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In several articles past, we have discussed so many points regarding product, process, people, and profit. In this article, I want to discuss your relationship with competition. It is so critical to know who you are competing with.
First and foremost, you must understand some legal issues concerning communicating with your competitors. It is often very easy to bump into a competitor at the lumberyard and before you know it, you are discussing what you pay your guys, what you pay for materials, and—worst of all—what you charge. This may seem very strange to you, but I hear it all the time as the owner of a supply location. When you engage in the discussion of what you charge for goods and services with your competitor, you are beginning to cross into illegal waters. If you reach an agreement with your competitor where you will not charge less than he does, or you will not give a quote to a certain person or group of customers in a given area in exchange for them doing the same, you have committed a crime. Trade laws, including The Sherman Act, should be understood by anyone conducting business. Do some homework before engaging in discussions with your competition.
For now, I will touch on why having good relationships with competitors is a good idea. First, let’s line out the types of competition you do or will have. I have my little nicknames for them and I’ll start with my least favorite.
“The Schlep” is a person who used to work for you. They decided that it would be easier for them to leave you and compete with you, usually by selling a job to the neighbor of a job you sold while on your payroll. I call these guys Schleps because they are too lazy to go out and get their own customers. How did it end? Did he keep it a secret or just quit?
Now that it is done, you should still have a good relationship and be nice, even when you don’t want to. Some reasons why are if he fails, he will be back, and maybe he was a good employee. If he succeeds, you may be able to carefully (remembering the laws) steer him into not undercutting you on price. The worst thing is for this guy to learn your ways, leave and attempt to sell the same grade of product for less. It will take some time for him to realize why you charge more; typically, once he is broke, but most likely it will happen. A good relationship means you may get him back, elevate his business practices, or at the very least get his company on the cheap. (We will cover acquisition another time).
“The Swine” is a person who you have never met and comes out of the blue selling loads of projects on the cheap. They are so full of themselves saying things like “I don’t need to advertise because I’m selling everything I look at!” Well, they are because they are cheap! Usually these guys fold up for the same financial reasons as the above. One reason to be friends with this guy is because there is a good chance that he is doing jobs you just don’t want and turn away.
On the flipside, he may not have a clue how to do the jobs you want. I smell partnership once you get to know this person if they are at least mostly honest. Collusion is not illegal if you have an ownership interest in the other company, and I highly doubt the SEC has any interest in a deck company in small town, USA for other laws like monopolies. Even still, partnerships and acquisitions will be discussed in the future and legal counsel is always a really good idea.
“The Future Man” is a person who one way or another has your full respect as a competitor, displays healthy competitive behavior, and is just fun to compete with. A great reason to know this person is to keep tabs on what they are doing, but just know them because they are very much like you. We are in a small industry and it is good to know each other even when you compete. When you have a market where there are several Future Men, the entire group wins because of each other raising the bar for the customer. They all charge fair prices, build exceptional projects, and make the Schleps and Swine harder to hire or elevate to the same level.
Remember that people usually get three to five quotes. Would you prefer that three of them are from people just like you where you have a fighting chance to sell at your numbers or face off with three cheap quotes? I have discussed how to overcome both. In addition to being cordial and possibly great friends with your competition, remember that being the opposite is not productive. Bad mouthing the competition is never a good thing, and really makes you look bad.
Recommending to a prospect to check out competitors’ work and methods, and compare them to yours is different, and a fair practice—pointing out the differences in a very positive way. I will say things like, “I have an excellent relationship with several of the other builders in the area and I can tell you that they are all good people, but they are not the same as me and if you are discussing this project with others, please carefully examine the details of each one and how they will complete your project. Of course, I want to be your contractor, but if you decide that I am not I hope you settle on someone who is the right fit for your expectations.”
Guys, I don’t get to say this if it’s not true and this will be easier to do if you have a healthy relationship with your competition, and it helps all of you.
By being friends with the competition, you get to elevate yourself and them and raise the bar for all.