Don’t Bet Against David

As a business owner, there are enough real challenges and threats to worry about, let alone the imaginary ones. However, at times, it can be hard to differentiate the real threats from the perceived ones.  Sometimes you don’t know the monster under the bed is imaginary, until you check down there yourself.  One perceived threat from my own career has stuck with me to this day, and served as a catalyst for a few truly significant lessons in business, and life.

Many years ago, when Sageworks entered its fifth year as a business, we found ourselves in a very familiar situation: We were a company with solid proof of concept, a significant number of customers (upwards of 500 at that point) and a strong product (what we felt was a disruptive financial analysis technology).  On the other hand, we weren’t profitable and we hadn’t come close to reaching scale. This is a very vulnerable stage for any company, because you’ve proven that the concept works, but you don’t have the resources to scale to market quickly. Then, suddenly, a miracle: we were approached by a giant.

One of the largest technology companies in the business (a “legacy” company) tells us they’re interested in buying the company.  Despite confidence in our product, the growing pains we were experiencing as a business made it nearly impossible not to hear them out.  Thus began a series of telephone and in-person meetings.  During the final meeting, after the small talk and pleasantries were put aside, the conversation turned to the not-immaterial topic of the price of the business. To make a long story short, we saw more value than they saw, and they were not willing to meet us on price.  After it became clear that we wouldn’t be able to work something out, they not-very-elegantly informed us that if they couldn’t successfully acquire us, they would develop a competing technology and put us out of business.  What started as a courtship and mating ritual had suddenly turned into one party trying to devour the other- call it the praying mantis effect.

So now, without having any intention to do so, we find ourselves at war with a multi-billion dollar international financial technology company with unlimited resources, who is trying to put us out of business.  At this time, the stories of Microsoft and Walmart going after small businesses and putting them out of business were common knowledge.  Now this may have been a little bit of folklore, but these notions had become so widespread, that they became generally accepted as fact.  Understandably, the threat led to a great deal of anxiety and panic at the company, and the next year became an all-encompassing attempt to win the market.  We thought our survival was on the line.

I learned many valuable things through this trying time, and most of these lessons are based on the very simple fact that the perceived threat from the big company (as terrifying as it may have seemed) was fictional.  It didn’t really exist.  Here are the things we learned, a few things we did to survive and why I’d always put my money on David over Goliath in these situations:

1)      Big companies move like elephants.  Like elephants, these legacy companies are big, strong and incredibly intimidating.  At the same time, they move incredibly slowly.  Big companies are unresponsive and slow at execution.  Picture a bandaged mummy meandering down the hallway chasing you in a dream.   In those dreams, despite being terrifying, the mummy never really gets you.  Like the mummy, these big corporations are too slow to ever really catch you, and because of that, they’re far less of a competitive threat than you realize.

2)      Agility can be more powerful than size.   If I’m running a hardware store, and Lowe’s plops down in my town, I think that’s a genuine cause for great alarm/concern.  I’m not sure how a mom-and-pop hardware store can differentiate itself enough to compete with the lower prices, inventory and resources of a Lowe’s or Home Depot.  However, many small and medium sized companies have the ability to differentiate their product lines with much greater speed than the big guys will (or can).  It’s not even a matter of marketing or resources; these companies have so many hoops to jump through and protocols to follow, that they end up playing catch up to the smaller companies who rapidly attack the market.  If you’re agile enough, you can move so quickly that the threat is minimized

3)      When the big players start entering your space, it’s good news.  In industries like technology, the entrance of a large corporation into your niche space can often be a very positive sign. In fact, it often means you should expect more revenue, not less.  It’s the ultimate proof of concept.  These companies move very slow.  If they’re moving in this direction, it’s only a matter of time until the consumers move there as well.  This may be very difficult to understand, as it was for me.  In a way, the entry of large corporate competition to a marketplace is a very positive thing, even though, at the time, it scares you to death.  It means that you’re probably on to something strong, and you’ve got a head start on the lumbering giants in the distance.

A brief postscript: the large competitor we faced did go to market against us, and they did take a few customers from us initially.  However, in the long run, our customer growth rate sky-rocketed as they entered the market.  Their product was so poor that our sales force used to demo it to potential customers to help make the sale.  This company ended up having to give their product away for free, and even then, the adoption rate was very low.

This is not meant to be gloating or boastful, because the truth is that the world is fragile, there’s a lot of variability, and external forces can always derail your company (or your life for that matter).  However, I look back at this experience, and I find validation in a few concepts; that is if you put care and passion into your product, if you serve your customers loyally and you move with lightning speed, you’re going to be just fine, whether it’s a mummy or Microsoft chasing you down the hallway.