The Creative Monopoly
nytimes.com
nytimes.com
A better way to put this is to say that the starting point of competitive strategy is to start with a sustainable competitive advantage. "Competition Demystified" by value investing guru Bruce Greenwald covers this point in its first chapter (available free on Google Books -- http://books.google.com/books?id=NZYuAyW8M-sC&printsec=f... and summarized by me in a series on political strategy, where the concept also applies -- http://joshuaspodek.com/north-korea-strategy-primer-strategy and with an important diagram here -- http://joshuaspodek.com/the-first-step-in-strategy)
Finding a sustainable competitive advantage doesn't require creativity, so Brooks's essay went astray at that point. But having a sustainable competitive advantage gives you the local monopoly he alludes to that allows you to avoid competing and, in business, charge higher margins without getting stuck competing on price and efficiency.
I highly recommend "Competition Demystified" to understand strategy.
I think this is what so many commenters struggle with when it comes to "the bubble" so many of us speak of now. We see so many companies' births and deaths without ever having seen a clear "sustainable competitive advantage" and wonder why these companies existed in the first place.
From another perspective, each of these companies is wandering through, as the author puts it, the "wildernesses nobody knows" looking for opportunities and either didn't find one or weren't able to grow that opportunity quickly enough.
Some say we're in a bubble. Others say we aren't. Frankly, I don't give a damn. I just see that there's tons of innovation being funded. Some innovations may be evolutionary, others may be revolutionary. Funny thing is: you often don't know what will be evolutionary or revolutionary until you try.
I'm glad many people are trying.
I'm talking about a few specific examples that are astonishingly easy to clone yet are being assigned enormous value. Groupon is what I was thinking of especially, but I didn't want to "name names"... which is probably why I came across as making a broad point. Dropbox is now being challenged in this way, and many have been talking a lot about their sustainable competitive advantage since the whole Steve Jobs "feature" quote. Instagram.
I wasn't making a direct comment about tech startups in general, many of which are carving out real markets they want to crush.
Rather than compete in someone else's market, create your own market. Manufacture, or identify a need that has not been met, and, having been first mover, use that to build an insurmountable lead over any possible competitors.
Whether it's mint toothpaste, or portable digital music players, this has been done for generations.
"Creative Monopoly" is a bizarre term for it.
I do think however the article is well written and quite insightful based of course on Peter Thiel's ideas.
Inovation always wins, those that focus on just competing will lose. A country has to foster inovation. the countries that innovate in education could be the big winners.
To be fare to the US, some of there big colleges do that, but it does seem at the grass roots of the system it needs change and that applies to a lot of countries.
MBA's might not be good hires in a $100,000 startup, but they know more than we think.
Kudos.
I often hear that American and European schools are produce better students than Asian schools because they place less emphasis on rote learning and more on independent thinking but my impression is that's much less true now than it might have been 20 years ago.
What's your take on media juggernauts like Microsoft? Should it be allowed to stranglehold electronic media?
We fear that the owners of the monopoly will crush us, but this never happens. In a flash, the monopolist's products appear out of date, and competition in that particular industry becomes irrelevant because the whole basis of moneymaking has shifted to a new area. As the pace of technological change speeds up, shifts in economic power increasingly seem like magical flipflops produced by luck. The old logic of monopoly - centralized stranglehold - no longer works. The attention of consumers can shift instantly and make the most profound investments obsolete in just a few years, soon to be sped up even further. We will see economic empires crash within hours, and new ones arise just as quickly. _The task of the economic manager now is to try to hold monopolies in place just long enough for economic transactions to occur._ The capitalist understands that to improve competition, he must encourage monopolies.
http://www.wired.com/wired/archive/4.01/channeling_pr.htmlBlue Ocean Strategy
http://en.wikipedia.org/wiki/Blue_Ocean_Strategy
Edit for the tl;dr crowd:
The blue ocean strategy is about creating your own market/niche/space in an new or uncontested area (blue ocean) vs. competing directly with established players in an existing market (red ocean).
The metaphor is the red ocean is full of blood from the sharks fighting over the same profits/market share while the blue ocean is open water full of opportunity.
Business is always, and has always been, about avoiding competition. One can start by recalling Adam Smith's comment on any gathering of industrialists inevitably leading to conspiracy against the public. Then simply look at what any business does or tries to do, legal or otherwise -- what is a patent, for example?
Competition between business is supposed to be good for the public, not the competitors themselves -- hence business always wanting to avoid it. Competition is, broadly, destructive. It is only worth it because of other effects (spurring effort, creativity), and when it is limited and substantially supported by other cooperative systems.
While there was certainly a lot of expertise in electric generation and transmission there, it rapidly became apparent to me that their true core competency was maintaining and exploiting their legal monopoly.
It wasn't a pretty sight.
Imagine a cash-strapped government 50 years ago in an undeveloped country wanting to build electricity infrastructure. The country's economic growth is stagnating because of a lack of infrastructure and there are few foreign investments because the country's economic growth is stagnating. If a foreign company DID choose to invest in electricity, and the investment was profitable, other foreign companies will jump in to compete; but if the investment was unprofitable, the company would just have lost a large chunk of cash. Therefore it was always more profitable to simply wait for another company to make the investment, and then see if electricity will be a profitable business in the country before making investment itself.
These catch-22's mean the government has little choice but to allow the first foreign company a local monopoly, at least for a limited time.
I'm just theorising all this out of thin air, though.
The past 20 years, the electric companies are trying to wiggling out from under this, turns out they really don't want to sell electricity to residential users, in a lot of cases their big customers are subsidizing residential users. That is why, despite the hype to the contrary, residential electric rates usually go up under deregulation.
The typical electric company strategy the past 20 years is to try "surrender" their monopoly in unprofitable areas w/a lot of happy talk about competition/choice/consumer benefits and attempt to keep their monopoly in the profitable areas (wholesale transmission, generation/cogeneration for large consumers).
Both mean, "We want to stand out. Be appreciated and recoginized."
We will always seek ways to stand out. Whether its through one upsmanship, or through differentiation.
We see this in marketing. When you are first in a new category in peoples minds. They consider you the best.
Everyone wants to be considered the best. Its up to you how you get there.