Don't judge a market opportunity by its incumbents

If you think the dominant players are completely satisfying all customers within a certain market, think again! In most circumstances, a certain subset of patrons will go with the incumbent competitors only because they feel it's their only option.  Entrepreneurs may find lucrative opportunities by tailoring specific solutions to fit their unique needs.

There are several ways to do this, such as expanding the current marketplace, finding new distribution channels, or redefining the value proposition.  It's not a factor of how many competitors are in an industry, but a factor of how well they are serving the market, and how much better an entrepreneur can meet the demands of it.

Examples Are Abundant

Though by no means new, this concept is often overlooked.  Yet abundant examples of entrepreneurs building a better mousetrap exist.  Take the world of Internet Search Engines; one that is seemingly dominated by the Googles and Yahoos of the world.  It would appear to the casual investor that upstart services attempting to compete with these behemoths are doomed to failure.  The emergence of Vertical Search Engines (VSEs) proves otherwise. That's because business and professional users searching for work-related information on the Web are not finding needed data through general search engines.  A 2006 study by Outsell reported a 31.9 percent failure rate among business users when researching topics using the major search engines.

While frustrating for B2B players, this current situation represents a significant opportunity for vertical search engines (VSEs).  One of the most notable of these firms is Medstory, a VSE for health information. Its unique features allows the user to not only get a list of related Web sites, but also refine their search either by selecting drugs, conditions, procedures or personal health.  A click on the site's Research tab at the top brings the visitor to clinical studies, experts and fields of study.  Folks took Medstory seriously early on. Microsoft was one of the most studious of the site's potential, and acquired it earlier this year. Business.com is another fine example, with R.H. Donnelley announcing its intention to acquire the site for $345 million in cash and deferred purchase consideration by the end of September 2007.  VSEs like these recognize that a certain segment of Internet search users were going to the Googles and Yahoos of the world because they felt there was no other alternative, and then providing a better option.

Brick and mortar retail markets also provide concrete examples of how entrepreneurs can succeed when penetrating a mature market.  Starbucks is arguably the best known case study.  At a time when coffee was a commodity and suppliers competed almost exclusively on price, this now retail giant changed the game rules.  By providing higher quality products wrapped in a unique experience, the company was able to convince people that paying a premium for their regular caffeine boost was well worth it. 

Moreover, Starbucks continues to reinvent itself with new products and value-added services, such as Wi-Fi and drive-thru offerings. In doing so, the company continues to remain a unique and fun experience that, oh by the way, sells great coffee.

Even commercial real estate has seen its share of upstarts that upset the apple cart. When Roger Staubach was the All-Pro quarterback for the Dallas Cowboys, companies used nationally-affiliated brokers who represented both their firm as well as the commercial property owner to negotiate lease agreements, drawing obvious conflicts of interest as a result.  Today, the same man is now the Chairman and CEO of a tenant-only brokerage firm that bears his name, complete with 1,400 people in more than 60 offices throughout North America.  This business model shifted the power from the commercial property owners to the tenant, and also created a wave of similarly-focused firms around the United States.  By breaking the notion that commercial real estate brokers needed to represent both the leassor and leassee, Staubach created a new, profitable, and multi-national business.

Examples in Your Own Backyard

While noting the highly visible successes of companies that entered competitive landscapes, such entrepreneurial achievements are also found in every city across the United States by people who challenged the status quo.  One only has to go to the neighborhood shopping center and see the local independent pizza, donut and sandwich shops thriving in communities dominated by delivery chains and franchises with a large arsenal of brand equity and marketing dollars behind them. 

Community banks have also seen their share of success, bucking the trends of larger conglomerates who have been on a string of acquisitions that bring with it significant economies of scale, such as longer hours and 24/7 customer service lines.  Yet, these institutions have been able to endear themselves to consumers by offering a neighborhood service approach, where bankers know their customers by name and offer loan packages to meet their specific needs and circumstances. 

Common Theme - Challenging Assumptions

Regardless of industry or region, successfully penetrating a mature market dominated by large incumbents requires entrepreneurs to fully examine all facets of it and challenge any assumptions that lie within.  Doing so could uncover unique opportunities to service the market better and shine light on how best to enter it.  Former General Electric Chairman Jack Welch was a master at this. If one of the company's divisions was number one or two in the market in terms of size and sales, he would direct the management team to change their definition of the market to unveil unmet needs and foster growth. 

Entrepreneurs can do this, and, in some cases, be more responsive and effective. The larger question of success is not whether a market possesses well entrenched incumbents, but whether a new firm can find better ways to serve it.