When you are a small business competing in a market with well established competitors, or if you are in some way 'the little guy' - you have to be ready to try something different than just competing in the same areas, products and services.
Consider professional baseball. There are a couple large market teams who have much more $ to be spent on payrolls than many of the small market teams. If a small market team tries to match the management strategy of the wealthier teams (hiring expensive stars, bidding on A+ players), it will fall behind: they cannot keep up with the advantages of the wealthier teams.The baseball writer Joe Poznanski had a great column where he recommends that smaller market teams (he lives in Kansas City) have to consider being unconventional - doing something different than the other teams in terms of hiring players or strategy in the game - if they want to have a chance to break away from mediocrity.
Returning to business, if you do not have the same resources as your competition, why go and compete on exactly those points the competitor is strongest? Why not discover where they are weakest (reaction time, extending hours, policies) and consider something unconventional.
For example, if you run a guitar store, why not be closed until 3pm everyday, but then be open from 3-11pm (or midnight), since presumably musicians and business people who have the $ to spend on a guitar are more likely to be available in the evening? And a musician on his way to a gig might realize he needs a microphone or cable on the way.
As Seth Godin says, "The scalable, profitable strategy is to change the game, not to become the most average."