• Small retailers can work with powerful wholesalers. Wholesalers are offering ever-faster shipping by allowing retailers to use wholesalers as if they were private warehouses. Many wholesalers are also offering the benefits of computerized inventory and ordering systems to retailers, and have developed customized retail marketing plans for their use.

• Small product firms often create successful alliances with larger firms to market or even manufacture their product. In a more limited alliance, the larger firm may sell the smaller firm’s product under the smaller firm’s name for a small percentage of the revenue. In a closer partnership, the smaller firm may even license its product to the larger firm, which completes all of the manufacturing and may even sell the product under its own name.

• Small service companies sometimes team up with larger national firms to sell their services. For example, some national firms selling home products offer to arrange for an independent local service company to provide installation services.