Competition between small businesses and startups

6 min read
Sayed Raslan

Small businesses and startups in the MENA region face many obstacles and difficulties on daily basis. According to a study conducted by Science direct, SMEs have a higher probability of perceiving competition as a significant obstacle than large firms and they consider “competition” as their second biggest obstacle after access to finance.

The five most significant obstacles faced by SME owners and managers in this study were identified as:

  1. Access to finance.
  2. Competition.
  3. High tax rate.
  4. Electricity.
  5. Political factors.

In this article we’ll explore the different types of competition, and why is it important.

Market competition

Before we start explaining what market competition is, you need to know that it is an advantage, not a defect. As it keeps you familiar with all the new technologies and tools in your industry and helps you stay innovative so that you can come up with the ultimate solutions for the customers.

Competition can be the best incentive for the progress and success of your idea.

The most well-known example here is, Pepsi and Coca-Cola! Both are major global companies, with its own customer base and sales volume

So, what is competition? What are its types?

It is the rivalry between companies selling similar products and services with the goal of achieving revenue, profit, and market share growth.

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Types of competition

The competition differs according to the market and the type of service or product that you provide. Therefore, it is divided into direct and indirect competition.

Direct competition

It is considered a traditional competition between companies that provide the same service or the same product. It is a fierce competition between them because the customer has to choose between more than one product in the market with the same value.

This kind of competition makes you always keen on development, whether in the form, content, or price. Pizza restaurants can be considered an example of traditional direct competition. The names differ, and the competition remains among the best, whether in the food presentation, price, or taste.

 Indirect competition

It is between companies that offer different products and services that are not similar to each other but ultimately achieve the same purpose. You face competitors who are not alike with you in providing the same product to the customer, but they are similar to you in meeting the same purpose or need.

For example, a customer who is looking for food to eat must choose between offered alternatives such as pizza or McDonald's. Then the competition is indirect and determined based on who will be the most powerful ingredients for the customer to choose his product.

Is competition similar to monopoly?

Monopoly implies an exclusive possession of a market by a supplier of a product or a service for which there is no substitute. In this situation, the monopolist can impose the price as he wants due to the absence of competition.

It is generally assumed that a monopolist will choose a price that maximizes profits. And this leads us to one of the disadvantages of the monopoly, its return of investment or revenues are limited due to the inability of clients or their willingness to pay exaggerated prices.

The law of competition

We are not talking here about laws passed by governments or countries to compete, but we are talking about what makes it honest and fair between competitors.

As we noted before, competition always makes you keen to provide and offer your best to the consumer. Therefore, you are always looking for development and innovation, and this is what is composed of ethical competition. And to compete ethically, you need to do the following:

  1. Study your market and determine the competitors.
  2. Do a SWOT analysis for your competitors. And do not forget to analyze their digital presence like their website and social media pages and accounts. Read ‘How to do a competitive analysis for your website?’ for more details.
  3. Keep yourself updated with all new things around you. You can do this by Reading and searching continuously.

Related articles: The key skills for success that every entrepreneur needs

Why is it important?

Unfortunately, many entrepreneurs give up their ideas permanently without trying to apply them on the ground. The reason for this is their fear of competition and their belief that they are not good enough to compete in the market.

Related articles: Startup failures: What should you take care of in your first year? 

In fact, it is very beneficial and necessary, particularly for startups and entrepreneurs. And as we noted before, competition is the one that drives technical development products' improvements. Without competition, we would not have seen the rapid development that we see in the world today. So, what are the benefits of competition?

  1. Competition fosters innovation

The most important thing behind the competition is the promotion of creativity, innovation, and continuous development. If you are the only one in the market you will not pay any attention to the development of your product mostly. And if there is fierce competition, you will enter a race with your competitors to develop your products and distinguish them from their products.

We see Google and Facebook, for example, they were not the first alternatives available in the market, and they had several competitors. However, this encouraged them and developed a sense of creativity to develop their services.

This applies to everything in the business world. Competition drives entrepreneurs to innovate and to always search for the best possible solutions to produce products that are appropriate to the market and competitors and ensure them the ability to compete in the market.

2. It raises your productivity

We know very well that competition is difficult and takes a lot of effort from all team members. The team doubles its productivity and works hard to provide their best and compete effectively. Thus, it can be considered a reason to raise production rates and make your team more productive.

"No competitor" = "A traditional and unbeatable product".

3. It helps you avoid others' mistakes

Competition makes you always aware of your competitors' weaknesses, strengths, mistakes, and the characteristics of their products. Without it, it is very difficult to discover all the mistakes in your product or business. Or even learn from the mistakes that made global companies bankrupt. Try to find out what went wrong with your competitor's company and avoid it.

Make your competitors a big boost for you and a reason to discover mistakes in your business and then avoid those mistakes and excel them.