This month, "Smart Business" touches on the benefits competition can create for smaller companies.

A block from where I live sits one of those ubiquitous Subway sandwich stores. A block away from it is Submarine Express, a small, privately owned sandwich shop that's been in the community for years. Both seem to be doing OK.

Why doesn't the Subway franchise with its familiar brand name and advertising clout overwhelm the mom-and-pop competitor? It's because the little store makes meatier, tastier sandwiches. Plus, a visit to the tiny shack usually scores an added bonus of pleasant conversation with the owners - sprinkled with scorn for what they call the “lettuce sandwiches” of their famous competitor.

It's just one of many examples of little businesses thriving in the land of giants. When you delve into this, a surprising phenomenon comes into focus. It's not only that little businesses can hold their own against huge competitors, it appears that the presence of a formidable company in a marketplace actually can give a boost to smaller competitors. For instance, Subway's advertising and presence whet peoples' appetite for sub sandwiches. That's half the marketing battle. Once that's done, all Submarine Express has to do is convince people its sandwiches are better.

According to a Time magazine article, the number of independent coffee shops rose from 8,200 in 1999 to 8,800 in 2002, despite Starbucks popping up everywhere. The power of the Starbucks brand seems to be a tide that lifts all coffee shops. Coffee used to be a breakfast staple thrown in by restaurants virtually at cost. Now it's an end unto itself, and many people have gotten used to paying three and a half bucks for a cup.

Likewise, you still can find a lot of neighborhood pet shops despite the dominance of Petco and PetsMart. Same with little bookstores amid behemoths like Borders, Barnes & Noble, Waldenbooks and amazon.com.

I hang out mostly in the plumbing industry, where a lot of suppliers and contractors despise the Home Depot and Lowe's “big box” stores. They feel they lose a lot of business to them. A more enlightened view recently was offered by a prominent plumbing wholesaler, whose company operates a bunch of bathroom showrooms that compete for business with a nearby Home Expo store, owned by Home Depot.

“Home Depot and Lowe's have helped create demand for our products,” said the executive.

And he's right. They stimulate interest in all re-modeling projects. From there, it's simply a matter of hitching a ride on the brand name's bandwagon by better meeting custo-mer needs. The smaller company pulls people to its showrooms because of a reputation for superior knowledge and service. They also make it a point to differentiate their product offerings. Meantime, the big guys are able to stimulate demand for bathroom products and services in a way that smaller companies can't.

Storefronts on Main Street tend to go vacant after a Wal-Mart moves into town. But that may be due to lack of business acumen by most mom-and-pop owners. You don't need much marketing savvy when you're the only one in town supplying certain products or services. If the owners thought things through, they just might find a way to compete by filling a niche or doing something better than Wal-Mart. Or, simply by capitalizing on the convenience factor.

It's interesting that the likes of Home Depot and Borders have gone retrograde in developing smaller scale stores. They found out that neighborhood hardware stores and book dealers retain not just charm, but have some marketing advantages over big companies. Home Depot is a great place to shop for bulky home improvement materials, but its size and bustle make it a hassle to patronize if you just need a box of nails. A little bookstore can specialize in an oddball category the big chains might find unprofitable. A favorite ploy of independent book dealers is to host book discussion groups, whose members wouldn't think of buying books from anyone else.

Marketing 101

Business professors tend to define three basic marketing strategies:

• Low cost

• Filling a niche

• Differentiation

Little companies have a lot of trouble pursuing the first. Unfortunately, most small business owners don't know that. The only thing they know about marketing is that they'll get plenty of work if they price themselves cheaper than anyone else. But being in business isn't about obtaining work. It's about making money. Many contractors have plenty of work but they bleed red ink. And that's the biggest problem facing many of you who are reading this.

You can compete OK against the big firms. They are under enormous pressure to show a healthy profit, and most of them know to the penny how much it costs to deliver their services. So there usually is a limit to how cheaply they can sell their wares.

However, many small company owners don't have a clue about business economics. They price their services so low they won't be around for long. But while they are, they drag an entire marketplace down. People who patronize the low-ballers think that is what their products and services are “supposed” to cost.

Something to understand is that while strategy no. 1 usually is foreclosed to a small firm, the little guys generally enjoy an advantage over big companies in pursuing the other two strategies.

So-called niche marketing simply is a matter of applying the old baseball philosophy of “hit them where they ain't.” There are certain kinds of jobs that many firms shy away from for one reason or another. A company that can specialize in that kind of work has a leg up on the competition, large or small.

A good example of niche marketing is all the convenience grocery stores you find in most neighborhoods. Many people such as myself who have been around for more than a half-century can remember a time when our families did their grocery shopping at neighborhood mom-and-pop grocery stores that offered about the same range of goods that today's convenience stores carry. Virtually all of them were driven out of business by the big supermarket chains that arose in the 1950s. However, consumers soon found out it's a big hassle to visit a supermarket if all they needed was one or two basic items. So the supermarkets watched convenience stores spring up all around them to serve the needs of shoppers who could carry everything they needed in the crook of an arm.

Warped Perspective

Many independent business owners are needlessly intimidated by the sheer size of their competitors. They think they're being asked to climb Mt. Everest when in reality their only task is to hop over one of its lower ridges.

For instance, there may be a multi-billion company represented by a branch operation in any given market. A small, independent business owner in that market tends to throw up his hands in exasperation wondering how he can possibly compete against such a giant.

Yet, in reality, he's only bumping up against a local branch operation whose size may be just a little bigger or maybe even smaller than his own. The branch may enjoy some competitive advantages in purchasing and other areas, but it also likely has more corporate overhead and rigmarole to deal with. The company that wins the lion's share of business in that market is likely to be the one that figures out how to best serve customers.

Small businesses face a lot of problems. The labor market and government regulation are among the most onerous, in large measure because they are beyond the control of business owners. Beating the competition is very much within everyone's control and thus ought to rank very low on the list of problems that cause business owners to lose sleep.

Competition is good for everyone in business. It makes us better at whatever it is we do for a living. ND