Why you shouldn't obsess about your competition

(MoneyWatch) Pedal harder. Run faster. Jump higher. Focus on the goal. You win more races and score more points that way than by focusing on what everyone is doing around you. Of course be cognizant of what your opponents are doing, but watching where you're going -- and the best way to get there -- is more important and effective than watching them.

Business is no different: letting your decisions and actions be determined by what your competitors are doing is rarely the way to win. Yet "they're doing it, so we'd better do it" is a common business mentality.

Clearly you can't ignore competition, and I'm by no means suggesting being arrogant, dismissive or oblivious to what is happening in your industry or market. It's a critical factor for nearly every business and must be taken seriously. But if you run your business well, it should be a reference point, not a compass.

Here are some common ways that competition can steer you the wrong way, and the alternatives:

Pricing: This is probably where competitor-obsessed decision-making is most dangerous, especially for small businesses. Author Mark Stiving said it best: "Pricing is not a sustainable competitive advantage." You may be desperate for sales, but it does you no good to get sucked into price competition that erodes your margins and might even put your business at risk. You might win some battles but lose the war. 

The Alternative: Let others race to the bottom. Better to price where you need to be to run a healthy business, maximize the value of your product and company to customers, and only take business that is good for you. If you can't get the business you need without risking your financial health, there is either something wrong with what you're doing or you're in the wrong business. My father's favorite expression in running my family's successful, 50-year-old business was "Volume is vanity, profit is sanity."

Product: Companies that heavily weight product or service decisions based on what their competition is doing usually end up chasing the pack rather than leading it. Competitor comes out with a bigger widget, you come out with a bigger widget. It's possible to survive doing this, especially if you bring other value (a bigger widget that works better, etc.), but you risk being too late to market and always behind the curve, being perceived as a "me-too" company with less value to the market, or making/offering the wrong products or services. Just because other companies are doing it doesn't mean it's right for you.

The Alternative: Know what's out there, but don't necessarily let that determine what you sell. Use your understanding of your customers and market, your specific talents, capabilities and resources, and whatever level of risk you can tolerate, to come up with products or services that you believe in and think will succeed. Work harder, smarter and more creatively. It's not easy, but it can mean the difference between being one innovative leader or one of many followers, at risk of being less relevant and more dispensable. Dyson and Apple (AAPL) are gold-standard examples of companies that soared by thinking more about "what there isn't" than "what there already is."

Marketing: Again, just because others are doing something a certain way doesn't mean you should. A lack of creativity or inspiration, fear of being different, or simple inertia ("it's always been done this way") can steer entire industries to keep churning out the same strategies: everyday low pricing, no payments or interest for a hundred years, 30-day free trial...we all know the deals. Companies obviously use them because they've seen them work, but it gets to be predictable and commoditized. When customers begin to take for granted that they can buy furniture with no payments for years, all furniture stores become the same in their minds.

The Alternative: Certain conventions of sales and marketing may be standard in your industry and maybe a radical departure isn't possible. But look critically at your marketing and see if you can make yourself stand out -- even a slight variation on a theme can make a huge difference. Luggage manufacturer Briggs & Riley made itself stand out in a very crowded, iterative, old-school industry by offering an unprecedented, no-conditions, everything-covered warranty that became such a powerful part of the company's marketing that the guarantee itself is "famous" in the industry and even has its own trademark.

Running with the pack may feel safe; you know you're going where everyone's going, so it seems unlikely you'll head off in the wrong direction. But maybe there's no set course and the whole pack isn't running the right way, or maybe you could be first to finish if you weren't afraid to break away. You'll never know until you try.

Image courtesy of Flickr user DVRxDC.