Why it’s Better to Collaborate and Not to Compete
One of the frustrating things I have experienced in running a business is wanting to work with a vendor, but not having the opportunity to do so. This has happened several times in the past nine years of me running my own web design and hosting company.
The first noteworthy time took place in 2010, if I remember correctly. I had collaborated several times with another local designer who did great work. Let’s call her “Mañana”.
Mañana was upbeat and enthusiastic.
Mañana was an upbeat and enthusiastic person. She seemed to be one of those “Power Women” who does just about anything. She brought a lot of creative ideas to the meetings I had with her and with clients. Moreover, she was available to be hired as an “assassin” on just about any new project.
Her focus was on graphic design and print — which were in two areas that I did not specialize in. My business’s focus was on web development (programming) and web hosting — two areas that were not a specialty for her.
Mañana and I collaborated on a couple projects where she would have the relationship with the client and I would focus on the back-end development and hosting. It worked out great. She brought in a few web hosting clients for my business and I provided the services on her behalf for a wholesale rate.
While I never saw the prices she was charging to her customers, I was certain that they were in the range of $3,000-$5,000. To give you an idea of my wholesale rate at the time, I was charging her a nominal rate of only $400-$600 for the development.
It was a good profit margin for her, to say the least. It allowed Mañana to specialize in her craft (graphics designing) without needing to worry about the web design and programming part. And I didn’t have to worry about doing the sales and quoting aspects of these projects. I could work behind the scenes.
Oh, not only that, but it was a huge benefit for her new clients. Since they had their websites hosted by us they would also receive free technical support! This was at a time when our rates were a nominal $25/mo for hosting and support. Not a bad deal for Mañana to make a large chunk of money on the front-end, and certainly not a bad deal for her clients who would get reliable hosting and free on-going support.
Enter the Ego Competition
Then something changed with my working relationship with Mañana. I’m not sure exactly what was that was the catalyst that broke up our collaboration, but I think it had to do with ego. Not mine, but rather with hers and her direct competition.
You see, this all took place in a small town. Perhaps it was a town with too many contractors (like web designers, graphic artists and photographers, etc.) who were all trying to compete for the limited funds of the various small business owners in the community.
One other woman stood out from the rest of all other vendors in this small town. Her name was “Ms. Better”. She was “Ms. Better” because not only did she press the flesh better than Mañana, but she had a real office in the city center, with real employees. And in a small town having a real office makes you stand out. It makes you appear more real and more established. It probably makes you appear to be Better.
Ms. Better also had higher prices. After all, she needed to charge higher prices to pay for the real office in the city center and the wages of her employees.
Ms. Better’s agency did it all, from logo design, to print, web design, and anything in between. Their business even did billboards and car wrapping. No matter what you could throw out at them, they would do.
For a price.
Because after all they had to pay for a real office in the city center and for the wages of real employees.
But in this small town, there was a conundrum. Most of the businesses were small “mom & pop” shops. They had limited funds and I dare say, limited creativity. It was also a very touristy area, which caused many other problems: small business owner lack proper planning.
Proper planning for a small business in a tourism market means that the business owner should schedule next season’s activities during the off season. And pay for it.
The problem is that most small businesses do not budget enough money during the busy season to afford to pay for new services in the off season. They have to pay their annual taxes in the off season when their bank accounts have dwindling funds. Not many small mom & pop shops want to take the risk in working on a project (and paying for it) in the off season with the hopes that it will pay off next season.
The mom & pop shop owner also do not have time to work on the projects during the on season because they’re so busy with the flood of new visitors/guests/patrons, they cannot focus on anything else.
So in the limited “sea” of potential customers, there were too many “sharks” (namely Mañana and Ms. Better) who were competing against one another for the business of mom & pop shops who either (1) Could not afford their services; or (2) were too busy with other more pressing things.
Nit-Picky Things to Complain About
I’ve read from blogposts from other friends (mostly women) who talk about the nastiness that can occur among women. As a guy, this was a bit of an eye-opener for me. I never gave this much thought before how nit-picky and mean woman can be to each other. It’s just something that guys really do not do among themselves.
During this time many years ago, I remember hearing side comments from Mañana that Ms. Better probably has ulterior motives for running her business the way she did. That Ms. Better could be looking to run for public office. I also heard comments like, “Ms. Better doesn’t pay her employees very well”.
One day Ms. Better wrote a post on Facebook exclaiming delight for the launch of a new customer’s site. Mañana posted something like, “The link on the Contact Us page isn’t working and there is some missing information about it.” Very nit-picky.
One thing that I found comical was during the start of the busy season one summer. Ms. Better posted an opening for an internship at her design agency. With a day or two I saw a similar opening for an internship with Mañana’s agency.
At the time I was still collaborating with Mañana and asked her about what type of intern she was looking for. She told me it would be for an assistant to help out with some of the junior level duties with her projects and that it would be a volunteer internship.
“Wow!” I thought to myself, “Who wouldn’t want a person to help out for free?”
I actually do not know if either Mañana or Ms. Better ever hired an intern that summer. But it was obvious to me their egos were competing against one another. They were focused on the trite details of how one another ran their respective businesses.
Don’t Fight a War on Two Fronts
Running a business is a lot like fighting a war. You do not want to fight two enemies on two different fronts.
I did not feel like I was in competition with Mañana for the limited funds of the local businesses. I only took on projects that would have a steady stream of income for the lifetime of the client. They were not one-off projects.
My business was just different from hers. I was only focused on web design and hosting, and that was it. No print work. No graphics designing. And certainly not managing a business’s social media marketing.
We met in stalemate on one new project that came up. It was actually a project for one of the larger employers in this small town. The project could be have been relatively large compared to other projects — not just for me but for Mañana.
I emailed her and asked if she could attend a meeting with me the following week with a potential client in the business park. I’m quite certain I also told her the name of the business; I wasn’t the type of person to keep people guessing. I didn’t receive a reply and there were only a couple more days until the meeting was about to take place.
I then called and left a message, asking if she had time that following week during normal business hours to attend a meeting. Nothing; no response from Mañana.
I started to get a little worried and annoyed. Then finally a day or two before the meeting was supposed to take place, I call her up again and reach her by phone. She tells me that she cannot collaborate with me on this project.
No More Collaboration?
“What? Why not?!” was my immediate response.
Mañana said, “We’ve got too much overlap. It’s not good for my business and my brand if I do wholesale work for you if we end up competing on the same projects.”
I tried to explain my situation. That the business project for which I am bidding on is going to be a no-bid project. No other designers were going to be invited on this project — it was me or nobody.
I also tried explaining why it was a no-bid project. Because it was for my former employer of mine. A business that was owned and run by very close friends of mine. We all went on family vacations together. I was the godfather to one of their kids. They wanted to work with me and I understood their business inside and out, which would make it a success web design project for them.
I asked, “Wouldn’t you like to have a guaranteed percentage of a project than a 100% chance of getting nothing?”
I don’t remember what her reply was exactly, but she stuck to her guns and said that we cannot collaborate on any further projects in her target market. I asked what that market was, and she said it was a 100 mile radius of the town we were living in plus the state of “Colorado”.
I laughed! “What do you mean by not competing in Colorado?! What does that have to do with anything?”
Mañana said that she used to live and work in Colorado for many years and still had clients and many contacts in that area. I was just stunned.
She went from a collaborator to a competitor in the span of a week.
Mañana probably felt threatened by the work and projects that Ms. Better was winning, and also felt threatened by some of the work that I was doing in the area.
But what Mañana didn’t realize is that I did not personally want to be doing any sales activities at all. I wasn’t interested in “pressing the flesh” or for joining in activities that would gain favorable exposure to the “elite” crowd of this small town. I just wanted to run the web-dev and hosting part of the business behind the scenes. I brought work for her and she had brought work for me. It was a good fit.
And I wasn’t even measuring the amount of work that she received vs what I received. I was just happy with the arrangement.
My Philosophy of Cooperating versus Competing
I believe in synergy. I believe that two people can take two plus two and have it equal five. It especially works when when people who combine their talents bring with them a different set of skill sets and experiences.
It could be Ying and Yang. An extrovert with an introvert. A right-brained individual with a left-brained. Somebody chaotic with somebody well organized.
I know my physical and mental limits when it comes to taking on new projects. I have an understanding on where my talents are, what needs to be worked on, and what needs to be simply outsourced to others. Therefore I’m always open to potential collaboration with others, especially when we both have a shared vision.
Unfortunately Mañana did not have that shared vision and wanted a build a wall around her business. She wanted to silo everything so that no matter what project she touched, she’d be the sole provider of those services. In my opinion, this limits the amount of growth that a business can achieve if the owner has to be the provider. You’re just trading hours for dollars. It’s not really building a brand. It is also a disservice to the client because talent for a project comes only from a single person, instead of from a team of performer that bring their own specialities.
Offer to Collaborate with Ms. Better when She Wanted to Compete
Many many years prior I had done a web design project for a well-know non-profit. They were also a hosting customer who received free technical support and we kept them happy for many years. And I got notice that Ms. Better was courting them for business.
Since I had found an alternate provider to replace the work that Mañana was doing, I ended up doing okay. And then, out of the blue, Ms. Better enters the scene to make overlap with the work that I was doing.
Ms. Better had done some volunteer work for this non-profit client of mine and attempted to (in my opinion) win the annual hosting and support contract by taking on a smaller project for them. Ms. Better wanted to build a “micro-site” for the non-profit.
Ok, so there is not a lot of money in hosting a single web site. This non-profit was spending a nominal amount of $300/yr for web hosting and unlimited technical support. If I lose the project, I don’t lose a lot (apart from maybe some pride).
If Ms. Better were to take over the project, she’d have enough extra income after expenses, to pay for maybe 30 cafe lattes at the local cafe. That’s not too much. But Ms. Better wanted to compete apparently. She wanted to handle the creative aspect of the web design project, and all technical portions, as well as the hosting.
I decided to counter her position of competition by offering to cooperate. Below is the email in its original form:
I CC’d Ms. Better with my above offer to cooperate on this project and to do the work for cost, or to do half-price hosting. But I never heard anything back from them. My offer to cooperate was ignored completely. Not even a “thank you”, or a benign, “k, thanx”.
It was apparent that Ms. Better was in the business of competing. Winner take all. No cooperation.
No biggie for me. I just run my business differently. She’s a competition firm; I’m a cooperation company.
I could only imagine how much of a dent there would be in the business of this small town if both Mañana and Ms. Better teamed up to cooperate instead of compete. They could have offered two tiers of service: Non-Customer (less expensive) and Completely-Custom (more expensive). They would have cornered the market with amazing designs, oozing with creativity and energy, and just done a knock-out job for all the mom & pop shops in the area.
But they probably did not even consider this opportunity. They stayed to compete. But how long did they stay in business?
What Happened in the Following 5+ Years? The Aftermath of Mañana and Ms. Better
What happened to Ms. Better?
To make a long story short, Ms. Better’s original business still survives but she’s not part of it anymore. She sold her namesake business back in December 2013, according to her LinkedIn profile, and has been working as a real estate agent since then.
I’m not knocking real estate agents, but to me it seems she moved laterally, if even that. There was likely no large cash-out from selling her business. It was listed for sale by a business broker several years ago.
I remember seeing the advertisement for her business. It mentioned something about being the premier agency in the area and that they had projected sales of $180,000 for the following year. queue record scratching…
Doing $180,000 in business a year is nothing to sneeze about if you do all the work yourself or have a large percentage of it set up as long-term recurring revenue. However in the case of Ms. Better, she had an office in the city center and had to pay the salaries of her employees.
3 employees x $40,000/yr = $120,000 in salaries
employee benefits of $1000/mo for each employee = $36,000 in benefits
12 months of office space at $1,000/mo = $12,000 in rent
This comes to $168,000 in expenses. And it means there could potentially be $12,000 in profit to made, assuming no other expenses or operational costs. And we’re not even calculating things like business taxes.
Doing some quick math on the back of a napkin would reveal that after office expenses, salaries, and benefits, Ms. Better was probably not even earning a minimum wage for herself. That is precisely why she is better off working as a real estate agent than running an agency business in a small town.
Most businesses sell based on a three or four times multiple of their annual profit. If she was profiting a nominal $12,000 a year, she may have sold her business for $36,000 max. That’s not a lot for running a business for nine years.
The new buyer would gain some immediate brand recognition in the area, and win the names of contacts and contracts for existing orders. But it would be a hard sell to improve that business anymore because it’s located in a market filled with mom & pop shops.
What happened to Mañana?
Gosh, I hadn’t thought of Mañana or her business in many years.
Years ago she had taken down her old web site and replaced it with a message of “Website Under Construction”. It wasn’t until recently that I was contacted by her to post some photos online of a client’s website that I host.
I did not ask what she was doing for work, but my assumption is that she is handling that client’s social media accounts after them being “on mute” for many years.
The website for Mañana’s business is still Under Construction as of June 2016. I checked her business Facebook and there is some recent activity of business-related posts. So she’s got that going for her.
What Has Changed for Me in the Past 5+ years
I’ve always taken on the philosophy that it is better to Cooperate than to Compete. As a matter of fact, it’s a core value in my corporate culture when it comes to recruiting and hiring. I only want to hire people who are collaborators and cooperators. I don’t hire people who build walls or who put up silos.
When I was in the market of looking for a new developer, I took on the approach of finding somebody who was a contributor to the greater community of other developers on an open source CMS. After a couple test projects later, this developer became a core team member of ours who helps us build a better and more robust package for our customers.
From a financial perspective, my business is doing around 2x what it was doing five years prior. Maybe that’s not a high growth trajectory compared to other businesses that work in the web design and industry. But we do, however, have very little customer attrition. Our market audience is not really that fast growing or quick to adopt or change. But it works for us
From a personal management perspective, I work with others who:
(1) Can do things I’m not well adapted to handling
(2) Can perform tasks that I am not interested in doing anymore
(3) Can handle things with more enthusiasm and vigor than I would do
Form a financial perspective, I don’t look at projects based on potential profit or sales earned. It used to be a vanity number to say that I won a project that was $3,000 or $5,000, and it was great to walk into the bank to deposit a check that big.
But over the past five years, things have gotten more refined in how I operate my business. We have things call SOPs to follow, which are written Standard Operating Procedures.
From a sales and marketing perspective, I have a very precise understanding of what types of customers we want and what they should be charged for the services that we provide them.
This streamlined and laser-focused approach has made it more manageable to run a business. It has also made it much more profitable. There is less guesswork.
I am also longer do projects for mom & pop shops, which means I am no longer competing with others in this space. It’s a space where the margins are low and where the clients are often too busy or willing to make decisions. And maybe these business owners have too much ego themselves.
Either way, I have entered my ninth year in business as a provider of web design and hosting services, and two of my potential collaborations (who chose to compete) have either existed their business, or put it on hold for a while only to go back to “Dollars for Hours” trading.
I’m not going to say my business put them out of business. How could that even be possible? I was never a competitor.
Or Did I Compete?
Yes. Actually, I did start to compete once or twice. And I’m happy about it!
Prior to Ms. Better selling her business — at least before it was for sale, there were two instances for projects that came across my desk.
A project for a non-profit. $2,000 or $400?
One was for another small non-profit project. The director of that non-profit asked me for a price to do a new website for them. I asked them if they got bids from other providers.
The director said, “Yes, they did.”
“Would you be able to tell me who provided you with a quote already?” I asked.
“Umm, I don’t think I am allowed to tell,” she said.
“Ok,” I countered. “What sort of price range did the other company quote to you.”
The director replied, “They were priced around $2,000, and that’s what’s confusing for me. Your price is a lot less. Why is that?”
I didn’t hesitate to tell her that I’m going to assume it was Ms. Better’s agency that quoted that price. I mentioned that agencies like hers have a higher cost then we do, because we only do web design and hosting. And the reason why we’re doing her site for a low price is because it’s a non-profit website and we just charge enough to make it worth our while.
I admitted that a site designed by Ms. Better would look very nice and professional, but that the goal for her non-profit was the same whether we designed the site for her or if Ms. Better designed the site.
Needless to say, Ms. Better did not win that project. We did. She could not compete with our fees because we didn’t have an office in the city center and many employee salaries to pay.
Competing with Ms. Better for a Larger Project in our Niche
This is a good story, which needs to be told another time in greater depth. It’s a story about some things I had done years prior that got me in trouble with the “elite” crowd in this small town. And it centers around Ms. Better.
Ms. Better was way better at meeting and greeting with the movers and shakers in my community. She was the first to know about a new project that was right up my alley. And she had already given an in person demonstration/presentation to that organization.
A friend tipped me off about this project, so I contacted that organization and told them what I could offer.
Without going into the deep details of the project, I ended up competing against Ms. Better to win this project, and it was going to be an uphill battle. She had the relationship with the committee and I was considered an outsider.
I was going to swallow the poison pill
I had to take a calculated risk. I wanted to bid enough on the project so that if I won it, it would be worth my while. But I didn’t want to bid too much so that I was priced higher than Ms. Better. I wanted to give her a run for the money.
I decided to take the “poison pill”. This is when you take on projects for lower than expected in order to have your competitors dry up. For a project of this scope the cost would normally have been $10,000 plus hosting. I decided to quote $7,000, inclusive of hosting and support.
I ended up losing the project and I wasn’t really mad. I was a bit relieved actually. Even for a $7,000, the scope of work was going to be high and I was not really going to earn much money. The opportunity cost was high. By taking on that project I would not have been able to work on many other projects. Since I lost that project, I was free to work on many smaller projects.
But Ms. Better has to pay for an office and for employee salaries
I knew that Ms. Better’s operating expenses were much higher than mine, and if she did take on this project, she would earn far less profit that I would (and I wasn’t expecting to have any profit, actually.)
She won the project but only on a last-ditch effort. Her bid came in around $7,400 (not including hosting), so I was by far the least expensive bidder for this project…by around $700 when you add in the hosting costs.
And here is how I happily lost the project: Ms. Better agreed to reduce the quoted fee by 10% if payment was made in full upon contract signing. Therefore the client got the project at $6,660 (plus hosting).
I went to swallowed the poison pill and so did Ms. Better. The only difference is that I didn’t actually ingest the pill. Since I did not win the order, I did not have to do the project for a very low price. Ms. Better did have to ingest the poison pill. She was forced by contract to do the project at a lower-than-normal price.
The project she did turned out all right. It has a nice design and it looks good. But I have to admit that it is not very user-friendly. It takes 5+ clicks to find the most important information for that organization. (Our solution would have been 2 clicks max).
In the end, Ms. Better had to take on a complex project for a lower-than-normal fee. Less than 6 months later her business was sold.
Don’t Compete when you can Cooperate
When you have an opportunity to cooperate, maybe you should. Think of the synergy. Think of unknown opportunities. Think of growth in areas where two individuals have different talents and specialities.
Competing with a company who cooperates can be like playing “rock” when the other has “paper”. Paper beats Rock.
Cooperation beats Competition. Especially when the competing party has higher operating costs and is facing competition on many fronts.