Over the past two months, I've been sharing the results of my firm's nationwide study of fast-growth companies. It revealed that nearly 2 in 10 had suffered serious growth setbacks. We commissioned this study to better understand the market characteristics that cause growth to stall and allow successful companies to remain successful. The study pinpointed seven of those characteristics, and last month we looked at the first two -- economic factors and changing industry dynamics (see BW Online, 3/11/05, "The Nimble Shall Inherit the Earth").
DIMINISHING EDGE. This month, we examine competition. It's a particularly difficult problem for fast-growth companies, as their rapid expansion may cause them to believe they're immune to the market forces that affect mere mortals. And even if they do try to keep an eye on the competitive landscape, they're more likely to preoccupy themselves with managing 20%, 40%, or even 100% annual growth than to worry about what the rival down the road is up to.
Indeed, success can deceive. The more success a company experiences, the more it will spawn copycats -- companies seeking to duplicate its technology, mimic its business model, or imitate its brand. Underestimating aggressive competitors who want what you've got is a common pothole that trips up growth companies.
In our study, nearly 60% of respondents ran companies that had once distinguished themselves as the pioneers in their niche, which means that, at one time, they had 100% market share. But by the time of our survey, the average company had a market share of less than 16%, and an average market rank of No. 3. What happened?
COPYCATS AND CLONES. In most cases, the companies simply failed to maintain an adequate degree of differentiation. Because it creates scarcity, differentiation leads to perceived value. When the market offers too many acceptable alternatives to a particular product or service, perceived value declines.
It's a classic story: A company invents a new product or service. The company grows fast. Its growth attracts competitors. Differentiation gets hazier, margins suffer and, often, growth stalls. Low entry barriers, present in half of the companies we studied, exacerbate the problem.
Often, company leaders think that staying out in front of aggressive competitors means outspending them. The good news is that there are other, smarter ways to own and protect your niche. In our study, fewer than 25% of the companies that managed to maintain strong growth did so by spending more money than the competition. Instead, they outsmarted them, keeping close tabs on competitive moves while increasing the sophistication of their own marketing efforts.
THE REAL, DIFFERENT THING. Companies that stay on the growth curve understand that no market is safe territory, hence they need to make the right moves to protect their turf. Take Coca-Cola (KO
). A century ago, Coke stood in a category by itself. But competitors entered the category, blurred the distinctions, and brought on a whole new set of challenges.
Yet today, Coke remains one of the world's most respected brands, because the company understands that the product itself is only one aspect of differentiation. Coke knows that differentiation can take many forms: packaging, pricing, distribution, and brand image, to name a few. Your company probably isn't as large as Coca-Cola, but the principles still apply.
Growth companies that have enjoyed long-term success understand that, as markets mature, differences blur. They know that their challenge is not to be better than the competition, but to stay different. Whether a company is young or old, public or private, the challenges of competition stay the same. The more success you attain, the more quickly and aggressively competitors will invade your turf. You have to stay one step ahead of them.
Next month: A look at the first of four internal dynamics that cause growth to stall. McKee is president of McKee Wallwork Henderson, an ad agency specializing in working with fast-growth companies and businesses whose ad budgets are less under $10 million