“Gold is for fools,” or Why business is not a sport, and the winner does not get everything
Within the framework of these columns, we talked a lot about how the companies are structured and their weaknesses. They talked a lot and in detail about how to diagnose a problem, how to treat it, how to deal with the consequences of neglected cases of the disease.
If any company is a living organism, if it can be represented in the form of a human body with organs, circulatory and nervous system, arms for work and legs for running, then any problem can be represented as a disease with a specific diagnosis and prescribed treatment.
And usually, we said, most digging problems are hidden within her. Any cold begins with the fact that he did not put on his hat, any fracture begins with the fact that he had laid a too steep turn.
But today I want to talk a little about something else.
There are times when problems come from outside. Any company strong enough to declare itself in full voice and stand in full growth should be prepared for the fact that the market will notice this – and the competition will begin.
In general, competition is the best that can happen to you in the market. It helps you grow, it makes you stronger, it stimulates growth and the search for new solutions and new niches. Competition is good. Healthy, fair and sane competition. (Although, to be honest, such ideal competition occurs only in books on economics.) The competition that we encounter in the market in real life is not so ideal, not so honest and not so healthy.
The column format is not enough to discuss all possible options also because life differs from books in that it is always unpredictable, always ready to throw something completely new and unexpected, so we will focus on the emergency. On the competition that leads to the death of everything around.
As a business therapist, I call this extreme case a radioactive contamination. (And you can come up with your own name.)
Imagine that you are a big company. You know the market, you know the players in the market. There are big fish like you, there are smaller ones. All, by virtue of their capabilities, budgets and creativity, try every second to divide the market in their favor.
Normal situation, huh?
Now answer the question, which is better – to destroy all competitors and take the market to yourself or continue to maintain a fragile balance?
Our genetic code and evolutionary mechanisms suggest that the first option is better. It is better to invest once in a big war, bomb everyone, defeat and then do nothing, than to spend energy daily on repelling small attacks from all sides.
And this, unfortunately, is the wrong answer for two reasons. Firstly, aggressive methods of struggle lead to the death of the aggressor himself. What can you do? There are actually not many tools. For example, lower prices. As a big company thinks: we have enough money, we can ruin our competitors if we sell our product for a while cheaper. We will start to sell at a loss, and our opponents will not be able to maintain this pace forever, at some point they will give up and then we will become monopolists and will sell at the price we set ourselves.
Sounds like a great plan. But there is a couple of “buts.” Even if competitors go broke (and this is not a fact), can you raise prices? Can you make people buy more when they’re used to it?
The interaction of the client and the company is a complex process. People even buy food in different ways, depending on whether they are hungry or not. There is no guarantee that they will not give up your word at all.
Why? And here is the second reason.
Economic theory teaches us that (conditionally) restaurants compete with restaurants. Supermarkets compete with supermarkets. Television channels compete with other television channels. Why is it formulated like this? Because it is better to train on simple schemes. To show how the mechanism works, you should simplify it. Of course, economists specify in footnotes under the asterisk that in real life their theories work a little differently, but who reads what’s under the asterisk in small print?
And here you are a restaurateur who has squeezed out all competitors from the market. Now you are the owner of the only restaurant in the city. Looking around you will be horrified to learn that people didn’t go to a restaurant to eat: you can cook at home. And for what? And to communicate, spend time at your pleasure. True, many other things fall under this definition: watch videos on the Internet, read books, play sports, play with children and go on a visit. Your competitors are all residents of the city who give dinner parties and have home parties.