Is Competition Bad for Your Company?
Most of us were raised believing competition is good. In school,we were taught that competition is a pillar of capitalism.
It is true that from a consumer perspective, competition can be advantageous in helping to drive down costs, improve customer service and improve quality.
High levels of competition havebeen shown to cause companies to focus so narrowly on the short-term that they lose all sense of creativity, often missing out on opportunities to bring innovative solutions to the marketplace and effectively grow their organization long-term.
Strive to monopolize
Peter Theil, founder of PayPal, in his book Zero to One,suggests that companies should strive to monopolize a market. He suggests that monopolizing a market offers the richest rewards for a company enabling itto self-actualize and in doing so, take care of its workers and products, innovate, and have an impacton the wider world.
Companies tend to behave similarly to individuals. When an individual is in survival mode, trying to keep a roof over his or her head and food on their table, there is little time to reflect, self-improve, or be creative because survival instincts are full-tilt. The result of this is bad health, bad relationships, and an inability to think beyond your next rent or mortgage payment.
Companies are no different and in a highly competitive marketplace,theyare so focused on today’s margins and the next product feature that theyhave a hard time planning for a long-term future.
Is your company in survival mode?
Is your company hyper-focusedon your competition? Are your team meetings all about next quarter revenues and profits? Are your teams in a constant state of stress to make your numbers or release your new product features or announce your new product line?
If so, then your company is not getting ahead of your competition. In fact, you are playing right into their hands. You probably have no real point of differentiation from your competition. And this should concern you.
Innovation means market differentiation
If your company is stuck in a highly competitive industry, it is even more important that you invest in innovation to clearly differentiate your company.
It is the only way to break this cycle of competition, carve out a small-niche monopoly that you can build on, and give your company some breathing room to thrive in the future.
Innovation increases market valuation
And…. Innovation tends to increase market valuation.
Companies that are playing in an extremely competitive and commoditized market will generally have much lower valuations thanthose that are not.
When investors look at valuation in an industry that is commoditized, they envision future decay of earnings and profitability. What investors perceive in less commoditized or even monopolistic markets is abundant earnings and profitability.
This is why innovation is so critical. Focusing narrowly on today’s competition will prevent you from leap-frogging them in the marketplace. Innovation will allow your company to jump ahead, create some long-term stability, and most likely, bump up your company valuation.
Paul Benevich has been helping to re-imagine companies through innovation for the past 20 years. Paul can be contacted through his consulting company www.nonfictionbusiness.comor by emailing him at firstname.lastname@example.org