Business owners frequently worry about their competition; that’s understandable. However, sometimes people focus on the wrong competition. After all, consider for a moment who the biggest competitor to, say Vodafone might be. Is it Orange, T-Mobile or, perhaps, O2? Wrong; it’s Twitter. The obvious competitors are the other phone companies, but if you think about the main activity which happens on mobile phones – sending text messages – then Twitter becomes a real threat to that business.

Make sure you line up against the right competition

Make sure you line up against the right competition

Often, businesses focus on the obvious competition, but don’t focus on the real threat to their business. The Tesco boss, Sir Terry Leahy, is famous for saying that prior to its development as Europe’s biggest retailer, the company was obsessed with defeating its competitors, such as Sainsbury’s. Once the Tesco team realised the real competition was what customers were saying about the company, it transformed their fortunes. Now, new research conducted at Cornell University, New York, adds another interesting twist to the whole area of competitiveness and it may well be that businesses are handling competition incorrectly in many instances.

The study was looking at the competitiveness between student groups. And the results surprised the researchers. They originally thought that the students would work hard to defeat the serious competition. In fact, they worked harder at trying to out-do the less serious threat to them. What happened was that students invested more effort in competing against low-threat groups, rather than higher status competition.

Imagine, for a moment, that you are a software developer. Your greatest competitive threat is probably Microsoft which can marshall resources against you and defeat you easily. So, this new study suggests that what you do is concentrate your efforts on defeating a competitor who is not quite as good as you at writing software code. Here’s why: if you go head-to-head against the higher status competitor your risk of gain is very, very small indeed. However, if you compete against the lower status company, the risk of loss is considerable. In other words, you realise that the chances of winning against the “big boys” is small, so you don’t bother trying. But the risk of losing face, confidence and so on to the small fry is huge – you can’t let a company worse than you defeat you…! We are more motivated to avoid loss than we are to gain things. Hence defeating a lower status competitor becomes a greater motivation to businesses than the comparatively small gain of winning against a better company.

Yet, if you think about this logically for a moment, investing your efforts in competing against lower status firms, who are not as good as you, is crazy. You are already better than them, probably have more market share and so on. It’s another example of how we focus on the wrong competition.

If you think about Tesco again, in reality it was focusing on low status competition – other supermarkets. It’s real competitor – negative word of mouth – was much higher status and huge in its impact. Yet, focusing on the real competition – no matter the enormity of the task – transformed Tesco from an also-ran to a major international retailing force.

It seems that we need to go against our instincts. Firstly, work out what the real competition to your business is. If you run a web company, or do business on the Internet, your real competitor might not be an online business. Once you have found the real competition, consider which one is the higher status than you. That’s really the one to go for – you are already beating the lower status company. Don’t put all your efforts on defeating the wrong competition. It might make you feel good, but your bank balance might improve if you focus your activity elsewhere.

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