Accountants think they know who their competitors are. It could be the largest CPA firm in town, that big tax franchise down the street, or even that new firm that is advertising left and right in your neighborhood.

While it’s certainly important to watch your conventional competition, you soon could be facing a much stronger potential competitor that you may not be aware of or even able to think of at this moment.

Many businesses have vanished because they did not see their potential competitors until it was too late. The problem was that they defined their competition much too narrowly.

Take, for example, the old railroad industry. Obsessed with becoming monopolies, the railroad companies viewed each other as competitors. Yet, in the early and mid-twentieth century, they were blindsided by the construction of a nationwide network of highways and the emergence of the auto and trucking industries. By the time they realized who their real competitors were, it was too late.

This is just one example. Many industries have been wiped out by technological changes and unforeseen competition. The instant photography industry, pioneered by Polaroid, is the most recent casualty. It has been virtually eliminated by the advent of digital photography.
 

We may be making the same mistake as the railroads by defining our competition in a very narrow, traditional sense as anyone who offers the same products or services that we do. However, the reality is that potential competitors often emerge from a completely different place than we would ever imagine.

To identify our potential competitors, we must also look at the dynamics of the market we serve, not just the products and services we offer.

Had the railroad industry realized that any industry offering the means for transportation and travel was also the competition, it would have seen that major threats were coming from the motor vehicle industry and could have changed its business direction to survive.
 

The answer lies in a simple question—whom do accountants serve? Primarily, individual taxpayers and small and mid-size businesses (SMB). The SMB segment is crucial for the independent practitioner. Therefore, a primary place we need to watch for potential competitors is the SMB market.

Critically watch the moves of every major corporation that serves SMB—even those who don’t currently offer the services you provide to this segment. This includes financial institutions, payroll services, software producers, hardware manufacturers, office supply companies, and more.

 Who will be the accountant’s next competitor?

      The entry of financial services giant American Express into tax and accounting is well accepted now, but you couldn’t have anticipated that ten years ago. It’s startling, but today an ever increasing number of huge corporations may unpredictably be getting closer to eating our bread and butter.

Did we ever think that Microsoft would start to get close to our turf by getting into the PC accounting software business? Today, Microsoft is one of the largest vendors of accounting software—already selling Microsoft Money to individuals, Great Plains Accounting to mid-tier enterprises, and now expanding at a blazing rate into the Small Business market with bCentral and their latest release of Microsoft Small Business Manager.
        Microsoft is not alone. A number of major corporations including IBM, ADP and Oracle, who traditionally served only larger enterprises, see the SMB as a very lucrative market segment because of its sheer size. After all, the SMB market is comprised of 20 million entities. Intuit—the current leader in small business market—is further expanding into this space by offering more services, such as payroll processing.

You must be wondering, how could these and other corporations serving SMB be a threat to me? After all, they are simply offering accounting software and online services to SMBs, not the services that I offer. Yet, that is the same dangerous mistake we referred to earlier. Ask yourself how difficult it would really be for any of these, or other corporations, to start offering accounting and tax services to your clients.

The fact is that it is actually much easier than we think for major corporations to offer tax and accounting services. This is possible because of two recent technological and business mega-trends—the Internet and globalization.

Using the power of the Internet, accounting and tax preparation services can be easily outsourced to other countries where they can be performed much less expensively. For example, several companies are already in the business of outsourcing tax return preparation to India. Any corporation that currently serves SMB and has experience in outsourcing could easily start offering tax and accounting services at much lower prices to their clients and yours.