It probably seems as though the world is unfair. How can a startup company reasonably hope to compete in any field where there are several large, well-known, well-financed, heavily-advertised competitors? The answer is that being small and nimble can work to your advantage, because you can accomplish certain important tasks in a small firm which will greatly benefit clients, and which large organizations are unwilling or unable to do. Based upon the personal experiences of my colleagues and myself, I will describe how to take maximum advantage of being a small, unique business in any industry which is dominated by huge global players.
When you’re small, your uniqueness can be capitalized upon as a special feature.
Given massive advertising budgets and the ubiquitous presence of major global franchises in nearly every field, how is a small startup company able to survive and to become known to potential new customers? Paradoxically, because of the massive presence of the best-known firms, many intelligent, qualified, and often highly talented individuals are discouraged from even attempting to compete. Such people often end up joining a large organization, because they’re intimidated into believing that they can’t possibly create a successful business on their own. The plus side of this situation is that it ensures that there will be relatively few small businesses in your chosen field. Therefore, as long as you can learn how to compete with the famous powerhouses, you will likely succeed.
Imagine a world in which there are relatively few cereals which are available; these few are promoted worldwide, and all of them taste nearly the same. At first, it might seem hopeless to create a new kind of cereal in such an environment. However, since there are so few real choices, any new kind of cereal which is truly different will immediately stand out from the others. If you have a chance of being noticed, then success is much more likely to follow. Having the boldness to be different and to be able to explain why this difference is beneficial to your customers will enable you to be clearly visible especially when you’re surrounded by competitors who don’t even attempt to be meaningfully distinct from each other. When everyone is eager to be like everyone else, being different becomes rare and special.
A successful small business can thrive by intentionally not trying to be all things to all people. Most people feel comforted by being guided into making the same decisions as everyone else, because they perceive safety in being part of the crowd. It takes an unusual person to recognize that if following the herd were such a successful approach, then most people would be living in mansions, traveling frequently, and enjoying the good life. Because so few are able to achieve success–financial, professional, or otherwise, depending upon which life goals are most important to you–it must therefore be the case that doing the same as most other people will doom you to suffering the same mediocre results as everyone else. In order to succeed in any aspect of life which matters, you have to stand out by intentionally acting in a way which is very different from the crowd. With investing, for example, if almost everyone you know believes that the existence of the internet guarantees that the Nasdaq will keep climbing forever, or that housing prices can only go up, or that central banks keeping interest rates artificially low ensures permanently elevated stock prices, then you can be sure that any such widely popular myths must be inherently flawed and that only those who can think independently will make money.
When Tracy Chapman recorded “Fast Car”, her producer was David Kershenbaum. He was trying to decide how to mix the sound for the official recording of that tune, and noticed that all twenty of the top hits at that time were songs that had been heavily manipulated with electronic distortions of various kinds. Mr. Kershenbaum therefore decided to be intentionally different, and to use only pure acoustic sounds for the final version of “Fast Car” which would be released to radio stations, as though you were actually in the same room with Tracy Chapman when she was singing and playing her guitar. Because the lack of electronic manipulation was so rare, the song ended up being noticeably different from all the other recordings released at that time–and became a huge global hit. Most people listening to the song probably didn’t even think consciously about the difference, but knew that there was something special about it. In every aspect of life, people are often eager for clearly different alternatives, so if you can figure out how to provide something unique which fills a need, then you can use your uncommon distinctiveness to your advantage.
A large business is required to specialize; recognize the advantages of being jack-of-all-trades.
Because of the very small staff which is needed to run any small business, it is possible to give careful individual attention to customers. A large organization necessarily requires the division of labor into small pieces. With a big advisory firm, for example, one person might be spending all of his time designing investment strategy; another person has the role of deciding how to implement that strategy; yet another person actually meets with clients because she is more talented at interpersonal communication. Therefore, if you have a lengthy meeting with a representative from a large financial firm, almost certainly that person has been selected because of his or her expertise with one-on-one conversation and probably has almost no understanding of how the actual financial decisions are made in that company. The person will be polite and entertaining, but won’t be able to tell you why you should be buying this or selling that. The person in a large investment firm who actually decides what to buy and sell, and why, probably isn’t even allowed to meet with clients. No matter how competently a large firm is managed, it’s almost impossible for any customer of that firm to get an understanding of how the pieces fit together to form a coherent whole. In contrast, when you’re part of a small company, serious customers will be able to recognize the huge advantage of your being knowledgeable about everything regarding your work, and that you’re not just a small piece in a large machine.
Another advantage of a small organization is that responsibility is immediately apparent. If a client is working with a large firm of any kind and something goes wrong, then there will be a tendency for blame to be passed around the organization, eventually landing on someone who left the firm a year or two ago. This makes it impossible for customers to become fully confident, because there’s no clear sense of who is really in charge. With a small firm, your clients know that you are ultimately responsible for both good and bad decisions, and that you stand behind everything that you do. This becomes most important when times get tough or when intended objectives don’t go as smoothly as planned. With a large organization, a customer will become frustrated with finding someone who is willing to take charge and to deal with unexpected problems. With your small company, your client knows that you will carefully address all unexpected setbacks and that you will stick around to make sure that they’re resolved properly.
We have often used this principle to great advantage in promoting True Contrarian. When the financial markets are calm and stocks are generally rising around the world, those who are using large investment advisory firms are happy enough so that they aren’t interested in doing anything differently. However, when times get tough and stocks suffer a bear market, that’s when we get the majority of new business. Clients with large firms discover that it takes a long time to get through to their representatives, and that even when they finally make contact with them, they have no idea what is really going on in the financial markets. Those who are hired to speak on the telephone or who meet with people in person have these tasks because of their strong interpersonal skills, and have no idea why the stock market is going down or what their firm is going to do to deal with the situation. On the other hand, when current and potential customers contact us during unexpected market turbulence, we can explain to them how we’re dealing with it and how that will lead to positive results. During periods of adversity in any industry, large firms will be swamped with confused clients all wanting to simultaneously understand why problems have arisen. Most of the responses given to such clients will be unsatisfactory and will leave their customers with more questions than answers. This provides a window of opportunity for you as a small business owner to demonstrate that you are especially capable of handling even the most challenging situations, thereby making it far more likely that potential clients will consider switching to you as an adaptable and reliable alternative.
Learn to describe to your current and future customers why providing certain specialized tasks is so valuable and why your large competitors won’t be able to compete in offering similar services.
Your best selling point as a niche business is to highlight why being different from the crowd will greatly benefit your clients. If you can explain in simple terms to potential customers why your distinctiveness will help them to achieve their goals, then you will not only survive but thrive because of what you can do for your customers that large organizations can’t do. This means not only giving more personal attention and being able to explain all aspects of the business, but also providing specialized services which a large firm is unwilling to handle. Anything complicated is undesirable to a large business which would have to spend considerable time and money training their employees to have such expertise. Also, if any given task doesn’t immediately generate an obvious up-front profit, then a large company will be reluctant to provide it to their customers even if it would be extremely valuable to them.
One example from True Contrarian is tax preparation. All financial advisory firms provide tax preparation services, but this usually means merely completing the necessary tax forms by April 15 for the previous calendar year. This enables clients to fulfill their federal and state filing requirements, but does nothing to help them actually save money on their taxes. What we provide for True Contrarian customers is tax planning in advance: deciding if a client should accelerate income into the current calendar year by postponing deductions to next year and beyond, or doing the opposite and maximizing deductions for this year. Shifting income and expenses from one year to the next in this way can save tens of thousands of dollars each year. Doing this kind of work properly requires learning additional information about each client: her income, her expenses, and many other details, which would be too time-consuming for most large firms to bother with. More importantly, large firms can’t make obvious profits from this kind of tax planning and have to spend lots of extra time training their employees with such knowledge, thereby making it very unlikely that they will offer such services. Large firms must always consider the amount of time they’re spending relative to their net income from such activities. As a small firm, our primary goal is in retaining customers by helping them to make as much money as possible with their investments and to save them as much money as possible on their taxes, both over extended periods of years or decades. We can therefore afford to spend a considerable amount of time on “unprofitable” activities like advance tax planning; what matters is not how much profit we’re generating for ourselves per hour, but ensuring that our clients are repeatedly satisfied so they will give us additional business in the future.
Word of mouth becomes not only a valuable advertising tool, but also a way of retaining customer loyalty and getting the best new clients.
By beginning with a small group of loyal clients, word of mouth can be used especially effectively. Once customers realize what your niche business is able to do for them that a large firm could never accomplish, they will tell their family, friends, colleagues, neighbors, and practically everyone else. This saves considerable money on advertising. In addition, those people who are closely connected with current clients probably share similar interests and objectives and will be more likely to more quickly understand your unique philosophy and implementation.
Whenever you spend extra time and effort with your customers, they will naturally want to thank you. Other than sometimes giving you additional business of their own, the ideal reward is their ability to bring you personal referrals. Clients who are obtained through such respected contacts will tend to be more knowledgeable about you and how you can address their most important concerns. Because customers obtained through word-of-mouth referrals found out about you through people they know and trust, they will be more likely to feel comfortable in dealing with you and in more quickly being willing to present you with significant business opportunities.
While it may seem that being a small business in an industry dominated by multinational firms is a quixotic pursuit, being small has numerous advantages. Especially when your competitors are all acting nearly identically, you can explain to clients why your company’s unique features are so valuable to them. By not being too narrowly specialized, you can handle all aspects of the business and demonstrate to customers how they are interrelated, thereby increasing clients’ confidence especially during periods of adversity. You can offer services which large businesses don’t want to handle because they’re not immediately profitable or because they’re too complicated to easily teach their employees. Instead of mass advertising, word of mouth becomes vital for a small business in locating potential new clients who will be more likely to trust you with business opportunities since they found out about you from their friends.
About the Author
Steven Jon Kaplan began True Contrarian as a financial blog in August 1996; Danielle Kerani joined as business manager in December 2010. True Contrarian offers a frequently published financial newsletter for subscribers along with specialized portfolio management for qualified clients. Steve has been fascinated with the financial markets ever since he heard on the radio as a kid that the Dow Jones Industrial Average had reached one thousand for the first time. He is especially obsessed with extreme highs and lows for assets: how they occur, and what tends to happen afterward. Steve also teaches eleventh-grade students about entrepreneurship and investing on Wednesday mornings at a public high school in Manhattan.