Competition and how to be successful

Competition and how to be successful

Competition is something business people have to engage in on a daily basis. Some people are better at it than others. If you want to be successful at competing, you have to learn to compete asymmetrically.

What exactly is the asymmetric competition? It’s radical innovation when you redefine the rules in your field from the ground up. Think of how oxygen-producing plankton first appeared in the seas of ancient earth. Up until then no other plant mastered photosynthesis. Or, think of Henry ford and the cheap, reliable cars he invented. Up until then, everybody was using horses. It was a massive gamble for him to replace them with vehicles.

Here are some tips that will help you compete successfully in the market.

Aim for monopoly. Avoid competition to begin with.

A business creates X dollars of value and captures Y% of X. X and Y are independent variables. You have to create something of value and capture some of it for yourself.

There are two kinds of businesses in the world – perfectly competitive businesses and monopolies. The difference is small. Perfectly competitive businesses say they are the only ones in a small niche and monopolies say they are in a huge market. This is because monopolies don’t want to get regulated.

Monopolies have very high profit margins and cash reserves.

How to build a monopoly

Aim for small markets. Start small and monopolize. It’s easier to dominate a small market than a large one. If you think your initial market is too big, it almost certainly is.

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Start small and expand in concentric circles. Going after a big market is a mistake.

Think of Amazon, for example. It started as an amazing bookstore and gradually expanded into all sorts of e-commerce. You want to be a one-of-a-kind company in a small market.

Characteristics of monopoly

Do something that has not been done before. All happy companies are different because they do something in a unique way.

You want to have a technology that’s orders of magnitude better than the others. You want to have a very powerful improvement in a key dimension. Think how the iPhone was the first smartphone that worked.

Network effects – why is it valuable to the first person doing it?

Very low marginal costs. Monopolies have very low fixed costs.

Branding – you get lodged in people’s heads.

You want to be the last company in your category. Like Google is the last search engine. Their value exists far in the future. Explain to yourself why yours will be the last breakthrough and nobody is going to be able to catch up with you.

Psychology of competition and monopoly.

Think of great scientists – they contribute massively to society, but they don’t get to capture any of the value they create – the X and Y from earlier. You get to invent special relativity, but you don’t get to be a billionaire.

There are two types of categories where people innovate and make money:

Vertically integrated complex monopolies like Ford and Standard Oil. Lots of pieces to put together in the right way. It’s very valuable and capital-intensive. Take very long to build. Very underexplored.

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Software – economies of scale, low marginal cost, high adoption rate.

Do you plan to build a monopoly or compete with your peers? Let us know in the comments.

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