Tuesday, November 20, 2012

Competition Can Help an Owner-Managed Business

The owner-manager of a business may not readily recognize the benefits of having competition. Many owner-managers would say they want no competition at all. In the economy of the United States, and in most free market economies, a market with perceptible demand will be served by more than one business. Given that competition is inevitable, it is helpful to understand how to benefit from competition. Generally, the benefits of competition are in market analysis, employee acquisition, and sale of the business.

The function of a business is to meet the needs of its customers or clients. The critical question for every business is: what does the customer or client want? If the consumer is asked directly, the information derived is likely to be inaccurate. The actions of consumers provide more reliable information than their words. From the perspective of understanding the market for your business product or service, ask: why does my competitor have customers or clients? In other words, why have my competitors' customers or clients made the decision not to be consumers of my business? Gathering this information involves data about consumers who decided not to buy your product. This information can be difficult to obtain but the effort will be worthwhile. This inquiry will lead to an examination of the competing products or services and an analysis of the consumer decision. For example, if your product or service is better, than the consumer is not receiving enough information from your business before the buying decision is made. If the competing product is of inferior quality but is sold at a lower price, this is valuable information about the elasticity of demand for the product or service. This information will help you make better decisions about the nature of your product or service and how it is marketed.

Training an employee is a significant cost to a business. Attracting new ideas and learning different methods of conducting the business is extremely valuable to the business. Sometimes competing businesses can cooperate, often through trade associations, in the education and training of employees. From time to time, the opportunity to assimilate new ideas and methods can come from hiring a former employee of a competitor. Often, the former employee will not be fully aware of the value of the employee's experience to a competing business. It can be very advantageous to the business for the owner-manager to be aware of the employment activity of a competitor.

In a situation where there is a need to find a buyer for your business, the first choice is frequently a competitor. From the competitor's point of view, it is easier to expand market share by buying the customers than by convincing customers to change their buying habits. From the business owners' point of view, a competitor is already aware of the value of the business and is interested in the business. If there is already a relationship in place, it is easier to approach a competitor about a sale. In some situations, competitors have been able to enter into agreements providing for purchase and sale of competing businesses given certain owner events such as death or disability.

Competition need not be fierce. Competitors can benefit by sharing information and cooperating on educating the marketplace. Where a market is defined into categories, one business may be the acknowledged provider in one category, while another business may be the acknowledged provider in another category. Many times there are ways competitors may benefit through cooperation in raw material supply, marketing efforts, and training. For example, restaurants have discovered that having more than one restaurant in an area benefits all the restaurants located in the area.

Owner-managers of businesses can benefit by analyzing events at competing businesses and communicating with the owner-managers of those businesses. The result of such attention can result in benefits for market analysis, employee acquisition, and opportunities for the sale of the business.

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