Taking On Goliath
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In your dreams, the competition is poor, lame, blind and toothless--the kind of opponent you could knock out with a flick of your finger. In reality, your competition makes Godzilla look like Jiminy Cricket. These guys are big, bad and backed by corporate billions.
We're not talking about that mean three-unit chain down the road. We're talking about Starbucks, Wal-Mart, NikeTown and Tommy Hilfiger. Companies with the size--and the style--to make almost any competition look shabby.
What kind of maniac takes on these kind of competitors? The kind who recognizes a hot market, knows how to cultivate a niche, and isn't afraid of a fight. It's not your average business owner who can mix it up with a corporate giant and come out on top. But then, that's part of the fun.
Redondo Beach, California-based writer Gayle Sato Stodder believes every underdog should have its day.
On Common Grounds
The lattes at Michael d'Addio's Stonewall Gourmet Coffee Co. must pack a wallop. Maybe it's the caffeine; maybe it's some kind of super-fortified milk--something gave d'Addio the fortitude to take on the two (count 'em, two) Starbucks that share his West Hollywood, California, neighborhood.
"I've got Starbucks coming and going," jokes d'Addio, 55. "There's one down the block and across the street. One had a 5-year head start, and people in this business know habits are hard to change." Yet d'Addio isn't obsessed with competition: In fact, he's committed to further expansion. Although it's only been two years since he started the first location, he opened a second Stonewall in Hollywood last October.
Here's why: D'Addio isn't trying to be all things to all people. He's meeting the needs of his community, in this case, a city with a large gay population.
But this isn't a simple case of niche marketing. Nor marginalizing a business in the name of local flavor--you don't have to be gay to enjoy Stonewall's killer mochas. But if you are, and live in the neighborhood, you can't miss the company's marquee name (Stonewall refers to a famous gay uprising) and its charitable sponsorships, donations and on-site fund-raisers.
"We've practically bankrupted ourselves [with community projects]," which range from donating coffee and water at various AIDS-related events to hosting a weekly comedy night at both cafes to benefit the neighborhood gay and lesbian center, d'Addio reports. "It's taken time and money, but it's paid off: People know who we are." Which is a company more distinctive than any house blend and more intense than even mud-thick espresso. What Starbucks is to global expansion, Stonewall is to community marketing.
Where The Action Is
Even with d'Addio's commitment and heart, going up against powerhouse isn't something experts recommend. "These are tough guys,' says William C. Lazier, a business professor at Stanford University and co-author of Beyond Entrepreneurship: Turning Your Business into an Enduring Great Company (Prentice-Hall). "They're smart, good at what they do, and typically operate with higher margins [than start-ups]." With these stakes, it seems only a genius or a fool would want to enter the game.
But sometimes you have to play with the big boys to get in on the action. And jumping into a hot market isn't necessarily a bad idea. "New entrepreneurs often come up with [breakthrough] ideas they think are extraordinary, but the market isn't developed," Lazier explains. "The problem then is finding enough money to develop a new market." For those just starting out, creating that kind of momentum can be impossible.
This reasoning--or perhaps its opposite truth--prompted Jerome Darby, 33, and James Sonzero, 36, to get into the highly competitive underwear business. The founders of Papi Inc. in New York City had seen other companies, from Joe Boxer to Calvin Klein, create a stir in the undergarment industry, and figured one good turn deserved another.
"All men wear underwear," notes Darby, "so we knew there was opportunity." But going up against everyone from Hilfiger to Fruit of the Loom presented its challenges. "Getting department store space was nearly impossible," says Darby. "But with so many companies [promoting underwear], consumers do have a greater awareness."
To differentiate itself, Papi is focusing on the Latino market, which the partners feel has been overlooked by most brands. Vividly sexual (but not pornographic) ads depicting Latino models have apparently grabbed enough attention to generate interest at the retail level. "Our boutique business is strong,' says Darby. "We're seeing 100 percent sell-throughs, sometimes in two days." In time, Darby and Sonzero hope Papi's success in this ethnic niche will serve as a springboard to new markets and products--the company, which projects 1999 sales of $2.5 million, will launch a sportswear line this year.
Keeping one's focus keen--like Papi's--makes good sense for small firms. By keeping your eye on the ball, you can fashion yourself into a player, albeit on a slightly smaller field. Yet even when you find a unique position, you can't count on owning the game forever. Whether you're an independent bookseller in a town without a Barnes & Noble or a hardware retailer in one of the few remaining Home-Depot-free zones, your competition is coming. And it's probably going to be big.
"Most category-killer concepts operate on a market-saturation strategy," explains business consultant Don Taylor, founder of Data Staar Communication in Amarillo, Texas, and co-author of Up Against the Wal-Marts (Amacom). "They keep growing to keep their stock up, so they're going into smaller and smaller markets. If you feel like [big competition] won't impact you, you're probably being naive."
Plugging Yourself In
Competition has made an impact on Mike Tucker's appliance and furniture business, Tucker's Best Brands Plus in Rogers, Arkansas. It's not just that folks in Tucker's neck of the woods shop at Wal-Mart (and its appliance-selling corporate child, Sam's Club): Tucker estimates that 40 percent of the people in his local market are Wal-Mart employees.
"I'm about six miles from Sam's Club and seven miles from Wal-Mart corporate headquarters,' says Tucker, 46, who co-owns the business with his wife, Joan. "When we bought this business [in 1988], there wasn't much competition. But now, there are probably five stores that compete with me."
Tucker has had the good sense to shore up his strengths. He saw that competing strictly on price was a losing battle, so he emphasized service and went after the demographic most likely to prize it. "A lot of retirees in our area are used to getting [good] service, and are willing to pay for it," says Tucker. "We recently spent six days working with a customer on a purchase. We spent a lot of time but made a $25,000 sale--and the customer got exactly what she wanted. You can't run a chain [with the same attention] you can give to one store."
But Tucker has also been smart enough to see the limitations of going it alone--and he's been fortunate enough to belong to a buying group with real initiative. Germantown, Tennessee-based Best Brands Plus began strictly as a buying group--helping independent store owners pool their resources to secure better prices on merchandise. Recently, however, it's expanded its mission to include a variety of programs, such as developing point-of-sale computer systems, providing demographic and marketing information, and creating design prototypes for store owners who want to update their interior decor.
Tucker was first in line for renovation, although he admits it wasn't easy turning his store over to Best Buy Plus' professional designers. "At one point, the designer said he was going to paint pink and red triangles over a [display]," Tucker recalls. "I called a time out. I said, `Hunter green and burgundy are okay, but pink and red don't do a lot for old Tucker here.' " Yet this was precisely why Tucker needed a designer's help. "He finally talked me into it, and now I like it," Tucker reports. "The store looks impressive."
Sales have followed suit. Although the renovation cost Tucker a cool $1 million, sales volume quickly rose 250 percent, and Tucker saw a profit after only two months. It was the collective intelligence of the buying group that provided Tucker with the means and motivation to make this necessary change, but it was Tucker's competitive will that made the change possible. Score another one for the underdog.
Being the underdog isn't without its benefits. It gives you the authenticity of Stonewall, the character of Papi, and the personal touch of Tucker's Best Brands Plus. Being small also affords greater maneuverability: It's easier to think like a revolutionary when you aren't bogged down by corporate weight.
Not that Birmingham, Alabama, entrepreneur Howard Ruttenberg would describe his revolutionary journey as easy. Ruttenberg, 56, moved to the United States from South Africa in the mid-1970s, eager to escape the mounting political turmoil in his native country. In 1977, using a $20,000 investment, he opened an athletic shoe store called Just For Feet.
It was unremarkable. "We were profitable every year [after opening], but we earned very little at first," Ruttenberg recalls. "There were many days when things looked bleak. I was ready to mortgage my home--and everything else--for a good many years." While Ruttenberg plugged away, athletic shoe chains aggressively increased their market share. Just For Feet could have been lost in the shuffle.
But Ruttenberg didn't allow it. With limited capital, he couldn't out-expand the major chains. But, he thought, perhaps he could blow the competition out of the water one store at a time.
How? In 1988, Just For Feet opened its first superstore. "We were the first category killer in our industry," says Ruttenberg. But this wasn't simple shoe retailing, it was the Disneyland of shoes. In addition to an encyclopedic selection of styles, the company provides its customers with knowledgeable service in a fun atmosphere.
Today, a visit to Just For Feet is only slightly less exhilarating than winning the NBA finals. "We have basketball courts, restaurants and video screens in our stores. We invite sports celebrities to make appearances. We just launched our own satellite so we can do live broadcasts to our customers or employees at any time from our company headquarters," says Ruttenberg.
At a time when athletic shoe sales have flattened overall, Just For Feet is growing by leaps and bounds. Ruttenberg estimates 1998 sales at $800 million--up from $23 million in 1994--and projects that 1999 sales will reach $1.2 billion. "We've been averaging better than 100 percent growth, year after year, since we went public in March of 1994," he says. With 125 superstores and 120 smaller locations nationwide, Ruttenberg calls himself the number- two player in the athletic shoe industry.
While the trip from obscurity to fame hasn't been quick or effortless, it is satisfying: "Our competitors don't have the ability to push us around any more," Ruttenberg observes. "Our vendors think we're the future. It feels great."
No Trophy Necessary
Of course, prevailing over the competition isn't always a question of outpacing them--or even giving them a run for their money. Tucker, for example, has no intention of expanding beyond his one highly successful location. Darby and Sonzero want to be contenders in the fashion business, but they don't necessarily have to leave Tommy Hilfiger and Ralph Lauren in the dust to achieve that. And d'Addio, while intrigued by the idea of expansion, never envisions a day when his chain eclipses Starbucks. "We intend to be alternative in every way," he says.
In that, there's also a kind of triumph. Let the big guys throw their weight around. Let 'em defend the status quo. Ultimately, taking on Goliath isn't about defeating the giant. It's about having your own day in the sun.
Long Shot To Hotshot
Papa John's International
Founder: John Schnatter
The competition: Pizza Hut, Domino's
Strategy: Made taste an issue in ads; used Pizza-Hut-cofounder-turned-Papa-John's-franchisee Frank Carney as symbol of new allegiances.
Take that! In 1998, Papa John's topped $1 billion in systemwide sales.
Founders: Jim Clark & Mark Andreesen
The competition: Microsoft
Strategy: Devised marketing, product development and distribution tactics to make the competition irrelevant; key figure in government's antitrust lawsuit against Microsoft.
Take that! $447.8 million in sales for fiscal 1998 (10-month year); company acquired last year by America Online for $4.2 billion; at press time, antitrust suit still pending.
Ben & Jerry's
Founders: Ben Cohen & Jerry Greenberg
The competition: Haagen-Dazs
Strategy: When Haagen-Dazs tried to muscle Ben & Jerry's out of supermarket distribution in 1984, the Vermont company filed suit and launched its famous "What's the Doughboy Afraid of?" campaign (in reference to Haagen-Dazs' former parent company Pillsbury).
Take that! In 1998, Ben & Jerry's sold $209 million worth of ice cream and frozen yogurt, largely through supermarkets.
Founders: Herb Kelleher & Rollin King
The competition: American, United and other major airlines
Strategy: Took flight by focusing on profitable routes; created supermotivated work force capable of breaking through industry-accepted barriers to efficiency and customer service.
Take that! 1998 sales topped $4 billion.
Data Staar, (806) 372-5151
Just For Feet, (205)408-3000, http://www.feet.com
Papi Inc., (212)741-3978
Stonewall Gourmet Coffee Co., (888)STONEWAL, http://www.stonewallinc.com
Tucker's Best Brands Plus, (901)298-8500, http://www.bestbrandsplus.com