On Competition, or Crushing Your Enemies for Fun and Profit
Competition is what drives businesses to innovate and what has made capitalism the driving economic force in the world for the past 300 or so years. It is through competition that capitalism functions. It is the complacency that came from a lack of competition that killed socialism.
In order to compete successfully, you need to understand your competition at an incredibly deep level. Many businesses fail to fully understand their competitive set, and as a result fail to deliver real value. This is the primary reason why most businesses fail.
The Many Functions of Competition
Competition serves many different roles throughout the business lifecycle. At the beginning stages, when the goal of the business is to simply prove the existence of demand, competition serves a primarily educational role.
The existence of competition proves the existence of market demand, and studying what exactly the competition offers, how they have changed over time, and the size of their business will provide highly valuable shortcuts to solving the unknowns of the business. In this phase, it’s often beneficial to work cooperatively with your competition, or at least play that way.
As the business grows, and its goals shift from simply proving the existence of demand, to actually occupying substantial chinks of total market share, the function of competition shifts dramatically, and becomes more overtly cut-throat. This is the phase where your primary goal becomes crushing the competition out of existence. Gaining a customer is nice, but gaining a customer while causing your competitor to lose a customer is doubly-nice.
Aside from the more practical roles, competition also serves as a motivating force in the ongoing struggles of running a business. Having enemies to vanquish gives those struggles meaning and form, and keeps me coming into work every day. Proving that I am better than everybody else is my ultimate purpose. As my lifelong business partner Tim puts it, we owe it to ourselves and our creator to be successful.
The Many Faces of Competition
The competitive landscape is vast, and you can think of it on several levels. Any time somebody considers whether they should spend their money on you vs. somebody else, that is a moment of competition, and you need to dominate it.
At the broadest level, your competition consists of all possible purchase decisions. Even if you’re selling high-end luxury cars, you’re still competing against beggars on the subway. Does your car provide more life-satisfaction than contributing to charity? Many businesses fail to consider this broad landscape, and thus fail to convince people to even enter their market in the first place. I call this level, the universe of purchase.
Moving down the ladder of competition, we find alternatives which satisfy the same specific life objectives as our business. If you sell hot dogs, this is the set of all possible sources of nourishment. If you open a Traditional Bangalese Fast-Casual Restaurant, it can be the absolute best of its kind, but if everybody just goes to Sweetgreen for lunch, you’re just as fucked as if you were the worst. I call this set, the market blanche.
Eventually, we come to a closer set of competitors. These competitors serve the same niche as yours, but attack it in a different way, and offer unique selling points that you need to understand and derive effective counter-attacks. This is the set of competitors that most businesses focus their energy on, and it is the highest priority. This level, I call the principle niche.
Finally, we have the closest set of competitors, the set of competitors who not only serve the same niche as you, but do it in a very similar way to you. While you can compete by trying to convince people you offer something unique, at its most commoditized level, these competitors can only really compete on price, driving down the price to equilibrium with demand. Interestingly, this is the only level that traditional economics even really considers. I call this level, the commodity field.
Where to Focus Your Competitive Spirit
I tend to focus my competitive spirit in the realm of the market blanche and the principle niche. I would never participate in any business in which I need to compete in the commodity field, as it is simply a race to the bottom, and while we all do ultimately operate in the universe of purchase, until you reach the absolute highest levels of market-share, focusing on it has a tendency to help your competitors as much as it helps you.
It’s important to remember that this is a game in the truest sense of the world, and while you are working your ass off to best your competition, they are doing the same.
Competing firms will vanish from atrophy, and new firms will be popping up out of nowhere every day. The evaluation of the competitive landscape needs to be done continuously, and it must always be top of mind in order to succeed.
I’d say you should get out there and get to competing, but I want to beat you, so feel free to take it easy and kick up your feet so that I can steal your chair.
