Small business strategy question: Who are your indirect competitors?

Businesses face stiff competition and entrepreneurs must bring to bear all of the tools and strategies and resources they possibly can in order to compete. One activity worth spending time on is to go through my list of 100 small business strategy questions to analyze what your business is like, where the opportunities are, and how you can compete more effectively.

In today’s blog post, I want to go a little deeper into one of the questions: Who are your indirect competitors?

When you think of competition, you probably think of your direct competitors — the companies that sell the same product or service that you do. It’s well worth thinking about them… and it’s worth your time to consider why someone would buy from you instead of your competition.

But one area where a lot of entrepreneurs get blindsided is by not thinking about their indirect competitors — the products and services that aren’t similar to yours but which your potential customers buy instead of yours.

Here’s a simple example: A pencil manufacturer’s direct competitors are other pencil manufacturers. But that’s not the only competitor. A pencil manufacturer also has indirect competitors…

  • Pen manufacturers
  • Among artists: Other drawing media like charcoal, pastel, watercolor, oil paints, etc.
  • Mobile phones and sound recorders (and other electronic devices used to jot notes
  • Remembering! (Okay, that’s not a product or service but it’s an alternate choice that the potential buy can take instead of using a pencil to write down their shopping list or whatever

Here’s a well-known example: Coca-Cola holds a pretty significant marketshare among its soft drink rivals (its direct competitors) but its “share of throat” — an industry term used by the beverage industry to describe overall beverage competition against direct and indirect competitors — is much smaller.

Coca-Cola’s direct competitors are soft drink manufacturers. Coca-Cola’s indirect competitors are alcoholic beverage manufacturers, water bottlers, coffee and tea makers… and even the utility company that sends water to your tap.

As a business owner, you need to not only know who else in town is selling the same stuff as you; you ALSO need to know who else in town is selling something that your potential buyers might use an an alternate or substitute.

This is a tricky challenge because it’s easy for insiders to develop blinders to the way the outside world views your solution. One way to overcome this is to spend time talking to your customers — in person; on social media; wherever! — and try to find out the following two things…

  • Who would you buy from if my business wasn’t around?
  • What problem does my product or service solve/what need does my product/service fulfill?

The answer to these two questions SHOULD hint at who your direct and indirect competitors are.

And once you know, it can completely transform how you market your business and how you package your products and services… and it can even reveal new ways to position yourself in the industry.

The four questions every entrepreneur should ask before embarking on a new joint venture

I love joint ventures. They are a great way to combine the strengths and resources of two or more entrepreneurs to create a business or project that is meaningful and profitable and satisfying.

(Want to read more about joint ventures? Check out what I look for in a joint venture and be sure to check out this guide to joint ventures for entrepreneurs)

I’ve been in some successful joint ventures and I’ve been in some unsuccessful ones. What was the difference between the two? There are several things that can make a difference but they can be boiled down to the answers to these 4 questions, and when I think back to many of the joint venture projects I’ve worked on that failed, the reason was related to one of these 4 issues.

1. What will it take for this project to become successful and does that effort fit in my current schedule?

It’s easy to look at a project before it gets started and to get starry-eyed about the opportunity… only to overlook the sheer volume of work required for the project to succeed. When you’re thinking about the anticipated effort, generously double what you expect to do on the project. It always takes long.

In JVs that I’ve worked on that have succeeded, they only succeeded because we worked through regardless of the effort. In the JVs that I’ve worked on that have failed, they failed because we didn’t accurately anticipate the workload ahead of time.

2. Are all parties likely going to deliver what they promised?

This is a big frustration in joint ventures. Make sure that all parties are going to deliver on what they promised. In many JVs I’ve participated it or observed, some of the parties are wholehearted while other parties are half-assed. Try to assess the likelihood that all parties will continue to participate once the going gets tough. In particular, consider whether the incentive or remuneration plan rewards people proportionally to their contribution or they will be quick to disappear. In one joint venture I did a ton of work in the beginning to write an ebook and then the person responsible for marketing just disappeared. Not cool.

And related to this concept: Figure out what happens if the joint venture fails. What do you end up with? Can you use it elsewhere?

3. Once successful, will my workload decrease while profits increase?

This is another huge one. I’ve been in a couple of failed joint ventures that only failed because my workload INCREASED (or at least stayed the same) after the project became successful. In other words, the deal should have been carefully structured to ensure that success rewarded us rather than punished us. I’m okay with putting in a bit more time at the beginning but I don’t want that excess effort to continue into infinity.

4. What’s missing and how critical is it?

Every joint venture is like a machine, and each person is responsible for some of the moving parts. But a machine won’t work the way it’s supposed to if parts are missing. As you think about your joint ventures, consider what parts are missing from the existing relationship… and how you’ll have to address those parts. For example, a joint venture might be made up of two people who are each making a key contribution but no one is marketing the project. Those things need to be addressed early on or else the project will stumble as each party realizes there is still more that needs to be done or invested in.

Joint ventures are fun and profitable. But not every JV is right to participate in. Use these four questions to help you evaluate joint ventures before you participate in them.

The irony of the conservative investor

In an episode of West Wing (still one of my favorite shows!), two characters are talking about PBS television and one of them says that more people claim to watch PBS than actually do watch PBS. The reason is: People like to think of themselves as being PBS watchers even if they aren’t.

Likewise, many philosophers and gurus have shared the following wisdom (which I’m collectively paraphrasing): You can tell a lot about a person, not by what they say but by what they actually do.

With this in mind, I want to talk about the irony of the conservative investor.

Many people who claim to be conservative investors are not really conservative investors. They’re just ignorant aggressive investors.

My parents would describe themselves as conservative investors, as would several of my friends. But when we talk about their actual investment practices, the situation is VERY different. And they are not alone. I saw this when I was a stockbroker, and I still see it today: If you were to ask people if they were conservative investors, you would get a lot people saying they are because they think of themselves as being careful and risk averse.

But they only THINK they are conservative investors… they really aren’t. They believe they have carefully invested their money into quality stocks that are widely diversified, and that their investments are truly safe (in spite of the fluctuations of the market).

But my experience with investors tells me something completely different.

Investors put some of their money into mutual funds based on advice from others or on past performance (in spite of the disclaimers). And, they put some of their money into equities but they chose those equities based on over-the-fence hearsay from their neighbors and friends… or because they spotted the name of the stock on the 6 o’clock news or on a magazine cover.

Ask any advisor and they will be able to tell you a story that is similar to this one: They’ve been advising a client to go into a blue chip stock for a while but the client is reluctant because they feel the stock market is too risky. But then those same “conservative” clients call up the broker because their neighbor knows someone who is suggesting they jump into a penny stock… No due diligence; no second-guessing; no analysis against portfolio goals.

I even had one brand new client show up at my office once and, even though she described herself as a conservative investor, randomly point to a screen of stocks and ask to put her entire available capital into ‘that’ one… just because everyone else was investing in stuff and she wasn’t.

Many conservative investors are not conservative at all. Part of the problem is simply not knowing how to invest — they think they can diversify themselves out of all market risk. But part of the problem is that they aren’t the conservative investor they think they are — they don’t want to do due diligence and they jump on whatever hot stock there is right now.

What’s the solution? I’m not sure. Most good stockbrokers and investment professionals will talk their clients down from the ledge of aggressive investing but wouldn’t it be great if investors were shown HOW to be conservative investors before they picked up the phone to call their broker? I think education is the only answer.

I was recently talking to one investor who was frustrated by the market and wanted to put all her money under her mattress… and just didn’t “get” what I was saying when I tried to explain about the costs of inflation. And another investor asks me for stock ideas but he only wants ideas of stocks that go up… as if I would know that ahead of time. (Disclaimer: I don’t give stock ideas at all, but people ask me for them all the time, which should be a sign of a non-conservative investor!)

Perhaps what needs to happen is that advisors and financial professionals need to draw more of a connection between the claim of what it means to be a conservative investor and the actual practice of being a conservative investor. When someone states on their investor application form, for example, that they are conservative, it should put them into an educational program where they are equipped to be conservative. They should be able to know the qualities or characteristics of a conservative investor and be equipped to make decisions through the lens of a conservative investor. And there should be a more difficult process to switch from conservative investing to aggressive investing.

Perhaps stockbrokers need to share the due diligence process with their clients (instead of just having a conservative client show up and say: “Put some of my money into Bre-X”.

A seminar series about conservative investing might help people to understand what it means to be conservative.

Ideally, a conservative investor who gets a great stock idea (from their completely unqualified-to-give-advice friend) should have an easy step-by-step method to do their own initial due diligence before they call up their broker and ask to put some of their money into the stock.

There are many people out there who claim to be conservative investors but their investing practice suggests something entirely different. I think it needs to be fixed.

This easy 9-step business plan still works amazingly well

As new entrepreneurs start up, one of their first and most important questions is: “What should I sell and should I sell it?

Here’s a business model that continues to work. I’ve worked with many dozens of entrepreneurs who use this model; I have enjoyed using this model myself; my wife is building a business using this model; a friend is just starting up using this model.

This business model is simple, straightforward, easy to start, easy to manage, scalable, and profitable. Yes, it really is that awesome!

  1. Start by creating a blog about an area of expertise you are comfortable talking about. (It should be a topic that you are interested in focusing on for a while and are passionate about).
  2. Add content to your blog for a while. Then start up the next steps but continue to add content to your blog.
  3. Write a report and a series of email newsletters on your topic. Create an account at an email marketing platform (I really like Aweber.com) so subscribers will sign up to get your report and emails.
  4. Write an ebook about your subject matter and put it up for sale through Lulu.com or Clickbank.com.
  5. Create a service that you can sell (such as coaching, consulting, freelance whatever).
  6. Set up a Twitter account and connect with others.
  7. Set up a Facebook page for your business and connect with others.
  8. Start promoting your business. Use a variety of internet marketing and traditional marketing to get the word out.
  9. Continue blogging, interacting, marketing/promoting, and releasing new products or services on this topic… and if you ever want more business then just ramp it up even more!

This is SO easy for almost anyone to do. If you are thinking about starting a business, this is the fastest way to get it running.

What I’m working on this week (Nov. 19 – 23)

So we were on vacation from November 1st through the 11th. It was a good time. But this vacation wasn’t a go-one-place-and-relax vacation. It was more like an odyssey. It included 4 flights (counting plane changes, we were on a total of 7 airplanes) and 4 destinations all squeezed into 10 days or so. Fun… but not something I’d like to repeat any time soon.

At some point on our trip, we caught some kind of supercold that knocked Janelle and I flat on our back for a week. I don’t get sick often and when I do, it’s usually just for a day or two. But this one was a real ass-kicker and we went through our household supply of Nyquil, Buckleys, Advil, generic cold medicine, whiskey, chicken soup, and all of the other remedies you can dream of. As I write this, I’m doing better but still have a cough. Janelle is (I think) at the peak of the cold.

Long story short: A HUGE pile of work has accumulated while I was on vacation and then sleeping away my cold. I have SO much to do, it’s scary.

But it’s also awesome. I love being overwhelmed with work. (Well, most of the time I do. There’s a tipping point where it starts to get tiring).

In case you’re curious about what I’m working on right now, here it is. All of it:

  • Write 8 reports from the recent San Francisco Hard Assets Investment Conference.
  • Write blog posts for the rest of the year for a real estate investing client. He needs 15 blog posts.
  • Writing a video series for a client as we develop a new sales funnel for him.
  • Write December’s articles for a debt repair expert — she needs 14 – 18 articles.
  • Rewrite a real estate investor’s website (he’s changing up a few pages).
  • Write a real estate investor’s print book.
  • Finish 3 ebooks for a real estate investor.
  • Start an ebook for a real estate investor.
  • Write 3 – 5 articles for a mortgage broker’s newspaper column.
  • Write emails and an ebook for my free graphite minerals e-course.
  • Finish and deploy an ecourse for a debt repair client.
  • Create a print magazine for a real estate investing client.
  • Put together at least one conference next year (a real estate investing conference), and explore the possibility of a second conference on a different niche.
  • Finish putting together 2 seminars that I’m doing in December.
  • Start planning 2013 Q1 for a real estate investing website that I’m a partner in.
  • I’ve let my sin stocks blog lapse and I need to get that up and running again.
  • Write a chapter in my Sales Funnel book. (Actually, I’m trying to finish the book this year but I’ll be happy at this point if I can just crack it open and write another chapter).
  • Rebuild a brand of mine that was pulled offline a couple of months ago and needs to be brought back online.
  • Send out an offer to a list that I’m a co-owner of.
  • And of course I need continue planning for 2013.

So yeah, I’ve got a couple of things to do right now. Loving it! But I would love to shake the last bit of this cold so I can really buckle down and work.

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