From the October 2001 issue of Entrepreneur

What the hell are you thinking? Why in heaven's name would you want to start a business in an already saturated market? With a ton of competition on the right and a truckload of already-been-done ideas on the left, you'll only be trampled into oblivion-or, at least, that's what the powers that be would like you to believe.

Starting a business in a saturated market is not the suicide mission many people think it is. If you've got a stellar idea for a start-up, a brilliant business plan to go with it,a whole lot of chutzpah and no fear of playing with the big boys, then there just might be room for you in any seemingly saturated market.

We say "seemingly" because experts like Laurence Weinzimmer, an associate professor of strategic management at the Foster College of Business Administration at Bradley University in Peoria, Illinois, are doubtful the concept even exists. "I don't believe there's ever such a thing as a saturated market," says Weinzimmer, also the author of Fast Growth: How to Attain It, How to Sustain It(Dearborn Trade). "There are numerous stories of entrepreneurial companies that have found ways to grow, even in declined markets." Frankly put, if you've got a new take on an old idea, you can almost always find a place to make it work.

Do It With Passion

Even if the industry you adore seems to be swimming with competition, your passion for it could be your secret weapon. Remember, though, you'll need to offer a better product, better service-better everything-if you want customers to buy from you.

Jason Labowitz wasn't thinking about market saturation when he and brother Aaron started their online specialty toy store, Entertainment Earth, in 1996. The avid collectors were simply passionate about offering mint-condition toys, memorabilia and action figures to collectors like themselves. "As we've learned, you can't just throw money at an idea," says Jason. "You really need people [who] are committed to that type of product."

The fact that huge toy retailers already ruled the market didn't particularly bother these entrepreneurs. The competition just didn't offer the collector's dream that Entertainment Earth did: full sets of mint-condition toys, in the original packaging, with no bar codes, price stickers or security stamps to speak of (a big deal to collectors), delivered right to customers' doors. Says Jason, "We just went a step further and offered services that big retailers didn't provide."

Jason points out that big-name retailers offer a lot of the same toys as Entertainment Earth-but as collectors, Jason, 31, and Aaron, 33, knew that pounding the pavement looking for specific toys can be both grueling and time-consuming. Their one-stop-shop idea, without customers' ever having to leave their homes, is Entertainment Earth's big edge.

Says Jason, "We treat our customers with a certain level of respect." In other words, these entrepreneurs know they're serving a different crowd. These aren't moms buying toys for their kids; rather, Entertainment Earth's customers want the best and they're willing to pay for it-to the tune of about $3 million in projected sales for 2001.

Moral of the story: Get into the market with your passion, and stay there by serving people like you. Add a healthy dose of expertise, and just watch the receipts multiply.

Do It Differently

But going head-to-head with the big boys at the outset isn't the best way to approach your market. As much as we hate to say it, your business probably won't blow Procter & Gamble out of the water-at least not right out of the gate.

The good news, though, is that you don't have to. "Don't compete," advises Weinzimmer. "Go after periphery networks." Sure, you're still technically in the same market, but your customers will come to you because they're looking for something different.

The e-card business, for example, is dominated by names like American Greetings and Blue Mountain Arts. Who would notice a small
e-card start-up out of Seattle? More people than you'd think: With a user base doubling every month, Phototunes.com targets customers seeking grown-up messages free of the saccharine verses found on many e-card sites. Founder Richard Duval takes a fresh approach with his selections, thanks to superb natural photography coupled with original jazz. "I wanted to [offer] something a little more sophisticated," he says. "I hate the cute."

Duval knows he shares the World Wide Web with a few Goliaths, but he also knows he offers a fun and different product. In doing research, Duval found that-of the 800 other e-card sites he visited-no one else offered original art with original, studio-quality music.

Proud of his unique offering, Duval, 46, markets Phototunes as a sophisticated e-card Web site. "I never once thought to myself, 'OK, I've got a great idea and in three months, BlueMountain's out of business,' " he says. "That would've just been foolish." What he is doing is using his free e-cards to entice people to buy his art prints, smooth jazz CDs and deluxe multimedia e-cards. Although his company-like many e-businesses-has yet to reach profitability, Duval is planning to add corporate clients to his roster by providing them with Phototunes products to manage customer relationships.

BEFORE YOU LEAP
Thinking about venturing into a market that's already buzzing with competitors? Wes Tyler, a managing member of Old Oak Partners, a small-business consulting and investment firm in Easton, Connecticut, advises entrepreneurs to first ask themselves these questions:

1. What general customer needs are not being met?

2. Is there something customers would pay more for?

3. Is the market really worth entering, or is it a fad like frozen yogurt or cigars?

4. Can you afford the cost of staying put in a saturated market long enough to be the last business standing?

5. Can you capitalize on the competition's mistakes, such as poor location or weak execution?

Do It Locally

Here's another tip for breaking into a saturated market: Never underestimate the power of a good hometown advantage. Boston dwellers Chris Lohring and Alex Reveliotty founded their specialty beer company, Tremont Ale, knowing that to build a true customer base, they had to get out into their local community and get people to taste their brew. "We had no idea [what a tough market we were in]," says Lohring. "If we'd known that in advance, I don't think we ever would've distributed the beer ourselves. But if we hadn't, I don't think we would've been successful." Being their own distributors helped the partners build relationships-first with vendors and then with customers. Getting people to sample the beer was first on the agenda, with brand recognition as the next priority. The approach, Lohring laughs, was "very guerrilla in nature."

Starting an e-biz? Don't forget about your local market. Read Locals Onlyto help you market globally and locally.

The pair started by meeting with local vendors and selling with the kind of passion only company founders can muster (they had no sales reps in the beginning). Playing up the local angle worked, and so did sponsoring local charity events, such as the American Cancer Society Corporate Regatta, which they've sponsored for eight years.

Aware that craft beers were plentiful in the Boston area when they founded their company in 1994, and also knowing that they had domestics and imports to compete with, Lohring, 36, and Reveliotty, 34, did the unthinkable: They actually charged about $2 more per six-pack than their competitors were charging for their beer. "That's how we branded our beer," says Lohring. "We made a more import-like, upscale, urban-type brand, and we wanted the price point to match that." The strategy worked: Tremont Ale produces about 10,000 barrels per year and has exceeded $2 million in sales in their region alone.

Making your mark, playing with the big boys, being the little fish in a big pond...call it what you will, just don't listen to the naysayers. With a little creativity, a lot of planning and a big heap o' moxie, you'll be the one saturating the market.

OFF THE SHELF
It doesn't hurt to do some research before jumping into a saturated market. To bone up on your knowledge, check out these books, which offer advice on surviving and thriving among big-name competitors:
  • Competitive Branding: Winning in the Market Place With Value-Added Brands (John Wiley & Sons) by Torsten H. Nilson
  • Competitive Strategy: Techniques for Analyzing Industries and Competitors (Free Press) by Michael E. Porter
  • Get Better or Get Beaten!23 Leadership Secrets From GE's Jack Welch (McGraw-Hill Professional Publishing) by Robert Slater and Jeffrey A. Krames
  • Knock-Out Marketing: Powerful Strategies to Punch Up Your Sales (Entrepreneur Press) by Jack Ferreri
  • Outsmarting Goliath: How to Achieve Equal Footing With Companies That Are Bigger, Richer, Older and Better Known (Bloomberg Press) by Debra Koontz Traverso

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