In my two decades of managing over a dozen peer groups, I frequently had the opportunity to sit in meetings with a business owner who competed with a member of another Board. I occasionally had to bite my tongue as someone vilified the ethics or business practices of a competitor.
Many times I knew the accusations were untrue. Sometimes I had heard that competitor say similar things about the person who was speaking. Of course, confidentiality prevented me from saying anything more than “That might not be exactly the way the other person sees it.”
A long time ago (in a galaxy far, far away) I sold auto parts to independent repair shops via telephone. We would complain about how our competitors always undercut our prices. I’d quote a price for oil filters, and the customer would say “Oh, never mind. So-and-so has them a dollar cheaper.” We’d match the price.
Long after I left the industry, I was talking with a former customer. I related how tough it was to maintain margins when everyone else was giving product away. He laughed, and what he said shocked me.
“Everyone knew that you guys were the whores of the industry. We could tell you almost any price, and you would undercut it. All of your competitors complained that you were destroying their margins.”
Moi? We saw ourselves as the class of the industry. Our internal dialogue was always about how we were trying to do it right when everyone else was bottom feeding. I couldn’t get over a mental picture of a mechanic calling to another, “Hey, the whores are on the phone for you.”
Most competitors are just like you. They want to provide good products or services at a fair price. They have families to feed, and feel responsibility to their employees. They aren’t in business specifically to hurt you or your company. As Tessio said to Michael Corleone in The Godfather, “It wasn’t personal, Mike. It was only business.”
If the only information you have about a competitor is from disgruntled ex-staffers or unhappy customers, your view is bound to be skewed. Think about your ugliest termination or the customer whose transaction went wrong about every way that it could. What are they saying about you?
You don’t have to be friends with your competitor. You certainly don’t want to share confidential information, but there is intelligence that might be mutually beneficial. Have either of you fired a bad customer or a vendor? Is there a new player in town? Is something on the horizon that would affect you both?
Near my office there are two gas stations straddling a busy intersection. A few months ago one shut down for the installation of a new canopy. A day later the other closed for conversion to new fuel dispensers. We were left with no place to fill up between the freeway and our office.
A brief heads-up conversation would have benefitted both. “Hey, you might want to put on extra staff, since we are closing next week.” “Gee, thanks, we’ll wait until the following week to do our work.” Both could have enjoyed a sales boost while the other was closed. Instead, their customers had to find another vendor.
A good competitor isn’t your enemy. It’s just business. A bad competitor hurts everyone, but at least have lunch together before you decide that they are the evil empire.
Bob is calculating what the brokerage industry calls “Seller’s Discretionary Benefits” or SDE. While it is a legitimate way to look at the full value of business ownership, ball park valuations of 4-5 times pre-tax earnings don’t apply to that calculation. Cash flow expensed for benefits (rather than dropping to a taxable bottom line), isn’t included in those earnings multiples. The traditional multiple for a small business sale averages 2.5 time SDE, or half of what Bob is estimating. We are immediately reducing the likely price to something like $1,250,000.
Perhaps the most amusing application was in “Gilligan’s Island.” The seven castaways fill their assignments well. There’s Gilligan (Sloth), the Skipper too (Wrath). The millionaire (Thurston Howell — Greed) and his wife (Gluttony). The movie star (Ginger — Lust, of course); The professor (Pride) and Mary Ann (Envy), here on Gilligan’s Isle (Hell?)
Pride has characteristics that are easily recognizable in some owners. In meetings, do you do all the talking? Do you complain that you are the only one who has new ideas? Does everyone come to you for the solutions to any and every problem? Worse yet, do you insist on it? Do you reprimand employees for making decisions that, while they might work, aren’t exactly the way you would have done it?
You are guilty of Envy if you think everyone else has better employees than yours. If you believe that other owners are making more money, or have a better work/life balance than you, envy is a problem. The common envious phrase that I hear is “My problems are different. No one else has a business that’s as difficult as mine.”
Good article.
There is another reason to understand competitors. If you understand their methods, philosophies, and other aspects of their business, you can find other ways “Not to compete” with them. Since you are “different from the crowd”, perhaps your customer will conduct business with you without being price sensitive!
As usual a great lesson,especially for small businesses.