I’ve taken on a giant. Have I wasted my ‘considerable sum’?

Dear Aunty B,

Last year, while reading the Saturday paper, I saw an interesting article on the success of a business in the online sector. I thought to myself, ‘why can’t I start a company like that?’.

This company is (by definition that it has 40% plus of the market with no real other player coming close) a monopoly. Its customers don’t like it because of its exorbitant fees, but will continue to use it because no other provider can match the audience.

It is a large online business and its closest competitors are also large in online and offline media. The interesting thing is, costs for entry are relatively cheap, by comparison to offline models, and there a numerous people trying to start their own website to compete. Some fail to differentiate, others are just plain amateurish and the little that are left are good but don’t seem to be able to get traction to successfully compete.

I went and spent a considerable sum on getting a very professionally designed website constructed, and identified how to differentiate the website sufficiently without diminishing the functionality and purpose of the site.

We are now in the position of marketing the site, only to the customer base at this stage, to begin the critical mass phase. We are offering this service free, by comparison to pretty much most of our competitors who charge this same customer base a monthly subscription fee. We also highlight that our revenue is 3rd party advertising so the customers understand we will be able to procure distribution networks and the important eyeballs.

We also offer the customer the ability to use bulk uploading providers to save them even having to do anything. In other words we have done everything we can to generate critical mass, then start the search for the advertising partners for the eventual launch. While we haven’t yet started to market to the customer base, some doubts are creeping in about how long it will be before a return on capital is achieved.

How do you compete with a dominate competitor? It’s like a small business starting to compete with Google. Google was once small, and now it rivals Microsoft. How do you avoid the legal arrows your larger competitors will throw at you if you start to become a threat? Is it possible for a small player to survive long enough to eventually compete on a level field?

And last but not least, is a monopoly market the best market to enter for the eventual equalisation (perfect competition)? The one concern I have is that the market has been over-saturated at the bottom level with substandard want-to-be’s; new quality entrants will never be taken seriously.

Thanks
Seth D,
Melbourne

Hi Seth,

Well, I love your guts! We all read about inspiring entrepreneurs on Saturday morning and think ‘I can do that!’ It’s just usually the thought has died by lunchtime and we certainly do not revisit it Monday morning.

And why? Mainly because taking a giant incumbent head-on takes very careful planning, extensive knowledge of the industry, lots of money, networks… and that’s for starters.

But let’s say we do get to Monday morning and the idea is still swimming around in our head. By the time we do our business plan and comprehensive marketing and sales plans (see today’s top story) we realise lots of things.

First, we realise that to tackle a giant gorilla head on, you need several competitive advantages. Being free sounds like a great competitive advantage, but it is not enough to guarantee success.

A professional website that is significantly different is simply not enough. You need at least two or three whopping competitive advantages.

Second, many of your distribution channels will be sewn up by the gorilla and lesser competitors. As you note, the competitors are in offline and online. You will find it hard to dislodge the pre-existing agreements and harder to get publicity.

Third, you need a long track record, lots of credibility in the industry and big backers to convince third party advertisers that you are not going to fall over soon after you launch. Building a site that relies on third party advertising is a business in itself and one that many people leave until after they launch.

I am afraid you are going to find it very hard to get the traction needed to gain the numbers of listings and eyeballs to attract the advertisers.

One way out is to redesign the site and focus on a niche; that is focus on a specific segment that the competitor is not doing well and provide a much better product or service.

You will also need deep pockets and great backers.

The good news is the competitor is probably very busy with global expansion plans. And you say there are lots of want-to-be’s. They won’t notice you, and when you do emerge on their radar, they will ignore you. If you do start to encroach on their territory they might use underhand methods to get at you, such as threatening your suppliers (which is illegal).

But they won’t throw legal arrows at you unless you are doing something wrong.

So you have your work cut out for you! But as you point out, Google was small once!

Good luck,
Your Aunty B.