As a fellow small business owner, I get it. You have a limited budget to spend on new product development and introductions. If you’ve had some early success, rapidly grown revenue year over year, or even shown up on the Inc 5000 list, people notice. You are, or soon will be, experiencing competition from larger companies as they slowly catch up to your innovative products and launch similar versions of their own.
When that happens, we all inevitably have the same two choices: we play defense (maintain operations by doing nothing and hope it works out) or do we play offense (continue forging ahead by bringing new and enhanced products to market) – e.g., what got us here in the first place.
The challenge, especially for small businesses, is the former, doing nothing, which isn’t technically maintaining. I still remember my high school basketball coach pausing practice to sternly lecture me, “You’re either getting better or worse, there’s no maintaining because the competition is always getting better.” Thanks coach.
Whether sports or business, he was right. As small business owners we must decide if we want to continue innovating or cede market leadership to established larger competitors.
After several in-depth conversations with my friend Dan Engerer, Founder of new product design and engineering firm Brainchild Engineering, we decided to put pen to paper and share our thoughts on the subject. We hope this aids your efforts.
How Small Businesses Can Partner to Out-Innovate Larger Competitors
1. Be #1 in Your Market for Your Differentiator
Outmaneuvering larger competitors requires an honest reflection of your capabilities. The harsh reality is larger businesses have more cash resources to invest in talent to pursue ideas – new product development and marketing to sell. They can afford to miss some shots and still win the game.
These market dynamics unfortunately can’t be upended overnight. Thus, every small business should take stock in what they are, or can be, number one or two at within each step in the value chain. But there’s a silver lining: the same advantages large companies have can present advantages for small businesses if an alternative strategy is pursued.
The key is reviewing your strengths, comparing them to your competitors’ market positioning, and intentionally choosing to compete on different terms. If your larger competitor chooses to compete on lowest cost, then choose to compete on product options or availability.
2. Build an Extended Team of All-Stars
There are going to be steps in the value chain you can lead in, but for the rest you should find a partner that can manage and execute them to maximize your limited resources. Few small businesses can afford to maintain the ongoing overhead costs to support all the steps in the value chain entirely in-house, from product idea to production, while simultaneous continuing to innovate and scale.
There simply becomes a tipping point where the business’ growing needs and the cost associated to service those needs balloon to create a competitive disadvantage for a small business, especially when in high-growth situations.
The net result: it’s typically best to double down on the core differentiators that the business decides to compete on – e.g., design bleeding edge products, sales, customer service levels – and build a team of all-star partners who can manage select steps in the value chain, like order fulfillment.
3. Align with Small Business Partners
Sure, you want world-class partners, but avoid partnering with suppliers that support predominately larger firms and/or your competitors. When times get tough, these larger suppliers will likely prioritize their larger customers. You want partners who’ll always have your back. Ideally you want partners with best-in-class capabilities that are fellow small businesses.
“Watch out for ‘jack-of-all-trades’ outfits who claim to do product design and engineering, and manufacturing and marketing – as the saying goes, a jack of all trades is usually a master of none. Instead, hire professionals at every step of the way,” adds Engerer.
A major advantage for small businesses is their entrepreneurial culture. They have a “can do” attitude and execute many or all steps in the value chain in-house; however, this same advantage can prove to be a challenge as the business continues to scale. What progressed your business from a startup to a small business could prove to be your “Achilles’ heel” while transitioning to a midsize business.
Organizational expansion can lead to many new variable requirements – new markets, products, specifications, service expectations, and data complexities all necessitating added skills sets.
“Small businesses can find themselves in a pile of trouble midway into a new product launch when all these added variables need to be considered and decided on in near real time,” adds Engerer.
When you hire fellow small businesses, they tend to better anticipate your business needs as they’ve lived through them as well or are currently experiencing them. Align with fellow small businesses to drive enhanced results. The litmus test: can you pick up the phone and speak to their CEO?
4. Prioritize Turnkey Solution Partners
Large companies have extensive functional teams enabling them to partner with a wider range of suppliers from specialists to turnkey. Suppliers who offer niche services – less than truckload-only shipments or eSourcing-only software applications – require additional internal resources to satisfy the complete value chain step. Small businesses don’t have the luxury of capacity.
Align with turnkey partners that can provide end-to-end solutions for your complete value chain step. It’ll likely serve you best to partner with a technology-enabled services firm. These organizations combine people (subject matter experts) to execute day-to-day tasks and a software technology platform to perform the work on and to deliver it. Partners can be found focusing in every functional area, from design to order fulfillment.
Simply put, you can’t afford to engage suppliers that have too narrow a focus, like a pure software company that has a complex ERP system optimized for large companies. You’re better off engaging a company who can provide a software tool and the people to manage and execute it.
“We use a third party cloud CAD package, Onshape, and a mix of global full-time employees, contractors, and consultants to collaborate and deliver work seamlessly for customers,” adds Engerer.
In summary, you want to partner with end-to-end solution suppliers to use your precious resources as efficiently as possible. This doesn’t mean a supplier needs to develop all their own software in-house or have full-time employees on staff to execute every one of your specific needs. But, when you look to partner with a supplier, they should consistently service all your needs within the value chain step you’re partnering with them to deliver.
5. Mimic Scale of Larger Competitors to Better Compete
Partnership options have expanded for small business, driven mainly through technology and business model advancements that have lowered the costs to acquire solutions. Historically, we had to choose between a local small business and large global supplier. Today, select suppliers use technology to offer scale and global reach by partnering with other small businesses. These suppliers can be leveraged to mirror the scale of larger competitors enabling you to level the playing field.
The purchasing power of larger firms typically place small businesses at a disadvantage for buying raw materials and components that make up their end products. Focused supply chain managed services firms can aggregate their spend across many small businesses providing your firm with lower costs at or below your larger competitors.
“We use staff all over the world, which enables literal around-the-clock work scheduling. This cuts away all the fat from the product development process – providing lower service costs helping our customers get across the finish line in record cost and time,” adds Engerer.
Plan and act deliberately as you grow your company. Greatness in business isn’t accomplished by accident.
Mind Your Budget; Small Businesses Can’t Afford Missteps
The end-to-end value chain is fraught with missteps and you’ll stumble if you aren’t purposeful. Opportunities are abounding for those small businesses that choose to play a different game and thus compete on different strategic terms than larger competitors.
Nobody makes all their shots but positioning yourself to take the highest percentage ones goes a long way toward winning the game of business. Those select small business who partner stand to achieve success quicker and at a lower risk.
“Part of competing on different terms includes hiring experienced partners to grow your roster and firm’s collective skills,” adds Engerer.
You can continue to grow your business by launching new products and improving operations completely in-house; however, partnering to achieve the same goals offers a proven lower-cost approach to reach them.
We hope the above gives you some new plays to enable you and your team to continue to grow your small business by outmaneuvering larger competitors.