I visited a coffee and cake shop in Parys, Free State, called Plumb Bakery. This coffee and cake shop has been operating in the main road of Parys for several years. It’s become quite pricey and so I decided on my next visit into town from where we were staying next to the river to have coffee at the competition, which has been set up recently, at a coffee and French-style cuisine restaurant called La Vie en Rose. When I asked the manager, who by the way was a local detective moonlighting on a Sunday for the owner, what sort of business volume each of the shops experienced, she told me that it was about half.
You see, at one stage the first mover which was the Plumb Bakery had the total market to themselves. They were the first to see the opportunity and come up with a coffee shop with a difference. It focused on traditional cool drinks, cakes, preserves and sauces. When you sat outside on the lovely veranda facing the main road you could flip through old magazines going back into the 40s, 50s, 60s and even 70s. The whole ambiance was yesteryear, relaxed and charming.
Now, the restaurant alongside which has a French-style approach with rose teacups, croissant breakfasts and inside a range of hand and body lotions locally made, dresses and interesting ornaments, the business for the first mover has halved.
Why I’m bringing this up is because most so-called and self-appointed business gurus and fan boys concentrate on market size, vision, finance and profit. They will cursorily point out competition but that’s about all. The problem with this is that in the real world your business is always under the eyes of potential or existing competitors. Their aim is to get as much custom their way. This is why any business and especially small business where the barriers to entry are far lower than the giant corporations, you need to understand that all business is done relative to the competition.
If you have doubts, think about your own local town where you may see one fish shop start up, then another start up and eventually there is a third or fourth. What happens is that the total market has been split four ways. You now have a quarter of the available market. If this quarter can sustain you, all well and fine but if you start battling, either you’ve got to re-position your existing store or get out of the market.
If you are starting something from scratch or come up with a brand-new idea that seems promising it’s a good thing to understand whether your product or service will be different from that already available on the market. An old rule of thumb says you can’t be too different otherwise customers may not buy into your value proposition. If your product is totally different or so-called “unique” then you’ve got a problem as a small business because you have to spend a lot of money and effort marketing your product to convince potential customers to buy it. You’ve then got to show them why they would want it. That costs money.
It’s important to understand the total size of the market you wish to enter and that you have a good understanding of the current and potential competitors. You can’t wish away competition. Competitors will always be there. But you’ve got a come up with a clear value proposition, not something “me too”. The restaurant La Vie en Rose that I mentioned took a very different approach in its positioning and captured half of the available market. Make sure competitor positioning and your relative positioning is thought out carefully before you start out.