4 Reasons Why Competition Is Bad For Business - Mohamad Alasadi

4 Reasons Why Competition Is Bad For Business

Business competition is a difficult concept to wrap your head around.

While we've spoken all about how competition can be good for business, we've never covered reasons why it might be bad.

The ball can roll both ways - while competition can provide many benefits for businesses and industries as a whole, there are downsides to having competition.

For a long time, I struggled to find a business worth pursuing, for the simple fact that there were no ideas I can think of which never had competition.

No matter which 'golden idea' I thought of, I inevitably realised that I'd be competing with someone, somewhere around the world.

This can be discouraging, especially for new-found entrepreneurs looking to start their professional careers and build successful businesses.

It can be scary seeing large, well-funded businesses as your enemies rather than your partners.

A lot of people talk about finding blue oceans - small pockets within a specific industry where competition seems to turn a blind eye to.

However, even as a pioneer (or a first mover, as many entrepreneurs call it), you'll soon realise that the competition is quickly enroaching.

In this article, we're discussing 4 reasons why competition is bad for business.

Saturation in the marketplace

A rise in competition can be a strong sign that a market is over-saturated.

Whenever there are a ton of competitors in a market, they can chip away at each other's pieces of the pie, losing the customer's interests.

Not only does saturation occur whenever there's too much competition, but it also happens whenever customer's stop leveraging their purchasing power, meaning the product or service within the market has fell out of demand.

For a long time, I thought that too many marketing agencies were targeting the exact same niche as I - real estate agents in the USA.

All of the agencies who were reaching out to these real estate professionals were offering the exact same, homogenous services - online advertising.

The fact that these real estate professionals have seen, and some have experienced working with a marketing agency before, saturated the market, and led to a fall in demand for our services.

In this case, it's important to consider a strategy switch - doing something new, and trying different marketing/offering angles to get the attention of your customers.

A lot of marketers may refer to this as ad fatigue, when it comes to advertising - an event where your marketing material no longer produce the same/similar results as they used to.

From here, making small changes such as changing ad creative, changing the ad copy, or even playing around with the audience you're targeting could work.

It's important to do your own testing, and so I suggest you read the article on scaling Facebook ads to get a better idea of how this works. 

Drives prices down

Competition in a consumer's eyes might be great.

You're able to get many different products from various different companies, all at competitive prices.

However, from a business owner's point of view - this might not be the best outcome.

We see this a lot with supermarkets. Unless you're a luxury supermarket, you're most likely going to have a profit margin between 1-2%.

This is because it's very difficult to compete with everyone else in the market while keeping your prices much higher.

Whenever there's a ton of competition in a specific industry, the battle becomes no longer about who has the best product, but about who has the lowest prices.

As a business owner, you never want to compete on price alone - it's a battle that you cannot win.

Amazon competed on price for over a decade until it managed to pull away and become the largest, most successful (arguably) business in the world.

Although this strategy might work in some cases, many businesses cannot survive a long time without making a profit.

Cash is king, and many believe that once you run out of capital, you're out of business entirely.

Higher acquisition costs

One of the most popular marketing strategies all businesses adopt - especially online businesses, is paid advertising.

Specifically on platforms like Facebook or Google.

While this is an extremely effective way to drive large volumes of traffic directly to your business, it can be very expensive at times.

The way these marketing platforms work is on a bidding model.

The person (or business) who can afford to pay the most for a specific action, be it an engagement, a visit, or a purchase, wins it.

Whenever there's a lot of competition in the marketplace, businesses will be competing for the same group of customers.

In economics, whenever the demand for something increases yet the supply remains stable, the price increases.

This applies to everything, including marketing - whenever there are many businesses advertising for the same people, the price to get a conversion skyrockets.

This is even truer in places like the USA or the UK, where most of the world's expenditure takes place.

However, when you find a blue ocean, an industry without competition, you're a lot less likely to be paying so much to acquire customers.

Acquiring customers is much easier when you're in a market with little to no competition.

This principle doesn't only apply to paid advertising - it applies to all forms of marketing.

In the NFT space, there are currently thousands and thousands of individuals and teams scrambling to build an NFT collection.

While some are thinking long-term, 99% of the projects are looking to make some quick cash.

Nevertheless, influencers with massive followings are capitalising on this opportunity by charging insane rates for promotion.

Some influencers on Instagram are charging up to $100,000 for an Instagram post, while others on Twitter are charging around 10 ETH, equal to $22,561 at the time of writing.

If the competition wasn't so fierce in the NFT community, the prices for promotion would be dramatically lower.

Not for everyone

Here's the kicker - competition isn't for everyone.

Waking up every day to compete with the hoards of businesses looking to take your customers, the lifeblood of your company, is tiresome.

A lot of people start a business to escape a life they once loathed - maybe it's the job or the lack of freedom they had.

However, many people who start businesses find themselves engulfed within their own businesses, trapping themselves into the life they tried to escape.

While some people love the constant grind and the back and forth battle, a lot of people can't stand it.

It can be scary to compete with dozens of other businesses, with no clue whether you're going to be successful or not.

Some businesses have more funding.

Some businesses have stronger, faster teams.

Some have more experience, more battle scars than you could ever imagine.

Taking on these titans might not be for the faint of heart.

In order to compete with these businesses, you need a clear goal, a powerful why that pushes you and motivates you to keep going.

You need a reason to keep fighting every day, and some people simply may not have that will.

Even as a small, solo freelancer, you're constantly swarmed by the competition.

Fiverr, alone, has over 830,000 freelancers actively looking for work on the platform.

While there are 250 categories, this averages to around 3320 freelancers per category.

However, this doesn't mean you're not cut out to be a business owner - while there are businesses like Amazon, or Facebook, that are constantly competing, entrepreneurs have the ability to start lifestyle businesses.

These are small(er)-scale businesses that don't require as much time and commitment to run.

For example, a small agency is a business that a lot of people are building successfully.

You can learn about building an agency in this article here.

Those were 4 reasons why competition is bad for business.

Did you find this article helpful? 

If so, please leave your thoughts in the comments below - let's get some conversations going.

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Till next time,

Mohamad