On Crowded Markets

Forget generic marketing advice.

Most marketing books, consultants, or even AI-based agents (hello ChatGPT!) will repeat the same guidance regarding competition:

• Monitor your competition. It is essential to research your competitors, their strengths and weaknesses, their pricing strategies, their marketing tactics, their unique selling propositions. You can't create a marketing plan without it.
• If you're not the number one or two in a market, you won't make enough profit. That's why the "first movers" have an advantage. It doesn't make sense to launch a new service if most of your competitors already offer it.
• Focus on your unique selling proposition (USP). Your USP is what makes your product or service unique and different from your competitors. Ideally, it should be impossible for other firms to duplicate it.

Do you think a six-person IT firm can't earn well? Here's the news for you: They can do seven-figure profits, even if there are 300 larger IT firms that deliver similar services to the same market.

To illustrate why this is possible, we can turn to the good old study of microeconomics. There are different kinds of market structures. Chances are you've heard of the following ones:

• Monopoly: A market where there is only one seller of a good or service, which has no close substitutes, and there are high barriers to entry for other firms.
• Oligopoly: A market where a small number of large firms dominate the market, each having some market power and ability to influence the market price.
• Perfect competition: A market where many small firms sell the same or similar products or services, and no single firm has any power to affect the market price.

Much of the advice given to boutique consultancies assumes you are in an oligopoly. MBAs and HBR articles will talk about competition as if you were in charge of American Airlines vs Delta. Coca-Cola vs Pepsi. GM vs Tesla.

That's exactly why it's poor advice for you.

Now I want to introduce you to another, less famous market structure. It's called monopolistic competition. I'll let ChatGPT explain it to you:

Monopolistic competition is a market structure in which there are many firms selling differentiated products, meaning that the products are similar but not identical. In this type of market, each firm has some degree of market power and can set its own price and output level, but they face competition from other firms producing similar goods.Monopolistic competition is characterized by the following features:1. Large number of firms: There are many firms in the market, but not as many as in perfect competition.2. Differentiated products: Each firm produces a product that is slightly different from the products of other firms, such as variations in quality, design, or branding.3. Easy entry and exit: Firms can enter and exit the market easily, which means that profits are limited in the long run.4. Non-price competition: Firms compete on factors other than price, such as advertising, product design, and customer service.

Do these characteristics ring similar to you?

Most boutique consultancies are under a monopolistic competition market. A crowded market means there's a lot of demand for your services, and a good chance your firm can thrive. Even if you're charging more than competitors and were not the first to do what you do.

It's important to understand what other firms in your space are doing. But the goal is to be informed, not obsessed with competition. Your greatest competitor is client inaction and indifference, after all.

"Competition is your friend.Think about how competitive the fast food industry is. Now think about where fast food enterprises put their restaurant locations. When Mario's Pizza is scouting for a new location, do they seek out a deserted back road where there's no competition? No! Just the opposite. They plant themselves at an intersection where there's already a McDonalds, or a KFC, or a Taco Bell, or all three. Why? Because that's where hungry people are!"

Source: David A. Fields, "The Irresistible Consultant's Guide To Winning Clients"

For micro, lifestyle, and scale-up boutique consultancies, the biggest competition is client inaction and indifference. However...

• 40% of 200 buyers of consulting and professional services encountered firms that didn't understand their needs.
• 32% said they were not convinced of the value they would receive from the service provider.

You have to convince the buyer of the value your services will generate, no matter how your competitors work. So worry less about who your competitors are, and more about the value you offer to clients.

Source: How Clients Buy - Benchmark Report on Professional Services Marketing and Selling from the Client Perspective

Can you calculate a client's cost of inaction?

Most of the time you will be competing against inaction. The client didn't hire anyone and chose to ignore the initiative. The decision was to do nothing and maintain the status quo.

The reason for this is simple: They don't see it as a priority. It is neither important nor urgent. They are unaware of the risks and opportunities you can help them with.

That's why the most effective way to beat inaction is to demonstrate how important and urgent change is. Highlight the opportunity costs - or the so-called RONI - the return on not investing.

As the saying goes, "money talks, bullshit walks":

• What are the costs of ignoring new needs from current clients?
• What are the costs of losing touch with key partners and relationships?
• What are the costs of entering the wrong market or promoting a weak offering?
• What are the costs of having private and sensitive information leaked?
• What are the costs of relying on referrals for new projects?

Put a number into those, and see people start paying attention.