This business bro has had the pleasure of playing many different board games over the years. The one I want to briefly discuss today is Risk, the game of global domination.
Pacifist reader, Risk is a war game. The point of the game is to collect troops, deploy them strategically to various outposts around the game board, and battle opponents until only one army is left standing. How does a budding five-star general win a game of Risk? Surely, by building a great army, sending it to Kamchatka, and kicking ass in every territory along the way, right?
Wrong!
The way to win Risk is to get the other armies to fight each other while you sit there and pick your nose. When the dust settles, each side will have suffered significant casualties. This is the perfect time to move in because the territories left vulnerable after the recent battle - this battle being the colossal one you just sat out of - will be the easiest to conquer.
Though the idea of competition in the economy is regularly touted as a positive feature, for most companies a strictly competitive situation is the start to ruin. To put it another way, competition often increases costs without guaranteeing an increase in revenue. When companies choose to compete, they should do so only when assured of victory. To put it another way, business owners will do well to avoid situations where defeat is a realistic possibility and entrepreneurs should avoid industries where the major players are in a daily struggle to simply remain afloat.
In The Hard Thing About Hard Things, Ben Horowitz suggests a couple of rules of thumb for when a business owner should consider selling a company. First, if a market is fully exploited, consider selling. Second, if there is no chance of becoming the market leader, consider selling. These rules are another way of stating the same idea - despite how we glorify competition, it rarely is the ideal scenario for a company (1).
How will you know when victory is certain? Well, if your company has a better product, it is probably a good idea to get into the arena. In most other situations, competition is not advised and resources would be better allocated to simply building a better product (2).
The lesson here might be to ignore competitors except in the context of the two rules of thumb above. Is your company capable of producing a better product than your competitors? Are the product building decisions made by you and your competitors leading to market expansion? Those answers require you to keep tabs on your competitors and their performance. But outside of those considerations, it is probably best to focus on building better products rather than looking for places to pick fights.
Just because some academic drew a graph once showing how great competition was for everyone isn't a good enough reason to bring an unprepared product to market. Like those who have lost to my rampaging armies during a game of Risk understand all too well, getting into a battle at the wrong time merely depletes valuable resources and leaves you vulnerable to a counter-attack from a waiting foe. It is better to focus on building the best team possible and waiting to strike until the opportunity is right.
Until next time,
The Business Bro
Footnotes / if you aren't sure about selling, sell
1. Sound simplistic...
In the first case, a company is unable to expand revenues without
also expanding market share. This means resources are wasted fighting
other competitors for talent and existing customers instead of
leveraging the organization’s strengths to expand the size of the
overall market by creating value for untapped customers.
In
the second case, the market is expanding but the company is unable to
overtake industry leaders. This means increasing revenues is a red
herring of sorts because the others in the market also see their
revenues increase as the market expands. In fact, in most cases when the
market expands, the market leaders take a greater share of the
increased revenues. Inevitably, the leading companies will use their
resource advantage to snuff out smaller competitors and consolidate
their positions in the market.
2. How will I know, though?
Well, one argument suggest that you will know if your product is selling better than the competitors. And if your product is selling better than the competitors, well, maybe you are already competing, and winning, so there is no need to do anything especially different. In these situations, focus on getting the product into more battlegrounds through competitive tactics like increasing marketing efforts or expanding the sales team.
