Ignoring the Davids could lead to a Goliath's fate

WHAT do Amazon, Tesla, Genentech, Huawei, Alliance Data Systems and Spirit Aero Systems have in common? They are now Fortune 500 companies (or on the fringe), but were hardly noticed when they started out. Companies should be watching out for competition to succeed in the marketplace. Yet, new competitors routinely sneak in and make big strides, before established players take notice or acknowledge their threat. Is this due to neglect or arrogance or both? The characteristics of new competitors are often different. But, do new companies succeed only because of "innovative" products or do older companies yield space due to rigid and archaic service routines? It's interesting to analyse this point as well.

New players are plainly hungrier for business and survival. They are often smaller but nimble (startups). They are also known to have the guerrilla mindset - they employ different tactics than what is common in the industry.

They may focus on one or two opportunities or segments or needs (eg fintechs). They have lower overheads and can adopt an aggressive pricing (or freebie) strategy. They are eager and hence tend to offer high touch and personalised service levels. Startups and small companies spend disproportionate resources on one or two first clients, in order to get entry and use that as marketing leverage. They may "poach" people from more established competitors to ramp up learning and go-to-market speeds. They may also be successful in hiring top talents, by offering startup experience and stakes in the company. They are good attractions among the millennials. Their products may be more advanced as they do not get bogged down with existing designs or tools or legacy technologies. They tend to think in discontinuities rather than incremental shifts. The lean organisation set-up allows them shorter turnarounds for changes to product designs and services. They are often the first to embrace new business models that may impress customers.

They may outsource more areas in order to shorten the cycle of product or service development. They don't feel constrained because of sunk in-house resources, unlike established players. They also don't suffer from hierarchy of internal approvals and don't always have rejection brigades within. New companies will offer to do significant tailoring, which existing ones resist. New companies may offer "no questions asked returns" in order to induce buyers. New companies may be happier to have market shares or subscriber base in the first phase of their development, instead of strict financial goals (Amazon, Alibaba, telecoms companies, pay-wallets). Many also attract a lot of VC funds - this could potentially ease their developmental pangs, leaving them to concentrate on getting their product or service out the door quickly. Customers may love the less bureaucratic style new companies bring.

FORMAL TRACKING

Given these substantial scope for disruptive "behaviour", it is vital for companies and their sales teams to spot these competitors and to conduct formal tracking of their strategies and activities. This is also not easy, as these players often operate "below the radar". Their flexibility with almost everything could throw you off guard. In fact, this has already gotten a buzzword: Agile Marketing. It was recently reported that only 43 per cent of the Fortune 500 companies that made up the list 20 years ago have retained their membership of the club! That is an unbelievable influx of new players, in only 20 years. These companies must have had a stealthy start that ballooned into massive enterprises in their industry space.

One key question to ask is: Why would customers entertain "new" players, especially in B2B? Many customers in many industries have long established "rigid" protocols for dealing with vendors. They have preferred vendors and do not deal outside the arrangement. Loyalty is another stubborn factor. Some expect several (impossible) conditions to be fulfilled, before a new player is even given an entry ticket. Yet, companies are often curious to listen to new vendors, especially where there is a strong technology angle or where the new company is led by an accomplished industry veteran or when the new company's marketing promise is different and exciting. Some customers at the cutting edge have a window for new vendors to come in, if they have new ideas.

PIONEERING PRODUCTS

This window is created to make sure that such new ideas can be tapped early to launch pioneering products from their stable. Companies regard the encouragement to new or startup outfits as a ticket to innovation and the future. Further, companies can sometimes salivate at the prospect of better prices for what they buy, especially where the product specifications do not vary much and when the industry goes through difficult times. This is the success mantra for late entrants such as Asus in the enterprise computing segment. In fact, most companies have a goal known as "vendor development" for their purchasing and technical group. Under this, companies actually encourage promising small and new players, and may even provide resource support and promise of trials, to accelerate their product or service development cycles, in their own interest. All of these should be encouraging to you, if you are a David challenging Goliath.

It is thus a no-brainer that smaller or newer competitors cannot be ignored. While tracking such new players, companies need to make a realistic assessment of where these rookies could make an impact, what the type of impact will be and when the threat will cross the danger mark. Sales and marketing managers could be guilty of not just ignoring the existence of such new competitors, but also misjudging their advances, due to the lack of a good tracking mechanism.

The fintech, medtech and SMAC (social media analytics companies) sectors have several such stories. The Internet has been a great leveller. Whether your business is an old fashioned "biggies" play zone or a modern tech field that draws upon the power of the Internet, you are ignoring smart new competitors at your peril. Merely tracking them is not enough. What would be your response? How do you counteract them without mimicking them? Or is mimicking them the best weapon? Can you set up small units in bigger organisations that behave like startups and are (fully) unfettered? Companies like Google have adopted this code from time to time. That may be the way forward.

Companies sometimes pick up stakes in startups both to keep a live interest in the opportunity as well to watch and adopt their working practices. In a way, this is setting up your own new age competitor, smothering the threat factor. Are you good at predicting the next 100 new companies in the Fortune club in perhaps the next decade? (Hint: They don't exist yet!).