It’s a trick question!
The answer to the age-old question of whether it’s better to be a big fish in a little pond or a little fish in a big pond isn’t as straightforward as we think. David challenges this folksy wisdom and examines big and small markets to provide a clear path for business owners.
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Is it better to be a big fish in a little pond or a little fish in a big pond? Here’s a hint, it’s a trick question. Today on The Buck Stops Here.
Years ago, I was given advice from somebody I really respected, as most business owners are given at some point in time. It’s that adage, that age old folksy wisdom of, it’s better to be a big fish in a little pond than a little fish in a big pond. And I think you would succeed the best. And then I was given a litany of advice. It’s like Polonius talking in Hamlet. It goes on for a fortnight about something and talking about brevity.
Brevity is the soul of wit.
It’s like when these things happen, these things come to you from somebody you really respect. And then sometimes it just isn’t right. As Mark Twain said, it’s not what you know that gets you in trouble. It’s what you know for sure that just ain’t so. And that’s the problem with a lot of this folksy wisdom, is that it gets given to you and you get sound bites. It’s like receiving a portion of the information without reading it in the context.
Shakespeare famously said, “First thing we’ll do is kill the lawyers.” A lot of people use that as a way to send up the legal profession of like, oh, we should kill the lawyers. Lawyers are terrible people. They actually were saying that in the play, in context, it’s about the Judiciary and the lawyers are the only thing that will keep these bad actors from committing crimes. So, their suggestion is, let’s kill all the lawyers. And once you distill that down through the ages, if people haven’t read it and they just hear that as a sound bite out of context, they say, oh, man, killing lawyers is a really good idea, and that’s where we should start. And full disclosure, I am an attorney, and I’m just getting that out there. And by the way, I get used to that. I get those- Lawyer jokes are always what I get. It doesn’t matter where I go. So, that being said, what does that really mean? And how is that relevant here? Well, that folksy wisdom about big fish, little pond, little fish, big pond, it’s interesting. But it presupposes that you’ve already become the big fish. It presupposes you’ve done all the hard work into growing your industry or your product or whatever it is, and it’s much better to dominate a small market than to try to be a smaller one competing in that large market.
And the problem with this information, just like so many other things, is that’s when it goes off the rails. It really doesn’t help business owners. And I’ve heard business owners- I’ve heard multiple business owners in different markets saying, well, I’d rather be a big fish in this little pond. So, how did you get to be the big fish? So, today in the podcast, what we’re going to talk about a lot is how do you get to be the big fish? And this brings me to the no B.S. portion of the podcast. Here’s the fact; unless you have what’s called a natural monopoly, which means you’ve invented something or patented something that’s never existed before, you are almost always a little fish with entering any new product or service, ever. There are times that you can become the big fish, but that’s when you’ve changed markets or migrated markets. So, you’re going into a similar market space that you’ve already dominated in, let’s say, a medium-sized or large-sized market, and you decide to enter a small market. And because you have certain advantages when you enter that marketplace, that’s now why you already have some leveraged things to pull on.
99.95 % of the time that is not going to be you. So, you have a new product or service or offering you want to do, or you’re entering a new geographic market and you think, “Hey, you know what? It’s better to be a big fish in a little pond.” So, you think that the place to start is always in a small pond. And the information I’m going to give you today on the podcast is why that is almost always a bad idea. I’m going to define some things about what small markets typically have and have inhabiting them, and big markets and what they typically have and have there. Now, I’m going to go with what the folksy wisdom tells you initially. Okay, a big market, there’s a lot more competition. That is true. Absolutely true. It’s a lot harder to succeed in a big market if you’ve moved from a small market to a big market. That is questionable advice at best. It’s not always the case. And there’s a whole bunch of reasons for that. If you enter a small market, it’s easier for you to compete. Perhaps, but what you have to realize is that every market you enter, geographically, product size wise, depending where you is, whoever you’re selling your things to, you have to be very honest when you’re analyzing those markets and seeing what you’re at.
And as I said in this no B.S. segment, you’re almost always the small fish. So, just take that. That is the one piece of advice you need to take out of this. So, unless you’re in that 0.05 % of companies out there, you’re almost always a small market. In case you’re not familiar with a natural monopoly, a natural monopoly is you’ve invented something or a product or service that doesn’t exist anywhere out there, and there’s not easy common substitutes for the market. So, I wanted to define a few things about elastic and inelastic goods, about market space segments, and this is a little bit about economics for people out there. Okay, so the difference between an elastic and an inelastic good or service. An elastic good or service is like a rubber band. That means the supply and demand change greatly, that elasticity of what the item is, based on the demand in the market and the supply in the market. And that has to do with dictating your price. An elastic good generally has many close substitutes. So, for example, I will give you an example of how these things work and then how people misjudge the size of the market.
So, you may say my market is sugary soda beverages, very elastic good. You cannot raise the price of your soda can by five times if people can go to drink other sodas for it. And this is where people get their market wrong a lot of times. They think their competition is the people directly opposite you. But if you’re talking about a sugary drink, there’s a lot of substitutes for that. Your substitute doesn’t even have to have sugar. That’s not required. What happens is your substitutes for that product or service are water, tap water provided by municipal water supply is a substitute for your product. It’s a very elastic good. So, you really can’t- You have a very small range that your prices can change. Let’s take an inelastic good. A classic case of an inelastic good is a medical device or prescription that you do not have an easy substitute for. I’m just going to take one that’s been on the news media a lot lately is insulin. If you jack the price of insulin 500 times, people do not have easy substitutes. They can’t just say, well, I’m going to drink some orange juice because my blood sugar is low this morning.
That doesn’t help you, and you will die at some point in time. You’ll have a sugar crash and die or whatever it is. That is not a substitute for insulin. It’s not. And because of that, in an inelastic market, you can really change your price for your goods or services. And so when you have a natural monopoly in a product, which means you’re the only person who offers it, if it’s something that people want or crave, you have a lot of power to dictate things in that market space, in that market segment. And generally speaking, that’s when you have a natural monopoly and you can be the big fish in a small pond because you dug the small pond out yourself. And if you’re smart, what you do is you build a wall around your pond and you dig a moat and you build a castle and you keep competitors out of your market. And the classic way to do that in the United States of America is to get a patent because a patent is going to guarantee you basically no competition in your marketplace for depending 16-20 years, depending on design, patent, process patent, whatever it is.
So, that’s how those things work. But so, most people aren’t dealing with that. So, I’m not really talking about that part of the market. I’m explaining a couple of those facts and figures for you, etc. And the reason I’m talking about close competitors and elastic goods is because almost all of us in business are selling some elastic good. There are close substitutes for whatever goods or services you’re providing. So, back to the market size segment. So, you enter a new… Let’s do geography first. You’re in a small market and you enter a market, you decide to set up whatever it is. You decide to set up a new restaurant in a very small geographic region. Well, a few things to know about a small market. First of all, and these have to do with technology, the client size, and everything else. First of all, in a small market, if you’re a restaurant, you may say, “There are no good Mediterranean food restaurants in this small market segment.” Okay, fair. But what people often miss, and this is why the B.S. segment is really important, is they missed that market substitutes for your stuff are grocery store meals, people cooking at home, other restaurants that are not Mediterranean food stuff, and other Mediterranean places.
But you look at the small market and say, “Hey, they really need a sushi restaurant in this area. Everybody loves sushi.” Well, if you’re introducing something new, and sushi may not be new now, but if it was new to that market and no one had ever had it before, there may not be a huge demand for that in your particular market. It might seem a little more exotic to people. I definitely think that may not be a new thing. But if you said, oh, we sell blowfish. I mean, if you’re dealing with fugu fish, then that’s a very different thing. And that probably is exotic. And because generally speaking, in smaller markets, there are exceptions to every one of these rules. But, in a small market, your clientele is generally less sophisticated, not because they are not smart and capable, but because they have not seen the goods and services you’re offering. So, small market you decide to enter into, and let’s take a couple of these things one at a time. So, let’s take a new technology they’ve never seen in this good market or whatever it is. You say there’s no competition in this market.
I could be a big fish in the market. You’re going to spend an awful lot of time and energy convincing people that they need your good or service, but they’ve never seen that before. If you’re doing a service that’s not new to the market, everybody knows about it, right? One of the challenges in a small market is because you have less available food to eat, for lack of a better term. So, if you’re a little fish swimming around in this small pond, right? And it’s not that the big fish are going to eat you. It’s that the big fish are already dominating that market. Big fish, when they enter the market, the whole premise of this thing and why the folksy wisdom is a trick question is that small markets already all have, unless it’s a natural monopoly, they all already have a big fish in that market. Already do. And that big fish is not going to take kindly to you entering their market because the scarcity of resources there affects them as well. No matter how big they are in that marketplace, small and even medium sized competitors, they must be concerned with because there’s not as much food to eat.
There’s not as much going around. That is one of the challenges in that. The other problem with it is you say, I’m going to build allies in this small market. Assuming that these other people don’t already have allies in the market and establish relationships of who’s going to help them grow their business. Assuming you can find those people, they’re also dealing with the problem of scarce resources. And if they’re a similar competitor you’re… I’ve heard over and over again, oh, you need to make alliances with somebody else who does the exact same service you do in the market. I think it depends on your market setting and market size and how quickly those alliances change. How do you hold them to that? You don’t have a contract saying they’re going to refer business to you or what have you. But they’re also competing for very scarce resources. And the fact is, they might be better off, or at least the wisdom is, maybe the big fish get more opportunities than I do, and maybe they’ll pass off some crumbs to me and I can eat those. They’re not really keen on aligning with another small fish who’s competing with some of the very same clients.
The other challenge with it is, in lean times, those big fish, even though they’ve allied with you, will often eat the deals that they said they were going to pass to you. The other thing to remember is the larger fish, if you pass business to them, hoping they reciprocate, they often will not. Because the reality of it is they really don’t need you. There’s another 30 people who want to ally with them to get the crumbs that they’re going to cast off. And so this is why a small market is not the same in most cases. It’s just not easy to step into it and become a big person. It’s like a racetrack. And this is why I want to talk about if you’re already the big fish. If you already because of your pedigree or who your parents are or whatever company you started for, you already have a network of things. If you’re an NFL football player who’s got popularity and a following and you enter a small market, people are going to do business with you just because of that- They’re going to hope to brush elbows with you. At some point, I’m going to get to talk to this professional football player.
It’s really easy for them to open up a restaurant in a small market because they have a lot of things you don’t have. They’ve got resources, they have money, they have more powerful connections, and they also can get media attention very easily. They can get what’s called earned media, which is like public relations. They can get that very easy just because of the star power because that’s going to sell to the local newspapers. It is very hard for you to compete and run up against with them. And I think one of the challenges in a small market, if you enter one, even if you’re the most talented person entering the market, let’s just say you enter the small market, but you are incredibly talented, you’re incredibly smart, you have a wicked smart team or whatever it is, you’re going to run into major challenges because you’re going to scare any of the medium and large sized fish. And they are going to actively work against you because you threaten them and their authority and ability in the market. So, let’s take the opposite side. You’re a small fish entering a large market. Well, one of the challenges in the large market is there’s a lot more competition out there, but there’s also a lot more food to have.
And all things being equal, I think if you’re a small fish starting somewhere, you do better if there are more targets of opportunity, especially if you are incredibly talented and skilled. If you’re not incredibly talented and skilled, you’re going to have a hard go of it. In the smaller market, they don’t really care about you because you’ve excelled at mediocrity. You enter a big market and there’s other very talented and skilled people, but you are not as threatening to the big fish and the medium sized fish. They don’t look at you as an actual threat, so they don’t spend a portion of their energy trying to swim ahead of you and make sure you can’t possibly get up there to eat the stuff. They understand that there’s a lot of business up here to be had, and they’re going to let the smaller people generally act for themselves, etc. One of the other advantages is if you’re incredibly skilled or things like that in a very big market, if you can make a name for yourself, an exit strategy can be for you is to get acquired by one of the larger fish. And that’s an opportunity that almost would never happen to you in a smaller market.
When you do find people coming into a small market to buy the really exceptionally talented fish, they’re looking for a fire sale. They’re looking for somebody who’s going to sell in a fraction of what the real valuation of the company is. And you, if you’re tired and don’t want to do things anymore, you might find yourself open to that opportunity. But, generally speaking, in a larger market, you can command more dollars. It’s easy for you to compete, and there’s a lot more ways for you to compete and win. Now, that’s geography wise. I generally think for most people, where they want to go is the best of both. I think a medium sized market for most companies when they’re trying to expand is a place that you can maybe stand out exceptionally. You’re not a threat to everybody, maybe a few people, but it gives you the better part of both. And you can decide based on your talent and skill set, what’s the easiest way for you to grow your business. So, for example, if you leverage your intellect and you have a wicked smart team of individuals who work to accomplish stuff or whatever it is you’re trying to do, that is something you can leverage very readily in that medium sized market and possibly stand out and make a name for yourself.
In the very, very large market, it might be a little harder for you to stand out. You still can, but you don’t have to be the top 1% or the top 3% to do it. You can be the top 5% and really blow the doors off some of the competitors. So, I think there’s that thing. Anything you can do to establish yourself as a real player in those markets. I think building alliances is easier to do in a medium to large-sized market because people don’t seem as much of a competitor as you. The next piece of this you really want to think about is if you’re expanding a product line or service, what does that look like? And how can you leverage your existing pieces to make yourself look like a bigger player in even those small and medium sized markets? Now, what I’m talking about here is leveraging those advantages. You may not have been born with a $10 million loan to start your first company or million dollars. You may not have had those advantages that some of your competitors do have. If they’re one of the established big family names, and wherever you came from, if you came from any small town in America, you can name probably the three to five most powerful families in your neighborhood growing up or in your hometown.
You know who they are. They’re the mayors, whatever it is. They’re somebody who are people in power. If you’re one of those families, good job. You were already born on second or third base. You have huge advantages already built-in. If you’re not, which is the majority of other people, you’re going to have to work harder to achieve the same success rates. One thing you can do to leverage that familial build-in is let’s say your company is established and you’ve made your name as a very medium sized company in a medium sized market, or maybe you’re a larger fish in a small market. If you’re moving into a new market segment and no one knows about you or you don’t have any expertise, look at those other skill sets that you have dominated in the market as a way to leverage or as a value add for extending your market segment. Let me give you an example. You currently do… I’ll just do something random, oil changes. I’ve got a thing on my wall there for an oil change company or whatever it is. You’re one of those companies that does one of those quick oil changes, right?
Well, how hard is it for you to expand into breaks? How hard is it to expand into front end alignments, or whatever it is? You can look at some of the own existing advantages in there, and without huge cost to yourself, you can look at expanding into these new market segments and leverage something you already have. Maybe you give a free oil change if you come do a front end alignment. There’s a way to leverage those front end things. And that’s just like someone leveraging their family connections, the promise of something in the future or whatever it is. There are logistical challenges you’re going to face into any market segment you go into. And those logistical challenges will have to do with delivery, what you’re trying to do, what your geographic reach on there, how quickly you can serve clients, depending on what the needs and things like that are. But it’s very important for you to be honest with what those different challenges are in different markets as you’re delivering your goods and services. Overall, the age old wisdom of whether you are what is better to be a big fish in a little market, little fish, big market, etc.
The whole reason is a trick question is because it doesn’t have anything to do with where you’re currently at, at this moment in time. If you’re brand new, you’re almost always a small fish unless you have celebrity on your side, family connections on your side, a ton of money on your side. It always has to do with the same things. Going back to the ancient Romans, you had a celebrity type thing which dealt with either military strength- So, the original Triumvirate, this is… Okay, let me just talk about this. This is actually why this is important. In ancient Rome, the original Triumvirate was Pompey, Crassus, and Caesar. The original Triumvirate. And what you had there is you had the three things. You had one of the people was very powerful because they had a lot of money. And one of the people was powerful because of a very successful general. And one of the people was very charismatic and really had the popular people behind them. That person ended up becoming a very powerful general as well. And then the money guy decided to go off and fight a war in Asia and get killed.
So, the way it worked is that those things have never changed, historically. It’s like if you already have the celebrity or the money or something else, then you can actually springboard yourself into those new markets. But for those of you out there who are not those people or independently wealthy, can already leverage the celebrity of who you are, who your family is, you have to realize you’re starting in a smaller market segment. And there are certain things that you have to do there. To enter in that market, there are things you have to do. You have to cut the price of your goods and services. In spite of the fact- You might be the best people in town, but initially, you have to feed your family. And what’s going to happen with that is you’ll find yourself giving deals on goods and services. If you do that and you’re entering a new market, there’s no reason why you can’t do a limited time offer where you’re doing things almost at your cost. That’s not a bad way if you do good quality stuff to get reviews and that thing to help build yourself in those markets.
But fundamentally, the whole problem with the big fish little pond dynamic is it presupposes that you are already at that place and it doesn’t look at where you’re at now. So, your takeaways on this. I think the most useful thing to, first of all, no matter where you are in your market, how long you’ve been in business, is to analyze your current market right now. Know what your starting place was and look at what the market size is for your goods or services. How big is the market space here? Do I have an elastic or an inelastic good? Are there easy replacements for mine that you can replace very easily? Once you have that, now you can start looking about your place in the market. Are you new? Have you been established for a while? Are there a lot of substitutes for what I do in the market right now? How long have I been out here? What goodwill do I have in the market? What reviews do I have online? You get a look at that whole landscape. But the biggest part about this is, this is the part two, you need to be brutally honest about what you are.
A lot of us business owners have fallen into this self-deception trap early on about, oh, I’m entering a new market and we underestimate the difficulties of a new market and we overestimate our ability to overcome those difficulties. So, be very brutally honest with yourself about what those things are. You’re going to have to get out there. It’s going to be a lot of hard work. It’s not as hard expanding into a new market is starting over again because you already have established goods and services. But you’re going to have to, even if you don’t want to, you’re going to have to engage in some of the activities you did in an existing market to drum up business that you had to do when you started your business originally. And that may be unpalatable for you, and you may not be able to get through it. But you’re going to have to do some of that basic training, conditioning work in order to grow that market. And the last one is that remember, survival in different markets requires different strategies. So, if you’re in a small market and you are a small fish and you’re trying to ally with the big fish out there, recognize that that’s probably a very temporary, very time limited alliance.
It’s a function of what you can do for them. And it’s going to be challenging because those large fish in that market may or may not have the same ideas of what it is like to reciprocate. You may give a whole bunch of business their way and it doesn’t even register with them. You may actually be the biggest person referring business to them, but they send it to their friend, Johnny, they went to high school down the road, who’s incompetent compared to what your company offers. And so the survival in those markets may require something different. You may want to diversify your product line. You may want to enter a different market or market segment that may not be quite as competitive on there while you’re still trying to grow this market in goods and services. But you’re going to have to be very honest with what’s required for you to survive because every market is slightly different and your goods and services may have to change to reflect that. With that, that brings you another episode of The Buck Stops Here business podcast. I’ve been your host, David Maples. If you like this podcast, please give us a thumbs up or give us a positive review here online.
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