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Business Services Industry

We're #1

Entrepreneur, Jan, 2001 by ROBERT McGARVEY

WHY PLAYING SECOND FIDDLE TO AN INDUSTRY LEADER MAY BE MUSIC TO YOUR EARS

IN A NATION WHERE ONLY GOLD MEDAL WINNERS ARE REVERED AND NOBODY REMEMBERS THE TEAMS THAT DIDN'T WIN THE WORLD SERIES OR THE SUPER BOWL, IT'S HERETICAL TO PROCLAIM A DESIRE TO COME IN SECOND OR THIRD. WHEN LEGENDARY FOOTBALL COACH VINCE LOMBARDI PROCLAIMED, "WINNING ISN'T EVERYTHING; IT'S THE ONLY THING," HE ECHOED A PEOPLE GROOMED TO BELIEVE "SECOND PLACE" IS ANOTHER TERM FOR "LOSER." BUT IS THAT SMART BUSINESS?

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Some entrepreneurs answer with an emphatic no. "Our core strategy is to be No. 2. We see it as a real competitive advantage, and we'll never sacrifice profitability just to get market share," proclaims Tom McDonnell, CEO and president of Jackson, Mississippi-based U-Save Auto Rental of America Inc., the country's No. 2 off-airport, neighborhood car-rental business. McDonnell, 37, readily concedes that his company, with about 25,000 cars and 500 locations nationwide, comes in well behind sector leader Enterprise Rent-A-Car: "They have 60 percent of the market; we're aiming to have 25 percent," he says. But, he stresses, "for us, being No. 2 is all positive. We absolutely believe it's a key strength."

McDonnell isn't alone in trumpeting the virtues of second place. "I've competed against giants for a long time," says Carey Balzer, 40, CEO and co-founder of Vectris Communications in Austin, Texas. Balzer's company sells broadband services--mainly high-speed Internet access--and wherever he competes, his company goes up against monolithic Baby Bells. "We prefer to go into markets where a Bell already offers broadband," says Balzer, who started the company in 1999 and currently operates in 10 states.

And it's not just entrepreneurs celebrating the role of the runner-up. They're getting plenty of support from researchers. "[Being a second-tier company] can offer significant advantages," says Steven Frumkin, a professor of marketing at Philadelphia University. "You know who No. 1 is, and that knowledge can help you create a profitable niche for yourself."

Adds Bing-Sheng Teng, an assistant professor at the George Washington University School of Business in Washington, DC: "It's much less risky. You get less competitive attention, and you can operate in the shadows while No. 1 takes the heat."

Not being the leader doesn't mean being a mere shadow of the industry giant, however. "Many companies seek to be best in their niche, not to be market leader," says Chuck Matthews, director of the Small Business Institute at the University of Cincinnati's College of Business Administration. "Don't go toe-to-toe against a much more powerful rival. It's oftentimes much smarter to dominate a sector than to try to be the overall market leader."

What benefits do entrepreneurs find by playing this open field? Read on--you could discover there's big money to be made by setting out to own not a market, but a piece of it.

SMALL IS BEAUTIFUL

McDonnell could write a guerrilla warrior's handbook. He's sharply aware of the benefits that come his way as No. 2 to Enterprise. For instance, Enterprise employs large staffs that do nothing but hunt for locations for new rental facilities. They use complex, expensive modeling techniques to analyze each community's likely need for the service, even the exact traffic flow on certain streets at certain times of the day. For Enterprise, picking a location is a science and the result of detailed investigation. But not for McDonnell. "I tell our people to locate as close as possible to an Enterprise store--directly across the street, if possible," he says. "[Enterprise has] done a lot of good work picking a site, and we can benefit from it."

Another lesson learned: "We hunt for customers where Enterprise doesn't," says McDonnell. He claims most of Enterprise's marketing focuses on wholesale deals with auto insurers, body shops, etc. Because Enterprise is strong in those areas, McDonnell says, U-Save Auto Rental "concentrates on the individual driver, whom [Enterprise] ignores. We stress our service to the individual, and our franchisees are active in their communities. They belong to churches and clubs--and their ties bring business from their neighbors. We put little effort into B2B selling; we excel at B2C selling."

Following rich and powerful Baby Bells into markets provides manifold benefits for Balzer. "Usually, [Baby Bells] stimulate demand for broadband," says Balzer. Those telephone companies incur heavy marketing expenses to get customers excited about broadband, and a second-tier player like Vectris waltzes in afterward to pick up customers. Says Balzer, "Everybody hears horror stories about botched installations by the Bells; we stress our service angle, and it's easy for us to win customers."

Focusing on a niche also works in Vectris' favor. "We go after customers the Bells usually neglect," Balzer says. "They pursue very large corporations and consumers. Our strength is with small to midsized businesses, which fall between the cracks at most of the Bells."

Business Services Industry

We're #1

Entrepreneur, Jan, 2001 by ROBERT McGARVEY

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