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Should You Battle the Dragon or Just Avoid the Encounter?

By: Dave Berkus

 

White haired female warrior knight stands with a drawn sword and a dragon behind against the backdrop of snow capped mountains. Fantasy artwork scene. CGI animation 3d rendering

Sometimes a competitor is just too entrenched, too strong, too well equipped to directly face in battle.  At least that is the conventional wisdom.  Yet, there are constant examples of new entrants into a niche that do grow, prosper and sometimes even become dominant.

So, when do we know which course to take?  Quietly abandon a niche?  Refuse to engage?  Or charge in full speed?

Here’s a story I know too well.

In one industry I know well, the dominant player with 22% market share was acquired by one of the largest companies in the technology world.  Everyone, including those connected with the newly acquired dominant player, wondered what changes would affect their company and their personal lives and fortunes.  Well, even though that acquisition is still playing itself out on the field of battle, it appears quite clear that the new parent has directed its new subsidiary to abandon the lower end of the market and focus upon the larger sales, corporate customers, and major brands.

Opportunity can come when least expected.

And if that new strategy is proved to be true, the five-hundred-pound dragon in that niche just moved out of the way of many of its smaller competitors, leaving a market that will surely see a scramble for new competition in the near future.

What if you had abandoned that market, reallocated your resources, and focused instead upon other non–competitive geographical or industry segments?  There’s an example of avoiding the encounter and losing the lead position when an opportunity to compete surfaces unexpectedly.

How could you compete with the dragon?

But doesn’t it take seemingly unlimited resources to compete against the dragon in a niche?  The answer is found in defining the niche itself.  Has your competitor left a geographical area virtually untouched?  Forgotten about selected vertical markets within the niche?  Been skewered for slow customer service?  Each of these discoveries would provide an opportunity to compete and perhaps win, defend and build from a distant base to fight the larger battle.

The issue of mature companies as competitors

One more thing, absolutely common to technology companies:  generations of technology do not transition easily. Leading players in one generation often do not transition well into the next, as they carry the burden of a large existing user base with demands for support, feature–functionality and attention that drain the resources of even larger companies.  I’ve seen these waves of technology first-hand in one niche, counting six such waves during the past 35 years, and watching new entrants arrive during each transition to attract customers with new products using new tools, sometimes to grow larger over time than the last generation’s dominant player.

So, how do we answer the question?  Battle or avoid? 

We look for the underserved niches, avoid the direct encounter until dominating at least one of those niches, and use the profits and reputation from that small victory to take on ever–larger niches once dominated by the dragon.  We’ll call that clever avoidance for the sake of a much fairer but later battle.

Published: January 9, 2023
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Source: Berkonomics

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Dave Berkus

Dave Berkus is a noted speaker, author and early stage private equity investor. He is acknowledged as one of the most active angel investors in the country, having made and actively participated in over 87 technology investments during the past decade. He currently manages two angel VC funds (Berkus Technology Ventures, LLC and Kodiak Ventures, L.P.) Dave is past Chairman of the Tech Coast Angels, one of the largest angel networks in the United States. Dave is author of “Basic Berkonomics,” “Berkonomics,” “Advanced Berkonomics,” “Extending the Runway,” and the Small Business Success Collection. Find out more at Berkus.com or contact Dave at dberkus@berkus.com

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