Entrepreneurs: How to Profit from Being the Underdog
Posted by Pierre de la Fortune on June 24, 2015 @ 12:01 a.m.
Written by Monique Verduyn
In any market the little guys can quickly dominate by using their opponent’s size to their advantage. That’s because giant-killers can afford to shake things up and take bold steps.Pharma Dynamics, 1time Airlines, Capitec Bank – these are just some of the well known local companies that have taken on the big guns and won.
In his thought provoking and insightful book Killing Giants: 10 Strategies to Topple the Goliath in Your Industry, strategist and marketing consultant Stephen Denny describes how a small new player in any industry can topple the giant industry leader through a combination of brains, street smarts and agility.
It’s an interesting take on a familiar scenario: “A competitor with more people, money and resources than you can ever hope to match. A household name. They have more people in R&D than you have in your whole company and they spend more on off-site meetings than you do on marketing. Where they seem to have no limits, you have constraints. Good,” says Denny. “Your best work comes from constraints like these. And frankly, although it feels counter-intuitive right now as you stare straight up at the mountain-sized problems that confront you, it’s never the giants that control their own destinies.“
It’s the insurgents, the ‘giant killers’, that really hold all the cards. Giant killers are the ones who can launch surprise attacks, pick unfair fights and hijack the conversation, stealing the customers right out from under the giant’s nose. That’s the message behind Killing Giants.
The new normalDenny builds his position on an elemental concept – the new normal. The business landscape has changed fundamentally; tomorrow’s environment will be different, but no less rich in possibilities for those who are prepared. Here’s how Denny describes it: “Conspicuous consumption has given way to consumers bragging to their friends that they’ve made good choices. Importantly, there’s an increased degree of vigilance to this new feeling of smart consumerism. The definition of value has become more complex. It’s not that people won’t spend money – we will – but the way that we look at everything has changed.” Smart consumerism is what it’s all about. The age of the Hummer and lavish personal spending is over. The same sentiment holds true in the business-to-business scenario. How then should marketers capture the attention of their customers when fewer resources, reduced budgets, and customer scrutiny are also part of ‘the new normal’?
Only ten strategiesDenny’s approach is simple. There are only ten strategies to learn. Some you’ll be able to apply, some you won’t. However, simply by understanding them you’ll be able to stretch your mind and broaden the way you think about strategy.
1. Thin Ice The Thin Ice strategy is about making the giant compete on ground where its size and relative strength no longer matter. It’s where giants fear to tread. Thin ice is dangerous to companies which are too big to venture far from the relative safety of familiar ground. When the giant shifts, Denny says, the ice groans and cracks under its feet. “But you know the ice can support your weight,” he explains. “You made the patch of thin ice in the first place. So taunt the giant all you want.” By creating your own thin ice, you change the environment to suit your needs. You move the public dialogue to a place where the giant is unprepared to go because it’s dangerous. Rather than risk losing the fight, it may well choose not to fight at all. You may think there are few areas beyond the reach of a giant but, as Denny notes, nimble brands choose to fight against “busy and arrogant” giants daily. Giants have other fights to fight and often prefer to deal with whatever else is on their to-do list.
2. Speed Giants have a culture of process; Davids have a culture of speed. While giants are conducting a first-phase evaluation, says Denny, you’re launching a product. They form a steering committee, you launch a second-generation product. And so on. “They can’t hit what they can’t catch. Win on speed,” he says. Denny describes the attributes of a culture built on speed. “They give rise to the teams that not only accept the need for speed – speed in decision-making, alignment, and execution – but thrive on it, requiring it for their own job satisfaction… Faster is better. This does not imply that corners are cut; as a matter of fact, speed cultures are often more rigorous than their alternatives, precisely because they have found processes that eliminate or discourage time-wasting detours.” A speed culture encourages making decisions and executing to the best of your abilities toward that goal. You will be required to put your opinions aside and row with the rest of the team.
3. Winning in the Last Three Feet Winning in the last three feet is a reminder never to assume that a customer has already made up their mind. It’s not over until it’s over and the last three feet is where giant killers find success. There’s a gap between when the giant thinks it’s got the sale and when the customer hands over the cash. Giants are giants because they have the market heft to get the attention of lots and lots of people. But here’s the flip side. They also have the bureaucracy that you don’t – meetings, management layers, deeply instilled corporate cultures. Granted, that culture may well be an advantage, but your counterpart has to succeed within that culture. While they are mastering bureaucracy, you have the opportunity to take advantage of their distraction and win with a strike just when the giant thinks it’s done its job and has moved onto the next item on that long to-do list.
And here’s the kicker: you don’t have to spend the money needed to drive customer demand for a product or service; you just have to spend enough to switch the customer when they are ready to buy. “So let the giant pay for getting your customers off the couch, through the parking lot, and ready to buy. When they’re standing in the aisle with their wallet in hand, they are the most qualified they will ever be.”
Denny reminds us never to assume that your potential customer has already made up their mind. Where the giant has marketing, you may have a face-to-face opportunity. Another point Denny makes, is that in a culture rife with invidious comparison, we love the newer, the more exclusive, the more esoteric. Simply, we like to have what our friends don’t, yet. To catch the attention of potential customers, you just have to be there, ready to do business. Even if you take away 10% of the giant’s customers, you will have done your job.
4. Fighting Dirty Fighting dirty is about making strategic shifts that no one else can see and turning everything your opponent believes upside down. Don’t think you can’t pick on someone just because they are bigger than you. However, says Denny, when you choose to fight, fight dirty. He also adds a cautionary: “Fighting dirty is dangerous. Tread carefully.”
As we’ve already noted, competitors have an almost endless supply of money and people. Trying to compete with them on an equal footing, and playing by the same rules, is a losing game. The correct move, says Denny, is to shift your perspective. See things from a different angle, do things that might upset the balance of power. Question your assumptions and what might happen if you change them. How do things look from your opponent’s perspective? “Fighting dirty is about making those strategic shifts that no one else can see, turning everything your opponent believes upside down.“ He offers a fascinating example of fighting dirty. In the early 90s, Pepsi launched ‘Crystal Pepsi’, a clear cola. Coca-Cola ambushed the launch by doing a kamikaze. The company created Tab Clear, positioned it next to Crystal Pepsi and killed both products in the process. The Tab Clear strategy was to muddy the waters and make the category look far less sexy than Pepsi had planned for it to be. It sank the concept of clear cola and killed both products within a year, which was the plan all along.
Remember that it’s not only about how the giant looks to you – it’s also about how you look to them. Where you see a giant with unlimited resources, they see a scrappy competitor with nothing to lose. Both are daunting, so the playing field might be more level than you think.
5. Eat the Bug ’Eat the bug‘ is exactly what it sounds like. Doing what is taboo and unthinkable to the Goliath in your industry. Much of what giants do is given. They do things this way and never like that. What they consider taboo, is where opportunity resides for you. Be willing to do what they aren’t and you can build a business out if it. “Go ahead,” says Denny. “Do the unthinkable. Eat the bug.” Denny notes that senior managers in large companies are paid to say no to risky ideas – they fear change and resist it at all costs. He calls this ‘loss-based framing’, a psychological principle which says we feel the pain of losses more acutely than we do the pleasure of gains. It’s a principle that’s amplified with each additional person, which means that large companies feel it most. But when you have nothing, you have nothing to lose. It’s like a game of chicken in which you continue to drive while the giant swerves out of the way.
Think of things you can do that giants can’t. They have to work with channel partners and resellers, for example. They have to negotiate with unions. You don’t. Remember also that public opinion tends to side with the underdog. Giants will not often publicly pick on a minor player and will be more conservative in the type of risks they take.
6. Inconvenient Truths Giants are masters of assumption. They assume every sale is theirs for the taking. An inconvenient truth is about throwing a monkey wrench into their process by making customers pause to consider how your solution might just make more sense.
Make customers think for a moment. Get them to realise that your offering makes more sense than the giant’s. Denny calls this ‘making the inconvenient argument’. It comes down to your ability to move customers off their established anchor point and throw the psychological switch in their brains that allows your argument to be heard.
You have to flip the emotional polarity of your customers. Some have to move from the emotional to the rational, others from the rational to the emotional. In the first instance, Denny notes how US company Zipcar got Americans to think differently about cars. Zipcar convinced customers that having transport does not mean owning a car. It made the public move from an emotional desire to own a car to the rational view that a vehicle is only necessary when you need one.
7. Polarise on Purpose You aren’t like the giants and that’s okay. No one chooses your brand by accident. They are either with you or against you. Force people to make a decision, it’s okay. Unique brands, says Denny, force people to make a choice. How can your brand achieve meaningful separation in the eyes of your customers and the general public? This is not a question of being different for the sake of it. “Differentiation without discipline is self-indulgence,” Denny warns. Successful brands that have achieved separation have avoided becoming exaggerations of what differentiates them. You don’t want your brand to become what he calls ‘a caricature brand’.
Brands that successfully put meaningful separation between themselves and the giants in their industry have done so by chipping away at the non-essentials. Distilled and refined, they have polarised their markets intentionally and strategically. By getting customers to make a polarising choice, they enable them to separate themselves from the herd, feeding into their sense of identity and desire for exclusivity.
Denny notes how Mini achieved this in the US market, known for its love of huge cars. The company targeted 5% of the population, it’s message being clear that Mini is not for everyone. It’s for people who separate themselves from the herd of SUV drivers. Within that small group, the brand created a sense of exclusivity, of living in a post-material world, and of being self-actualised enough to be able to make decisions that are unlike everybody else‘s.
8. Seize the Microphone Being fast and nimble gives you the advantage of being the only one talking to customers and anticipating their next need. Keep being unavoidable while the giants rest on their marketing laurels.
Take up all the oxygen in the room, says Denny. Your competitors may be big, but that does not mean they have to lead the conversation. Size, revenue and market share do not equal personality and emotional connection, so don’t be afraid of grabbing the microphone and speaking for the whole industry. Being polite and standing back will not get you anywhere.
Denny stresses, however, that you need to seize imaginations before you can credibly seize the microphone. The right ideas will set your audience on fire. Not only are they more powerful than money, but they will also attract money.
Put forward ideas that make you become the conversation. If your industry is dominated by giants who focus on each other, talk to your customers. Interact with them and speak their language. We are living in an age where social means personal, so create bonds. This takes meaningful interaction over a long period of time, but the results can be remarkable.
9. All the Wood Behind the Arrows You can’t win everywhere, but being one-dimensional is also a losing game. Have more than one arrow and be the best at what you do, where you want to do it. Dig in deep and make the giant afraid of the fight.
There’s always an opponent, even if the giant does not want to fight. By creating specialised weapons, you become an opponent the giant is even more reluctant to face. You always need more than one arrow, Denny says. “Develop primary strengths in a pair of important areas and you become the competitor the giant is more than happy to avoid.
Denny notes how everyone thought Eric Ryan and Adam Lowry were crazy to start Method, a new cleaning products company. The category had long been dominated by Procter & Gamble, Unilever, and Colgate-Palmolive who had so much clout with the retail chains that their soaps barely needed updating. But, by taking advantage of its underdog position, Method carved out a very profitable niche: environmentally sound products in stylish, innovative packaging. With a far smaller marketing budget than their competitors, Method connected with a substantial minority of people who wanted to ‘buy green’ but also high-quality products. The core of Method’s business, he says, lies in the deeply felt belief that there should be a better way to clean. Today, the company lives in the shadow of larger brands but is competitively insulated because the giants can’t afford to spend too much time fighting a fight that will not have a massive payoff for them.
10. Show Your Teeth The giants in your industry are boring and fearful. No giant wants to be called out in public and forced to fight against an upstart.
When you know you are better – and can prove it – say it early and often. Promote your advantages to core stakeholders. Sometimes, says Denny, the secret to winning is not to get out of the bully’s way. If your customers say you are better than the others, it does not matter if experts disagree.
Let’s say you have a quality product that you supply to retailers at a price that enables them to make money. That means they can promote your product heavily without alienating their customers. “If you can win in the soft drink aisle, or at the reseller level, or in the minds of your independent field sales representatives, you’ve done well,” says Denny.
When you are better, tell everyone through every possible medium of communication and industry forum.
Case Study The right medicine How a generic drugs company took on the giants of the industry and grew into a R350 million business. Challenging the big guys is something that Paul Anley has heartily enjoyed doing. The CEO of Pharma Dynamics, one of the fastest growing and most progressive pharmaceutical companies in South Africa, founded the business in 2001 after pharmaceutical giant Pfizer staged a hostile bid against his former employer Warner Lambert.
A pharmacist and MBA graduate, Anley founded Warner Lambert’s generics division in 1992 and had grown it into a substantial business by 2000.
“Pfizer was the largest drug company in the world and was known for its anti-generics stance,” says Anley. “Its strategy was aggressive. It was often involved in patent litigation and it was simply not in Pfizer’s corporate culture to accommodate generics.”
After it acquired Warner Lambert, Pfizer put the brakes on the generic pharmaceuticals division and Anley was told no new products were to be launched.
“I knew the writing was on the wall, so I left. I was lucky in that I had a number of existing contacts and I was well known in the industry. I went out and secured a pipeline for Pharma Dynamics through those contacts.”
Cheekily, Anley took on board the products that had been terminated by Pfizer. “They gave me a hop up, if you like. Approval and registration of drugs normally takes three years, but these products had already been registered. We also took on herbal products because these contributed to the funding of our sales force while we grew the generics range.”
A healthy outlook At the core of the new business was Anley’s passion for generic medicines. “They broaden access to healthcare, especially important in a country like ours, and also in an economy where consumers are very cost-conscious. Some drugs that were priced at R300 ten years ago cost R50 today. We pride ourselves on providing a product and a service that was not available previously to patients.” It’s this uniqueness, an ability to understand what Denny calls ‘the new world order’, that has set Anley’s company apart and enabled him to compete against the colossuses of the industry. He was fortunate that the bulk of his former management team and employees were equally unsure of their future, making it possible for him to cherry pick the best for his new venture. Market conditions were also in his favour. As a Warner Lambert director, he had been given share options which were worth a significant dollar amount after the Pfizer buy-out. It was 2000, and the rand had plummeted to R12 to the dollar. He used this money and an additional bond on his house to get the start-up off the ground. The business broke even in its first year, which was most unusual for a pharmaceutical company. “I put it down to a ‘pay as you go’ strategy. We reinvested everything in the business. Also, I had employed only six sales reps. Although we could probably have grown faster, there was no way I could afford to run the business at a loss.” Industry knowledge Anley says he believed from the outset that he was going to build a multi-billion rand business. “I was going up against Pfizer, but also against other giants like Aspen, Adcock Ingram and Cipla Medpro. The advantage I had was that I knew their strengths and weaknesses because I had been in the industry for so long. I have never allowed them to bully us into submission. We compete with them head-on.” Part of the reason that Pharma Dynamics has succeeded, Anley says, is product focus. “We have a small portfolio of products, but we are nimble and able to move quickly. If there’s a price change, we can make a decision and implement it in a day. The bigger companies can take months to do that. Added to that, the greatest opportunity for Pharma Dynamics lies in new generic product launches, with the company having proved its ability to outsell its competitors time and time again. Today, track record and personal reach are the company’s biggest advantages. “Our culture is one of innovation,” he says. “We’re always looking for a gap, a new marketing opportunity. Some work and some don’t. We never punish ourselves, we just move on and do something else. We don’t have millions to spend on market research in an industry that changes so rapidly. Our approach is that if our team believes something has legs, we go for it.” Anley says that in an industry that is enormously competitive, Pharma Dynamics punches well above its weight. “Our competitors take us very seriously, but there’s not much they can do about us, except drop their prices every now and then. As a result, we have built respectability, which means we often have medical reps coming to us for jobs. This has enabled us to develop a great team.” Pharma Dynamics’ business model is different from the norm. It does not own a factory and instead licences the majority of its products. That means most employees are in sales and marketing. A total of 35 products are marketed by a team of 60, an excellent ratio in anyone’s books. Anley initially chose to focus on cardio vascular drugs, the largest therapeutic area in South Africa, and is now expanding into other chronic areas because, he says, this is where branding opportunities lie. “With antibiotics, every pack is sold to a new patient so brand switching is easy. When people take chronic medication, they take it for life and are far less likely to change brands.” Today, Pharma Dynamics is the sixth largest pharmaceutical company in the country. It has grown by an average of 30% to 40% year on year since it was launched, and currently employs 100 people. Its projected turnover for 2011 is R350 million. “I’m a competitive guy and I like taking on the giants,” Anley says. “Being able to take a proven product to market against global blockbusters at a significant price difference really excites me.” It doesn’t hurt that generics and herbal medicines have become the flavour of the decade. Where they were once viewed with scepticism, generics are now accepted, and generic companies have put an enormous amount of work and money into changing the perceptions of doctors and consumers. “It’s almost rational for people to think that because something is cheaper it’s inferior. Luckily we have very advanced regulatory bodies which ensure that generics and brands are of the same quality.” His advice to entrepreneurs? “The biggest and most important recommendation I can make is to learn the business on someone else’s ticket. That will give you the opportunity to know your market and be known in it.” Shift your perspective The mouse fears the elephant, says Stephen Denny. But the elephant fears the mouse. That’s why he recommends looking at your battlefield from a different perspective, as that can make all the difference. That’s what Paul Anley did when he realised his generics division was doomed. He swung his viewpoint around completely and saw that there was a healthy gap in the market for a range of generic medicines. Ask yourself these questions: o What vantage point can you climb to survey the field from a different angle? o What ‘givens’ can you question that might upset the balance of power? o What assumptions are you making? What are the ‘facts’. What if you change them? o What patterns of behaviour, structure or timing do you see? o What does the situation look like from your opponent’s point of view? Strategic shifting gets you to a vantage point where you can look at a problem and see things other people miss. You see how and where you can shift the odds in your favour. Case Study Built For Takeoff Low-cost airline 1time has 15% market share and a turnover of R1,3 billion. Rodney James, founder and CEO of JSE-listed 1time airlines was brave enough to start a budget airline in 2004, pitting it against kulula.com, which had taken to the skies just three years earlier and dominated the market. He proved to be an expert at ‘seizing the microphone’ and ‘showing his teeth’. James, who qualified as an aircraft engineer and had owned his own aircraft maintenance company since his late 20s, had contacts. One of his former partners, Glenn Orsmond, had worked for Comair and was employed as kulula’s financial director. Together they hatched their plan for a new ‘true’ low-cost airline. “At that time, kulula was pricing itself at about 15% below the premium airlines, which is not low-cost in my view,” says James. “We agreed on two things: South African passengers needed to pay less to fly, and my existing business was a great platform from which to launch a new airline.” A marketers’ dream In the initial budget R3,4 million was set aside for marketing, not much compared to kulula’s budget of R10 million for 2009/2010. But it bought some TV and radio advertising and a few billboards. Competitor, kulula was not impressed. “Quite a few of kulula’s senior people had moved across to us and the company was emotional when it came to 1time. They knew about us from the start, and told us that if we started an airline, they’d come after us. And they did.” James is sanguine about what he believes was the relentless persecution that followed. If their competitors were so disturbed, he said to Orsmond, they were obviously doing the right thing. “Negative press began to appear about the safety and reliability of 1time. Suddenly we had the media all over us. That’s actually what launched us, countering the message put out there that we were unsafe. There we were hoping that our marketing campaign would get the press interested enough to come and talk to us, but we were everywhere already, long before the launch.” The first customers started coming in. “The first flight was full, and the second and the third. With that one DC9, 1time ran three return flights a day from Joburg to Cape Town. We came in and smashed airfares by 50%. Our tickets were half the price of even the so-called no-frills airlines around at the time.” James thinks consumers are pretty smart and that they understand the sparring that goes on between businesses. “Their attitude was ‘how do you know these guys are unsafe? Give them a chance.’ People are always keen to try something new and if your business lives up to its promise from day one, it’s easy to nab your own share of the market. And we had a lot of fun too. We actually laughed about the bad stuff a lot. Luckily, we could laugh because we were packing the planes.” Causing a disruption Not every business can compete on price to the extent that 1time did, but James and his team took the gap by offering something that was desperately needed at the time, disrupting the local airline industry in the process. “There were 50 flights a day between Johannesburg and Cape Town at the time. With our one plane, we brought fares down dramatically. The whole scenario changed overnight.” Surviving in a cut-throat industry Competition between the budget airlines has not let up and it remains fierce and dirty. “We don’t like each other and we don’t talk to each other. I think our competitors are kicking themselves because maybe they could have taken us out of the market when we had one aeroplane, but now it’s impossible because we’re on all their routes. We’ve been the fastest growing airline in this market for seven years running.” Not even the launch of SAA’s budget offering Mango in 2006 had an impact, probably because it was largely SAA passengers who switched to Mango, according to James. For more info please visit: http://www.entrepreneurmag.co.za/advice/growing-a-business/compete-to-win/how-to-profit-from-being-the-underdog/
Is this article helpful?