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Why competition is a good thing

4 Settembre 2014

David Lester on realising he wasn’t alone with his big idea and how dealing with the competition with his first business has prepared him this time around

why competition is a good thingLet’s talk competition. About three years ago, when I started researching the market for my new start-up citrusHR, there was nobody offering anything like it, at least for small businesses.
When we started development, about 18 months ago, we saw three or four firms offering relatively simple versions of the employee database we offer, though still nobody offering the full set of services I think are important for a small business audience.

But by the time we launched, just a couple of weeks ago, I was aware of an amazing 23 companies offering some sort of online employee database. Some of those also include some of the other elements of our service. So in a year and a half, a fledgling market went from having three small, basic suppliers to having 24! I had expected more competition to launch, but not that much more!

Why competition is good for business

Should I be terrified, or concerned? Actually, I am excited. (Perhaps I’m too easily excited…). My main reason is that when there are so many people who think an idea is good enough to pursue, it is strong evidence that there really is a strong market.

In fact I believe that within five years most employers will use a service something like ours. The real question for me, and for the bosses of the other 23 suppliers, is will our business succeed.

I will be amazed if there are more than five major suppliers in this space in five years’ time. The rest will either sell out to others, or go bust, or quietly pull out. A few will probably find a small niche and operate quietly and sensibly within that; so I imagine there might be 10 or 12 viable suppliers by then. So I don’t think that half the people offering this service today will still be around in five years. Which should be scary, right?

I am OK with this, oddly, because I have seen it before. My first company was a computer games developer and publisher; we started in 1988, when there were already lots of games publishers – in the UK there were probably well over 50 back then. The market was growing, which helped hugely – new companies didn’t need to steal customers from their competitors, they could simply grab new customers entering the market.

The other reason for my excitement is that when faced with a similar challenge 25 years ago, I came up with a good strategy for carving out a good, profitable niche for my company. And I am confident that the same applies today.

I love football, and like to use analogies from it – apologies to those of you who aren’t fans! When young people first play football together, they pretty much all follow the ball around – so you literally see a mass of kids running around in a crowd, trying to kick the ball.

As they learn the game, the better players learn the importance of position, reserving energy, and finding space – which gives them time to place their pass or their shot.

Major new growth markets feel very similar, with everyone initially chasing the ball. So in my new sector, almost all the 23 competitors do essentially the same thing; only five of them do anything at all other than storing employee records online. I see citrusHR as being on a wing, in plenty of space, running with the ball.

Learning how to win

So far this is all somewhat interesting, but so what… the key is to understand your market, and find a position for your business which is different from the rest. In the computer games market, most companies (including mine in the beginning) were publishing a wide variety of types of games.

We then decided to specialise (in strategy games, as it happens), and got to know fans of that type of games really well, which enabled us to give them more of what they wanted; it worked really well – we went from selling about 10,000 copies of our best game in say 1991, to 100,000 copies in 1995, and two million copies in 1997! The payoff for being well positioned – and focused on our strategy and not our rivals’ – in a growing market can be enormous, as I found out.

Time will tell as to whether the position I have carved out for citrusHR will prove successful. I expect that some of the different aspects we offer will prove really popular, while others might not. I don’t know which, yet, and hope to learn this from our customers as fast as I can.

But being in a growth market is exciting; I’m enjoying the journey, and will keep you posted here as to how we get on.

by David Lester

Source: startups.co.uk