Paul Witkay in Smart Business: “Turn the Tables on Your Competitors”

December 19, 2013

Breakthrough ideas are typically the result of someone who was able to challenge conventional wisdom and think differently. Author Malcolm Gladwell demonstrates this in his newest book, “David and Goliath: Underdogs, Misfits, and the Art of Battling Giants.”

David’s victory over Goliath is widely accepted as a monumental victory for the underdog. David’s tactic of fighting from a distance with his sling changed the playing field.

Every industry has at least one, if not several, powerful companies with massive resources to win most any customer they decide to target. Is it possible that, like Goliath, they all have weaknesses that can be exploited? I believe this to be the case. But how can a smaller, less trained competitor be like David and turn the tables?

Change the field of battle

For years, the major auto companies have had the ability to build new electric vehicles, but they never focused on them because they didn’t believe the market would be large enough. As a result, they tried to modify their current vehicle platforms with hybrid or electric motors.

Yet in only a few short years, Tesla Motors has created a huge brand image and a market valuation that is already half that of Ford Motor Co. — even though Tesla’s current market share is less than 0.1 percent. The market currently values Tesla at $1 million per car, while General Motors Co. is valued at just more than $7,000!

Similar to David, Tesla refused to compete on GM and Ford’s terms and instead focused all its efforts on building the best electric cars available. Although sales are still small, Tesla has sold more electric cars than anyone else — despite its higher price tags.

Large companies sometimes ignore profitable opportunities

Large companies regularly dismiss new products and markets because these opportunities aren’t currently large enough to “move the needle,” or they may threaten to “cannibalize” their very profitable current businesses.

A classic example is Kodak. It didn’t pay attention to the introduction of the digital camera — mostly because early digital cameras weren’t very good. Yet this would not always be the case. Kodak decided to remain focused on its core film and camera business. In 2012, it declared bankruptcy and sold its valuable intellectual property.

Leverage the larger competitor’s assets against them

As successful companies grow, they make significant investments in plants, stores, technology platforms and other tangible and intangible assets. All these investments actually become barriers to change because they can tie a company’s success to certain ways of doing business with certain sets of customers.

In 1992, Fidelity dominated the IRA market. Fidelity and other major industry firms all charged about $22 per year to manage an IRA account. Charles Schwab was much smaller and decided to provide this service for free. Because Fidelity had so many accounts, it would have been very expensive for it to follow suit. As a result, Schwab added $2 billion in assets, and made money managing assets rather than by charging fees.

Similarly, Blockbuster had invested heavily in 3,400 brick-and-mortar stores by the time Netflix launched its DVD-by-mail service at a fixed monthly price. Blockbuster couldn’t create an alternative without cannibalizing its own store sales.

When we think about the large competitors that we all face, it’s difficult to not focus on their size and strength. However, if we view them as David saw Goliath, we can often find ways to topple them.