Enter the Ring: How to Enter a Competitive Market And Win!
Bigger Markets, Bigger Opportunities, Bigger Bad Guys
Many things are challenging about being a small-town or rural entrepreneur. Occasionally, some of us get our feet under us, acquire a good chunk of market share, and carve out a healthy, albeit small, enterprise. But, in fact, excluding the first five years of a business’s life cycle, scaling or entering a new market is the most likely time for a business to falter, shrink or shut down.
From sawmills to excavation and paving companies. To bars and technology plays, I have seen a lot of great entrepreneurs put in a ton of hard work to grow their businesses in small markets and reach that lofty goal of sustainability. And many are even able to make a little bit of profit and live relatively comfortable lives.
Unfortunately, for us, entrepreneurial folks, standing still or sustaining is often viewed as a dirty word. And given the contractions and ebbs and flows of the market, it is not a good business strategy in the short or long term. So, what is a small-town entrepreneur to do? Well, that’s where we go in the hunt for new markets and new opportunities, and face, sometimes for the first time, COMPETITION.
Everyone Needs an Adversary
Be ready for competition. Especially if the market you seek to break into isn’t quite accustomed to newcomers or has established and entrenched options. Your decision to wade into deeper oceans will always come with the presence of sharks.
Blue and Red Ocean is a high-level market analysis and the presence of competition. A Blue Ocean is said to be relatively free of competitors and ripe for market penetration. A Red Ocean is made red by the presence of vicious competition. The water is stained red from the blood of your competitors and possibly your business soon.
Don't Shy Away From Competition
The natural inclination is that you should avoid these areas of high competition. And in some cases entering a saturated market can be disastrous. However, if you genuinely believe that your product or service has a competitive advantage or differentiator that can’t be matched, you would be foolish to avoid the richest fishing grounds.
When doing your preliminary market analysis, you need to keep three terms in your back pocket. TAM, SAM and SOM. TAM is the total available market in a region. That means how many people could buy your product. If you are a car dealer, this number could be interpreted as everyone in a region over a certain income threshold (depending on the models you offer). The SAM or Served Available Market is, in my opinion, more important and refers to the population that currently purchases the product or service you are looking to offer. For the car dealership, it would be the percentage of the population that owns at least one vehicle. And finally, SOM, or the Share of Market you expect to capture within a specific time.
When you have some solid numbers around these three items (TAM, SAM, SOM), you can start making assumptions about the cost of acquisition, marketing or direct sales. We don’t recommend going after strictly blue ocean markets because it becomes harder to ascertain how many people want what you are selling. If we go back to the example of a car dealer, you could drive by and through acompetitor lots, to see how many units are being moved in the case of a month and how many local dealership stickers are on cars in the mall parking lot. Suppose you see that there are relatively high levels of local purchases occurring. In that case, you can safely assume who you are competing with and what you’ll need to differentiate your product or service (or both in the case of car dealers) to acquire your desired market share.
In the scenario where there is no direct or similar competitor, you risk that the market is currently served via a model that may be more difficult to compete against. For example, suppose you want to open a department store in an area where there are none. In that case, you may realize that online shopping is primarily adopted or that people view the trip to the next big urban centre as an enjoyable escape where multiple wants are satisfied, and your model will suffer. Remember, sharks hang out where the fish are. If there are no sharks, fish are likely few and far between.
Parting Thoughts on New Markets
The presence of competition should not scare you from investing in entering a new market. For example, suppose you believe that the market is still underserved, or you have a competitive advantage that will play out in the larger market. In that case, the presence of an established competitor lends confidence to your decision to enter the market.
But be ready. That competitive advantage in your small town may not work quite smoothly at scale, or a competitor could copy it. Make no mistake, when you enter a new, bigger market, you are moving up a weight class, and you are the underdog. You can’t be afraid to walk in with some swagger and be ready to fight in round one. A deeper analysis of your competition will tell you where you need to focus your energy and how to do it effectively. The competition will make you a better business person and refine your processes, so the next market expansion goes even better.
As always, we are here to help with anything you need, and we can also help you with performing these kinds of analyses. So if you or your business are thinking about this kind of move, I highly encourage you to schedule a free call with us, and we can talk through some of the hurdles, competitors and challenges I am sure are weighing on your mind.
