New entrepreneurs often think that they don’t have a chance if they enter a market that has some big-name players in it. Really, would you want to go head-to-head with Microsoft or GE or Google? Only if you have a death wish. But there are ways to enter a market with major players and still be successful. Why? Because the big boys (also known as the "incumbents" in research lingo) have some serious things going against them.
For one thing, entrepreneurs usually enter a market by identifying an unserved need that customers have and that big companies have ignored, usually because it’s not profitable enough by their metrics. The incumbent typically responds to the entrepreneur’s innovation with something we call "cramming," which means trying to fit a square peg in a round hole. The big company tends to force the innovation into the largest and most obvious large market applications where they already have customers because it makes financial sense. A classic example is what would have happened had Western Union, the telegraphy company, decided to purchase Alexander Graham Bell’s patents for the telephone (he offered them to Western Union and they turned him down – big mistake). The telephone was a disruptive technology that would have made the telegraph virtually obsolete for most uses. Had they bought the patents, Western Union would have modified them to be valuable to its long-time, long-distance data customers, a very risk-averse strategy. Fortunately, Western Union didn’t have the foresight to recognize the value of Bell’s invention or we may not have had the telephone that we know and love today.
Another strike against the big boys is that if the entrepreneur achieves some success in the niche market, with the innovation, the incumbents often cede the market to the entrepreneur (it’s too small to go anywhere) and focus on up marketing (improving on their current offerings) to undershot customers, those who are still willing to pay for more bells and whistles. By doing this, the incumbent enjoys higher sales and higher margins, but only for a while until they hit a brick wall and customers will no longer pay for their improvements. This means that the incumbent has to fight because they’re cornered. The only trouble is, they don’t have the skills to compete in the new markets created by the entrepreneur because they’re still stuck in their old ways.
So the next time you think you can’t compete with the big boys, think again. Entrepreneurs are agile, innovative, and fast. And that means they can do anything they set their minds to as long as they keep focusing on finding unserved markets.