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How Many of us Underestimate Our Business Competitors?

A few years ago, I was consulting with a family business that owned a lumber yard. They had been in business for over one hundred years and were currently into their third generation of succession. The business had declined slightly in recent years, but the proud tradition of grandfather, son and grandson was still in place and even celebrated with old black and white photos, framed and hung throughout the halls of the office, showing off the lumber yard as it existed in the early 1900’s.

Many of these black and white photos showcased hard working men clothed in overalls with their trade tools in hand. They wore pride on their faces as plainly as one might see a smile. They looked like hard workers that were completely happy making wonderful things happen every day.

The photos were powerful and even emotional as I considered how much work, sweat and toil had been rendered to make the lumber company as successful as it was today.

To those that worked there, it was a daily reminder of this company’s rock-solid roots and clearly a great motivation to the current generation to make sure the company moved forward into the future without faltering.

The up-and-coming son (third gen guy) had a keen understanding of the family pride in place and that it would be up to him to make good on the same as his time as the president was soon to start.

As we met and talked in the next several weeks, I begun to understand that this new president-elect was underprepared for the task that lie before him.

I had a rare source of knowledge that he didn’t have as I will explain below:

In an unusual turn of events, I was also consulting with this company’s number one competitor and cross-town rival—also a proud company that had been in business for over one hundred years.

This was an amazing experience for me as an advisor and one which taught me some incredible lessons about family business and small business in general.

I was basically engaged with the Hatfields and McCoys, although they were lumber yards instead of Civil War rivals. Being a neutral observer between these two businesses was enlightening to say the least.

The first lumber yard, we will call the Hatfields, as I mentioned earlier was steeped in tradition and old school experience.

Their cross-town assessment of the McCoys (the second lumber yard), was that the McCoys were a little bigger in size but certainly not better in skills.

In fact, I would hear them talk often about how their management systems and project controls, because they were smaller and more customer focused, were much better. In addition, they would argue that their customers, because of their excellent service, were more loyal. They also thought that their work was much higher in quality and on-time delivery than their cross town rivals.

I had worked with the Hatfield lumber yard for a few months when I became engaged with the McCoy lumber yard.

I was surprised when I started talking and advising the McCoy lumber yard at how sophisticated their operations where and, indeed, how much bigger they were in terms of sales and employee count—in fact, they were almost ten times bigger.

The Hatfields were doing $10M a year in sales and the McCoys were dong just under $100M a year.

The Hatfields were working on much smaller projects and with much smaller customers while the McCoys were sending lumber shipments across the country and in some cases, with some of their specialty product, even across the world.

As I mentioned earlier, these facts where shocking to me based on all the information I had heard from the Hatfield lumber yard.

The reason they were shocking to me, frankly, was I could not believe how mis-informed the Hatfields were about the McCoys—they literally had no idea.

The only reason the Hatfields were not getting squashed by the McCoys was because the McCoys had moved past the Hatfields’ market (they were, in essence, not interested in the Hatfield customer base).

Indeed, aside from lumber, succession issues and family business help, the two lumber yards could not have been more different.

The point of this drawn out story is that the Hatfield lumber yard had absolutely no pulse on their biggest competitor. Even worse, there were other competing lumber yards that were now creeping into their space almost unnoticed.

It is never wise to underestimate one’s competition. Even more, just because your company has had the advantage for many years, even decades in this example, does not mean it will always stay that way. The battle to remain dominant or even relevant in competing markets is always raging—there is never time to rest or relax or, even worse, think that your company is superior in any one core competence.

In the example above, the third generation family member (grandson) was taking over his family business. He felt overly optimistic about his business despite what I could see was an obvious decline in the overall business. Sales had remained flat for several years despite a solid economy. Profits margins had slipped, equipment and technology were beginning to feel dated and employee turnover had started to increase—all very clear signs.

None of these warning signs were especially obvious or alarming by themselves but all of them, together, were telling me, an outsider, that there was some missing juice, as it were, in the leadership group and that they had been too sleepy at the wheel for a number of years.

We, of course, here these stories about third and fourth generations often—they fail in the business because it came to easy for them. I would suggest it is more subtle than that. It is not so much ease as it is a lack of understanding how competitive the market is.

Capital markets are notoriously competitive. Even the smallest of gaps and opportunities will be found by sharks and competitors circling any one company’s raft. No small business, no matter how long they have in business, can afford to relax about their competitors.

Smaller less sophisticated competitors can win simply by, “Wanting it more.”

All of us in small business need to understand that our customers love to feel like their vendors are crazy about doing their work. They love to feel like they are number one. Long time, multigenerational businesses, have a hard time being excited and hungry for all of their customers simply because, if for no other reason, they have so many customers in their sales history database.

I have heard this so many times and so have you from your customer base, “We gave you the job because you guys seemed to want it more.” Translation, your company called more, followed-up more and tried harder—even at time when your prices were a little higher.

If you are a second or third generation business leader, I would urge you to lead your company with intentional focus on knowing and shredding your competitors. Shred them with your technology and capital advantages, shred them by being excited and enthusiastic about every important customer, shred them by taking every threat seriously and figuring out how to deal with those threats.

Competitors should be the force that keeps you sharp. You should know each one and how you can strategically beat them back. So much of strategy and even warfare between rival companies is not about a 200-page strategic plans but more about little decisions and enough respect to take each rival seriously.

So, back to where I started, my good friends at the Hatfield lumber yard.

They were overestimating their strengths and underestimating their competitor’s strengths. Time ticked by and I kept in touch through various phone calls and mutual acquaintances. A decade after our original meeting, nothing had significantly changed.

They had an Advisory Board, which I convinced them to do, but they seldom met (once a year at most). The executive team had good strategic action items but never seemed able to implement them for one reason or another.

The business continued to fall behind, sales lagged and profits declined to the point that they had to sell their historic building in order to raise enough capital to get back on their feet.

Presently, the family is still in disarray about succession with four brothers all jockeying for position in the business where the father is half-in and half-out. The leadership team rolls into work, all driving expensive cars, around 10:00 AM while employees are struggling at work in the early morning hours working on equipment that is dated and falling apart.

The writing is on the wall for this business—more now than ever before. It will eventually fail altogether and when it does the family will act surprised and blame it on everything and everyone but themselves.

The sad thing is that it could still be saved but the ownership cannot see their own slow, downward sliding.

Don’t let this be you and your family business. Don’t take your competitors lightly and certainly do not overestimate your company’s position in the marketplace.

I will close with this last thought. Somewhere and at some time in your small business’ history, the people that started your place fell on a thousand swords to make it survive and work. Their legacies must be honored by you, the current generation.

Get going.