Mind your business

Many companies experience that the old saying that no more than a few companies can profit from the same market actually is true.     For many companies this means an unfair battle for more growth and according to the schoolbooks one should strive for the advantages of large-scale operations (economies of scale).

However…

Several research studies show that there is a U-shaped connection between turnover and profit ratio – meaning that middle-sized companies have a considerably lower profit ratio than both large and small companies. The explanation is fairly simple:

  •  Large companies benefit from economies of scale
  • Small companies choose a niche (= their own market) which they so to speak “own”
  • Middle-sized companies are too small to benefit from economies of scale and too large too be a niche company

Many companies claim to have invented a niche but this is often not quite true. The number one mistake companies often make is to copy the current market leader just on a smaller scale, that is. In this way, the market does not see anything new but if you succeed in creating a niche by offering your customers something quite unique whether talking about core product benefits or peripheral product services, you obtain two substantial benefits:

  •  A certain competition protection because the niche is so unique that your large competitors are not able to compete or because it is so small that they do not want to
  • Relatively economies of scale because you are now one of the big market players although the market is smaller

Both of these benefits result in bigger earnings so why wait?

Just do it

As the way to success for small/middle-sized exporters is to create and own a niche it is remarkable that only few companies actually do so. One of the reasons is that many executives are very much focused on the size of their company due to the prestige that comes with managing a large business rather than a small one. There is, however, also another reason: Lacking courage to choose and opt out, and the courage to fight against your competitors. That is a pity because they are big due to their big market shares and often forget to pay attention to market needs. At the same time they have to market their products and services broadly which leaves space for smaller and more specialized niche companies.

4 years ago 0 0 2939