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View Full Version : Competing / operating at a near loss



elohel
10-06-2011, 11:48 PM
I'm strongly considering starting a business in my home town. I'm more or less mimicking another business model that is already out there, and I noticed they're looking for franchisers in this same town.

I'm wondering about the legality of things when competing. Say they moved into the same town a year after I opened. I realize it's illegal to operate a business at a loss. However, could I operate at a near loss, or operate at more or less cutting even?

I might as well toss this in here as well, even though I'm about 99.35% this is illegal and I'd get thrown in jail for it.. could you operate at a loss to drive a competitor out, but then sell a few big-ticket items to recoup those losses, even if they weren't legitimate sales? I.e - operate a loss, then sell something to a friend for $50,000. Sounds insanely illegal, but I figured I'd ask :P

The business I'm planning on starting already runs on slim profit margins, so if they came in, I'm not sure how viable we could both be.

Thanks

MostHeather
10-07-2011, 06:43 AM
Just my opinion, but it sounds like a bad plan - especially if you're pretty sure you could get sent to jail for it and there's little or no profit margins in it.

Steve B
10-07-2011, 07:58 AM
Where did you hear it's illegal to operate a business at a loss? I've been doing it for years!

I have no idea where you're getting these concepts? You can sell all you want to to friends if they're willing to pay you. You can sell your entire inventory for a loss or give it away if you want to. It's a free country (assuming you're from the U.S.A.).

nealrm
10-07-2011, 02:15 PM
It's not illegal, but you can be sued for damages on predatory pricing. However, it's not just a matter of selling below cost. Other factors are involved. Like market share and company size.

billbenson
10-07-2011, 03:02 PM
He also mentioned having a secondary product that is priced such that he will be profitable. Having low prices on certain products to bring customers to you so you can upsell them on a profitable product seems like a reasonable strategy. In fact that's what GoDaddy does. Its kind of hard to say from the information in his post, but a package like I described doesn't sound like preditory pricing to me. In fact it sounds like a very viable strategy. I'd check with a lawyer though.

Love Business
10-07-2011, 03:31 PM
I would be somewhat cautious. You mentioned another company having the same product and/or service coming into the same town offering a franchise. Be careful about going up against the "Big Boys". If they are franchising, chances are they are a larger company with money backing them and have a tried and true system that works along with name recognition. If both businesses are starting off at about the same time, yours and theirs, they would have the advantage. I would encourage you to start your own business. There are all kinds of opportunities. However, do plenty of research beforehand. I ran across an article the other day on SimpleSmallBiz.com (http://www.simplesmallbiz.com/2011/09/3-of-the-20-must-know-laws-to-building-a-successful-small-business/)that you might enjoy reading and find helpful.