If you’re a small business owner, you may feel like you have no chance beating your larger competitors. The reality is that these large companies are easier to beat than you think.
I used to work for Honeywell Inc., clearly one of the “big guys”. I left Honeywell, became a consultant for a short time; and eventually competed against Honeywell, Siemens, Johnson Controls, United Technologies, The Trane Company, and other behemoths… and won! To be honest, I didn’t think I’d win… until I did.
My initial David & Goliath moment was a small school district in eastern Colorado. The school wanted to add air conditioning to their school but didn’t want to pay more in utility costs. The school published a Request for Proposal inviting any Energy Service Company or ESCo to submit a proposal for their project. The project scope would be between $100k to $500k; and would require guaranteed energy savings to pay the cost of the project.
How Small was I?
I want to be clear. I was VERY SMALL at the time of this proposal. I was a single guy working in a home office with revenues of $200,000 per year. I had been in business for 2-years and had just transitioned my consulting practice from a sole proprietorship to an S-Corporation.
How Big were They?
The “Big Guys” I’m referring to had been around for hundreds of years; were employing tens of thousands of employees, were members of the Fortune 100, and had completed millions of dollars of similar energy retrofit projects.
How did I win?
My company was Ennovate Corporation. There were several tactics that combined to result in a win for Ennovate. Before I brag about what I did, I want you to pay attention because you can do the same thing. If you own a small company competing against large competitors, not only can you win; but you should win.
Small Customers Like Small Companies
When asked, this was the number one reason my customer said they picked me over the other large companies. The project was anticipated to be a $300,000 project. Many of the large competitors were used to completing multi-million-dollar projects. The customer seemed aware that many of the larger competitors would not prioritize their small project over their larger customers. In addition, small school districts have little financial and legal resources to combat a formidable legal team of a large company if they ever engaged in a contract dispute. Whereas, they believed they would emerge victorious in a legal battle with little ol’ me.
Local Contractor Compatibility
As it turns out small rural school districts rely on local vendors and contractors to make repairs to their buildings when they break. To strengthen local contractors, it’s important that the school district do as much business as possible with local plumbers, electricians, equipment suppliers, and HVAC contractors. We were willing to subcontract to anyone, while our large company competitors were not.
Low Technology
The school district was concerned that the large control companies would install high tech control systems that could not be maintained by the school janitor and other local vendors. They wanted technology that was familiar to teachers so that they could control the temperature in their classroom. Sure enough, the large control companies insisted on installing sophisticated control systems that would result in frustration and high maintenance costs. We proposed traditional thermostats that we could monitor remotely to help with trouble shooting when necessary and track energy usage. Our solution was much simpler, repairs could be made by local contractors, and our system would not lock the school district into a proprietary control system.
Higher Levels of Expertise
When large companies hire staff, they hire generalists that they can fit into a variety of situations. In the Energy Service Company (ESCo) industry, most of those experts will be mechanical engineers who have expertise in lighting retrofits, control systems, and design of HVAC systems. In my case, I was the lone expert that was employed by my company. However, I had access to two dozen contract consultants who specialized in specific energy, heating, cooling, lighting, and control system technologies. Because these experts were not employees of mine, I could pick and choose which ones I’d use; and then pay those individuals to work on the project. Not only did we have much more experienced engineers, but I could dramatically reduce overhead costs by hiring only the engineers I needed for the project. Our network of engineers was called the Energy Professionals Network or EPNetwork.
Expedient Decision Making
Large companies delegate various levels of decision making down through their organization. The school district was concerned that such a large organization could act quickly in a project they wanted constructed in the next 5-months. I was the final decision maker for any decision. That meant that decisions would be made on the spot without delay.
What were My Disadvantages?
I would be remiss if I didn’t counter some of the benefits that I had as a small business with some of the weaknesses as well.
Financial Strength
As I mentioned, I had never funded any construction project. In fact, I was so new to construction, I could not acquire a performance and payment bond. The project size that was constructed was $400,000. The larger companies would have no problem finding funding for a project this size; while this was certainly an obstacle for me.
In the end, I found out that finance companies don’t particularly care about the size of the contractor, but rather the credit worthiness of the school district. In addition, I helped the school district obtain a grant from the Colorado Department of Education for $350,000 to pay for most of the project. I wonder if the larger companies would have been as helpful in obtaining that size of grant to fund the project.
Energy Guarantee
This project required that the ESCo guarantee a certain level of energy savings. I had completed many guaranteed energy savings projects on behalf of larger clients. However, it was a leap of faith for this school district to trust a company that hadn’t been around long to back up an energy guarantee if the energy savings didn’t materialize as promised.
The actual savings exceeded guaranteed savings in future years, so there was no problem. However, the school district had no way of knowing how things would work, if there would be a savings shortfall with such a small ESCo.
No Testimonials
Anyone who has started a business knows that it is hard to get testimonials from previous customers, if you have no previous customers. Ennovate Corporation had consulting customers, but no building owner customers in our past. Many of the larger companies could brag about long lists of school district customers throughout the country. Thankfully, this small school district could see past the corporate customer list; and understand that experience is held by individual people. The EPNetwork team members we had were much more experienced than the employees of the larger companies we were competing against.
What Followed?
After this first successful David/Goliath win, I was convinced that Ennovate Corporation had a great niche offering for rural school districts in Colorado. Sure enough, we became successful with small to medium size school districts. I developed a bullet point list of 20-advantages that Ennovate had over its larger competitors. Ennovate grew to over $10,000,000 per year in revenue with a staff of 30-employees. Eventually, I sold Ennovate Corporation to Ameresco Inc. Ameresco had very similar benefits to Ennovate and so our bullet points didn’t change much.
So What?
As you read this self-indulgent bragging, you may wonder, “what does this have to do with my small business?”
If you own a small business and have been reluctant to compete against the “big guys”, I want to encourage you to give it a try. Frankly, it was easier for Ennovate to beat the “big guys” than it was to beat similar-sized small businesses.
Eight Tactics to Beat Your Large Competitors
Here are eight tactics that you can use to beat large competitors in your industry.
Tactic #1 – Don’t Use Platitudes
Small business owners somehow think that because they are small and local that they will give better service than the “big guys”. This is almost never the case… and it’s a claim that rarely wins customers. Just ask the small retailers who have been beaten by Amazon and Walmart. Make sure that whatever positive differentiation you have from your larger competitors can be proven and obvious. Platitudes like “better service”, “friendlier”, “local”, etc. are meaningless to an informed buyer.
Tactic #2 – Make a List of Positive Differentiators
I made a list in this post of specific items that translated into benefits of our first customer buying from me instead of a large company. I was also clear about my weaknesses in this competition. The items that I listed are not sales slogans or platitudes but were genuine benefits that the customer received because they selected me instead of the larger competitors. Make your own list. Ask customers why they may choose you over a larger company. Put yourself in the shoes of your client and think about why you prefer to work with a smaller company over a larger company. I came up with twenty provable, and genuine items. You can do the same.
Tactic #3 – Leverage Innovation & Creativity
This may or may not surprise you, but customers rarely know what they want or need. In the energy services world, most building owners don’t understand their challenges and so they hire energy service companies to tell them what’s wrong, propose and implement a solution. Large companies tend to offer cookie cutter products and services. As the smaller business, you can be flexible and innovative. Leverage this creativity to help your customers. The more unique your solution, the more likely you’ll beat the cookie cutter solution of the larger company.
Tactic #4 – Build a Network
While I was an independent consultant in my first few competitive proposals, I had many friends and allies who I could pull into larger opportunities when I needed more people. I didn’t run into these folks by accident. Instead, I was very deliberate in networking with other professionals who did what I did. As I would meet new people, I would classify them, get their resume’s, and enlist them into my informal network. I would simply ask if they’d be willing to have me include them in proposals to my customers. They were very eager to participate. They got work out of the relationship; and I was able to present a bigger organization of experts to my customers.
Tactic #5 – If You Can’t Beat Them, Join Them
It’s quite common that larger companies don’t have the resources for large jobs. They also don’t want to hire and layoff large amounts of people for peak load work. This is a great opportunity for small businesses to serve their larger competitors. In Ennovate’s case, we provided engineering resources to our larger competitors where we were too small to compete. This business amounted to 20% of our revenue and helped us continue to grow our engineering workforce. To make this work, you must ethically manage conflicts of interest, and protect your intellectual property. After all, you will compete with these same companies on jobs that you feel are a good fit for your small business.
Tactic #6 – Price for Success
As I’ve coached small business owners, I’ve realized that they struggle coming up with prices that cover their costs and result in a reasonable profit margin. Large businesses have a lot of room for error; and can spread overhead across large revenue streams. As a small business, your prices may be less than or greater than your larger competitor.
The key is that you price your products and services to match your costs; then see how those prices compare with larger companies. A small retailer cannot compete with the buying power of Walmart. If they try to compete directly with Walmart, they’ll go bankrupt. Pick niches that provide value to your customers. Understand buying advantages and disadvantages of your larger competitors. Then create your niche value.
Tactic #7 – The Riches are in the Niches
No matter how many times you tell a small business owner that they must create a niche, they rarely do. Large companies are trying to appeal to the masses. They want to patent some cool product and then sell millions of them to everyone. This mass-market approach creates gaps. It’s these gaps that can be exploited by small businesses. In my case, larger Energy Service Companies were overlooking the small rural school districts. Their offerings appealed to large customers; but fell way short with small customers.
Not only are these niches lucrative for small businesses; they make your business much more sellable to a larger company when it’s time to sell. If a large company sees that you are successful in a niche that they’ve overlooked, they’ll want to acquire your business to grow their large company even larger.
Tactic #8 – Don’t Stay Small
Growing a business is challenging. At each milestone, a business owner can feel an elevated sense of stress; and so, they resist growth. The reason that growth is important for a small business is that this growth creates stability for its employees and customers. If a small business owner resists growing, they signal to their employees and customers that they don’t believe in their niche. After my first project, Ennovate grew to serve more clients. We experienced the growing pains that any small business experiences in growth. It was worth it. Why? Because Ennovate provided a beneficial and unique service to its customers that was not available anywhere else.
The company that acquired Ennovate was Ameresco, Inc. Ameresco was a small business success story as well. However, Ameresco started four years after Ennovate and was a publicly traded company on the New York Stock Exchange when they acquired Ennovate in 2013. Today, Ameresco (AMRC) is still growing strong and providing a vastly expanded energy services offering to its customers. It still serves the small rural schools; and it is driving innovation in the green energy industry. This growth creates amazing health for any business.
Just because you're small today, don’t resist growth. Your customers and your employees are begging you to grow your small business.
If you’re small and want to compete with the “big guys”, you can do it. If you want to learn more about how I coach my small business clients, please visit my website at www.mmbizcoach.com. If you are struggling to find your niche, or articulate your true benefits, I’d love to help you out. Set up a free 1-hour discovery session with me by clicking on this link.