SLAYING GOLIATH:How Small Companies Can Compete Against Their Large Competitors

Foreword ....................................................................................................................... 1

Chapter 1: Capitalizing on Your Advantages ...................................................................... 2

Strategy 1: Creating an Information Advantage ................................................................. 3

11 Ways to Maximize the Information You Generate from the Outside World .................. 4

Strategy 2: Creating a Time Advantage ............................................................................ 7

Strategy 3: Creating a Scope Advantage ......................................................................... 10

Strategy 4: Creating a Scale Advantage .......................................................................... 12

Strategy 5: Creating an Innovation Advantage ................................................................. 14

Why Innovation is Challenging for Large Companies................................................... 15

Strategy 6: Setting Your Operating Point Closer to the Funnel Singularity .......................... 17

Chapter 2: Attenuating Larger Companies’ Strengths ....................................................... 20

Strength 1: Great Senior Managers and Top Technical Talent ........................................... 21

5 Tips for Leveraging a Smaller Team of Technical Talent ........................................... 22

Strength 2: A Technology Platform in Place with Customers ............................................. 23

Strength 3: A Deep Patent Portfolio and Ongoing New Patents ......................................... 25

Strength 4: User Comfort with a Product’s User Interface Look and Feel ........................... 26

Strength 5: Well-Established and Plentiful Customer Relationships .................................. 27

3 Types of Large Company Customer Relationships .................................................... 28

Strength 6: Well-Developed Distribution Channels........................................................... 29

Strength 7: A Brand Name and Reputation .................................................................... 31

A Template for Creating and Understanding Brand Associations .................................. 33

Chapter 3: Defending Against Larger Companies’ Attacks ................................................ 34

The Nature of Large Company Attacks ........................................................................... 35

5 Factors that Influence How Aggressively Large Companies Attack ............................ 36

How to Defend Against Large Company Attacks .............................................................. 37

Chapter 4: Executing Against Execution ......................................................................... 41

Genetically Engineer Your Organization .......................................................................... 43

Create Challenging Focal Points .................................................................................... 44

Sample Goals for Every Department ......................................................................... 45

Measure Progress and Make Frequent Adjustments to Close Gaps ................................... 46

Be Flexible .................................................................................................................. 46

Wake Up to Your Current Situation ................................................................................ 47

End Note .................................................................................................................... 49

Appendix .................................................................................................................... 50

Slaying Goliath: How Small Companies Can Compete Against Their Large Competitors | 1

We’ve all heard the story of David and Goliath. It’s a classic

metaphor for small versus big, smarts and strategy versus

power and resources. It’s an allegory that promotes hope for

the little guy. When bigger competitors appear too large to

attack, David’s triumph is a reminder that there’s vulnerabil-

ity somewhere — you just have to identify and attack it.

Of course, that’s often much easier said than done. David

never had to go up against the likes of IBM, Computer

Associates, BMC, or Microsoft. Some expansion-stage tech-

nology companies wage that war every day and it’s not one

that most of them win. That doesn’t mean that there aren’t

opportunities in markets where Goliaths exist, however.

Let’s say that you’re the CEO of an expansion-stage com-

pany in a $2 billion market and your behemoth competitor

already owns 60 percent of it. Yes, they’re dominating, and

trying to defeat them is an uphill battle you can’t — and

probably shouldn’t — fight. However, there’s still 40 percent

of that $2 billion market that your behemoth competitor

does not control. If you can manage to take 5 percent of the

total remaining market and steal as little as 1 percent away

from that big competitor, you’re looking at potential revenue

that exceeds $50 million.

The challenge is actually identifying your biggest competi-

tors’ vulnerabilities and formulating a plan of attack. What

can you do better than those competitors? What market pain

point are they ignoring? What advantages does your smaller,

nimbler business have relative to customer engagement, tal-

ent management, or new market opportunities?

If you are going to succeed in a David versus Goliath type of

battle, you must be able to show your customers and pros-

pects the value of a business that’s focused on one product

and one pain point. You’re not going to try to sell them a

suite of solutions that they don’t need — just the thing that

fixes their problem.

“Slaying Goliath: How Small Companies Can Compete

Against Their Large Competitors” is intended for CEOs and

senior executives of expansion-stage companies and shows

you how to build a long-term defensible competitive advan-

tage over larger companies. Specifically, you’ll learn how to

capitalize on the natural advantage your smaller company

has over its larger competitors, minimize those larger corpo-

rations’ inherent strengths, and execute against your vision

in a way that allows you to keep your foot on the gas and the

pressure on bigger competitors to respond.

The bottom line is that winning in a market that’s dominated

by a big business isn’t easy. But it’s not impossible. Remem-

ber, all you need to excel is a very small piece of their pie.

So, what’s your Goliath’s biggest weakness (or your crowded

market’s biggest need) and how well is your company posi-

tioned to go after it?

Scott Maxwell Senior Managing Director and Founder OpenView Venture Partners

Foreword

Slaying Goliath: How Small Companies Can Compete Against Their Large Competitors | 2

Chapter 1:

Capitalizing on Your AdvantagesIn theory, David shouldn’t have had a chance against Goliath. After all, Goliath was a grizzled

warrior with a coat of armor and a massive sword. David, on the other hand, was at least half

Goliath’s size and showed up to the battle with little more than a sling and five stones.

But that didn’t seem to hinder his confidence. That’s probably because David recognized that his

opponent’s advantages (brute strength and size) could also be turned into disadvantages that he

could capitalize on. The same principle holds true for expansion-stage technology companies. This

chapter outlines six strategies that can help small, expansion-stage technology businesses recog-

nize and take advantage of their competitive advantages and use them to expose their much

larger competitors. In the end, that’s the fastest and easiest path to winning the battle against

any proverbial Goliath.

Slaying Goliath: How Small Companies Can Compete Against Their Large Competitors | 3

Strategy 1: Creating an Information Advantage

Expansion-stage companies have the natural advantage

of being closer to their customers than large companies

are. Make the most of this by increasing the flow of

information into your company.

What melts more slowly, a small snowball or a large one? All things being equal,

the large snowball will melt more slowly because its outer layer of snow insulates

the snow inside. By contrast, more of the snow in the small snowball is exposed to

the outside world, and it therefore reacts to the environment faster.

Big companies have the same basic geometry as a large snowball. Most of them have a

much harder time getting a true feel for their outside world (i.e., their customers, market,

and competition) than small companies do. This has nothing to do with the quality of the people who work there or the com-

pany itself, it’s just a natural disadvantage that large companies have relative to small ones.

So how can you exploit this opportunity? First, create an advantage by maximizing the information you generate from the outside

world (i.e., your customers, non-customers, competitors, suppliers, and others outside of your company’s walls). Then exploit that

advantage by using this information to make adjustments to all aspects of your business (e.g., product features/functions, pricing

approaches, specific technologies, customer service process, marketing messages, distribution approaches, etc.).

Unfortunately, as companies evolve, they naturally lose touch with their customers. The good news is that every company has

the opportunity to increase the flow of information coming in. If you address this issue early in your company’s life, you will

have a tremendous advantage not only against larger companies, but competitors your own size, too.

Slaying Goliath: How Small Companies Can Compete Against Their Large Competitors | 4

11 Ways to Maximize the Information You Generate from the Outside World In a rapidly expanding digital world, it’s tempting to gather exceedingly large amounts of data simply for the sake of collecting

and having access to it. However, hoarding volumes of data won’t do you much good if it’s not actually useful.

In fact, it will likely just overwhelm your team. Instead, the key to maximizing your information-gathering efforts is to uncover

truly valuable information — not data — that is contextually relevant and beneficial. Ultimately, that can be achieved by

performing one or all of these activities:

ONE. Expose all of your employees to your customers.

Your employees walk around with mental models of your customers, including their needs, the tech-

nology that will best meet their needs, how they interact with your product, the best approaches to

helping them resolve issues, and the marketing messages that will best resonate with them. Your

employees use this mental model to help them make decisions. The better their mental model aligns

with reality, the better their decision-making. That’s why everyone in your organization, or at least all

key decision makers, should be interacting with customers to better their understanding of them.

TWO. Ask your salespeople.

Salespeople generally have a very good view of how prospects and customers perceive all aspects of

your company. Speak to several of them to help separate the overarching themes from the one-off

situations. Conduct pipeline reviews to study each prospect situation to see where you stand in the

process. Perform loss reviews as well. Most loss reviews come from the salesperson’s presumptions.

A better approach is to ask the prospect why he or she chose a competitor and for feedback on what

you can do better.

THREE. Study your customer service interactions.

Tracking trouble tickets is one of the best ways to determine how your customers are doing with your

product and how you are servicing them. If you have customer service reps, listen to the phone calls,

ask them about their interactions, give them a few questions to ask your customers, and then gather

the feedback. Once a trouble ticket is closed, ask your customer for feedback on the process.

Slaying Goliath: How Small Companies Can Compete Against Their Large Competitors | 5

FOUR. Monitor the Internet.

Monitor social networking sites, Internet forums, message boards, blogs, and other sites. There is a

tremendous amount of information available online. Most people reading this already know what to

do. If you don’t, enter your company and product name into Google and start reading.

FIVE. Ask your customers.

Once customers have purchased your product, most will be willing to give you detailed feedback

because they want you to continue getting better. User conferences, advisory boards, and surveys

are great ways to get information. Another approach is to sit down with customers periodically to

really get to know them.

SIX. Ask industry analysts.

Some product markets have industry analysts who cover providers, customers, and prospects.

Good analysts tend to have an accurate pulse on the perceptions in the market. Be careful,

though, because they often have a large-company bias.

SEVEN. Use your website.

Incorporate Web analytics into your website and then mine the results for useful information.

Beyond building better usability and conversion into your website, the Web data can be very useful

for improving various functions. For example, visitor interaction with your product pages can tell you

a lot about their interests. Interaction with your customer self-service pages can tell you a lot about

their issues with your products.

EIGHT. Use your product.

Incorporate data gathering into your product and then mine that data for useful information. When

the product is browser-based, it’s a pretty straightforward process of instrumenting your Web inter-

actions with the customer using Web analytics. When the product is on the customer site, the issues

become trickier because privacy issues are more amplified and many customers do not want infor-

mation flowing out of their computer systems. That said, many customers will still allow the infor-

mation sharing if it’s done properly.

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NINE. Find out what your competitors are doing.

Make a list of things you would like to know about your competitors and then get creative about how

you are going to (legally and ethically) get the information. Study their websites, visit their booths at

conferences, and use resources such as Hitwise, Compete, and Alexa.

TEN. Find out what related companies are doing.

Do the same things you would do to find out more about your competitors, but also call the person

who shares your role at a related company and invite them to lunch. Ask about their best practices.

You can probably get and share some good ideas, as both sides will be more open given you are not

competitors.

ELEVEN. Share what you’ve learned.

Work this knowledge into your management meetings, company wiki, e-mail, management reports,

employee feedback systems, and all other vehicles you have to manage/monitor progress and commu-

nicate internally.

This list is intended to generate ideas, not mandate all of the things you need to do right away. If you try to do too much, you

will water down your efforts and actually get less useful information. Remember it is information, not data, that you are looking

for. Also, you need to spend the vast majority of your time building a great product and then selling and servicing it. Start with

the easy steps, and increase the activities as you grow.

A natural question is, why can’t large companies execute against the same tactics? They can, and some do. But they still have

the natural disadvantage of being the large snowball. If the large company and the small company execute these tactics equally

well, the small company will have the edge.

Slaying Goliath: How Small Companies Can Compete Against Their Large Competitors | 7

Strategy 2: Creating a Time Advantage

Large companies have a natural disadvantage as they grow because it takes them

longer to get things done. An expansion-stage company, however, can turn on a dime.

As companies grow, solid communication between employees becomes much more difficult. To try to have perfect communication,

the employees would have to spend all their time communicating internally, rather than focusing on customers.

To solve this problem, people divide up into departments and communicate at the department level rather than at the individual

level. They use all kinds of vehicles (phone calls, meetings, e-mails, business process software, blogs, content/information man-

agement systems, and videoconferencing) and a host of other approaches to discuss, review, approve, adjust, and so on.

Even so, department members still have trouble communicating. So they organize into divisions. The divisions communicate

through a low-bandwidth communication pipe called a VP (or an SVP, EVP, or a president), using all of the communication

vehicles noted above. Even then, there are meetings to contend with — the ultimate bottleneck for large companies — where

all of the most important decisions are made.

What are the implications of that departmental culture? One of the most obvious is the production of poorly filtered information

that lacks a prioritized, efficient process for acting on it. For instance, think about the old summer camp game of “Telephone,”

where a number of people sit in a circle and one person whispers a story into the ear of the person sitting next to them. That

process continues until the story reaches the person who originally told it. By then, the story has been interpreted and verbally

annotated to the point where the person who created the story doesn’t recognize it anymore.

Slaying Goliath: How Small Companies Can Compete Against Their Large Competitors | 8

The information flow in larger corporations is very similar. As information makes its way through the organizational pipeline,

it typically is filtered and stripped of key details and nuance, and boiled down to only its most important elements. In the pro-

cess, good information can be lost and bad information can embed itself into the company.

Departmental politics can also create internal issues that eat away at senior managers’ time, forcing them into meeting or

inbox gridlock, and killing their productivity. That not only impacts those managers’ ability to make key long-term decisions on

smaller products or newer markets, it also causes them to lose focus on the one thing that really matters — the biggest needs

of their customers. Even if those senior managers are able to determine the right course of action, corporate hierarchy and orga-

nizational change management can make it difficult to actually get it done.

The result of all these issues is that planning horizons tend to be in years, rather than days, weeks, or even months. It’s the only

way to keep all the groups in rough alignment. So how do you capitalize on the larger company’s disadvantage? By being nimble

and able to pivot. Here are some ways to do so:

Pick a product market that is rapidly evolving or has dynamic needs or tastes. Markets with

needs or interests that change

quickly are perfect for small

companies — the video gaming

industry is a great example. It

is difficult for large companies

to move at the pace of change

required to meet the needs of

these types of markets.

Pick a product market that has significant long-term innovation potential. The innovations that

can take place between a large

company’s release cycles are

tremendous. The large company

essentially designs and launches

its missiles, but by the time they

hit, the innovation has moved

significantly beyond where they

were aimed.

Build your market before the large companies know what hit them. The extreme approach

would be staying in stealth mode

until all the release details are

worked out, and then exploding

into the market. This is much

easier said than done, but the-

matically the idea is to build your

early market quickly before large

companies have time to act.

Use newer technologies and business model components. You are probably aiming at the early adopters, at least

initially, so this approach will be advantageous, or at least somewhat expected, for a smaller company. Also, although

both you and the large company have to go up the learning curve on the new technology, you should be able to do so

more quickly due to your small size.

1 2 3

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Slaying Goliath: How Small Companies Can Compete Against Their Large Competitors | 9

Package your whole product offering to include innovations in product, marketing, sales, and service all at once. When

large companies must create

change in multiple departments

and divisions, small companies’

time-based advantage is amplified

(due to the communication and

decision-making issues).

Rapidly evolve all aspects of your business. Use your informa-

tion advantage — and the obser-

vation that large companies must

have long time horizons — to

rapidly move forward all aspects

of your business, such as your

product, marketing messages, dis-

tribution approach, and customer

service. The key is to get ahead of

the target before the large com-

pany’s missiles land.

Put your senior management, particularly your CEO, out in the field as much as possible. Get

outside the company and meet

with customers, prospects, the

press, industry analysts, and

others. It will give you better

information and another edge over

large companies.

The bottom line is that it takes large companies a significant amount of time to get important things accomplished, and change

is difficult, even for the best companies. Use your smaller size to capitalize on opportunities quickly, change direction rapidly

when you need to, and improve your strategic position.

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