5 Ways Your Company Can Keep Its Competitive Edge
Morgan Housel is a partner at the Collaborative Fund, a venture capital firm that invests in for-profit companies with a social mission.
Finding an edge is hard. Keeping it is harder.
For decades, Gillette had what looked like a stranglehold on the razor market. Then Dollar Shave Club made a catchy marketing video, a few other startups caught on, and things changed, seemingly overnight. Gillette's U.S. market share has declined from 70% in 2010 to 54% last year.
Coca Cola was the textbook example of a company whose product was so popular you could comfortable forecast sales years into the future. Now it's fighting more than a decade of consistent soda consumption decline as bottled water sales boom.
Blockbuster mastered selling movies, but came along and did it better. Sears pioneered selling merchandise. Then found a more efficient way.
Most things in the economy work this way.
Once a smart product or business idea becomes popular, the urge to copy it, commoditize it, and improve it is the strongest force economics can unleash. Amazon CEO Jeff Bezos sums this up when he says “Your [profit] margin is my opportunity.” It's become even more pronounced as access to information flourishes and everyone can see what others are doing.
The key to enduring business and investing success isn’t finding an advantage; it’s having a sustainable advantage. Something others either can’t or won’t copy or build off of once your idea becomes popular and profitable.
Finding something others can’t do is devilishly difficult. Intelligence is not a sustainable source of competitive advantage because the world is full of brilliant people, and a lot of what used to count as intelligence is now automated.
That leaves finding something that other people aren’t willing to do as the main source of sustainable competitive advantage.
Here are five leadership traits that can help you sustain an edge.
The ability to learn faster than your competition
Someone with a 110 IQ and the ability to recognize when the world changes will always beat the person with a 140 IQ and rigid beliefs. The world is filled with smart people who get nowhere because their intelligence was acquired 10 or 20 years ago in a vastly different world. And since intelligence has a lot of sunk costs--college is expensive, time-consuming, and hard, for example--people tend to cling to what they learn, even while the world around them constantly changes.
The ability to realize when you’re wrong and when things have changed is more important than an ability to solve problems that are no longer relevant. This seems obvious until you watch, say, Kodak or Sears putting effort into solving 1980s problems in the 2000s.
Venture capitalist Marc Andreessen promotes the idea of “strong beliefs, weakly held,” which I love. Few things are more powerful than the combination of strongly believing in an idea (focus) but being willing to let go of it when it’s proven wrong or outdated (humility). Alas, we have lots of the former and very little of the latter. Which is why it’s such a valuable, and sustainable, advantage.
The ability to empathize with customers
Forty-seven percent of mutual fund managers do not own any shares in their own fund, according to Morningstar. That’s shocking. But I suspect if you dug deeper into different businesses you’d find something similar. What percentage of executives frequent a restaurant as a legitimate customer interested in the chain’s food, not as a suit on a fact-finding mission? Few, I imagine. How many times has the CEO of United Airlines been bumped from a flight, or had his bags lost by the airline? Never, I assume.
The inability to understand how your customers experience your product promises an eventual drift between the problems a business tries to solve and the problems customers need solved. Here again, a person with a lower IQ who can empathize with customers will almost always beat someone with a higher IQ who can’t put themselves in customers’ shoes.
The ability to communicate effectively
The spoils rarely go to the person with the best idea. They go to the person with a good idea who can explain things easily and effectively. George Soros may be one of the brightest minds in finance, but he would struggle as a financial advisor. Not one person in ten who reads his books understands what he’s talking about.
Most business edges are found at the intersection of trust and simplicity. Both rely on the ability to tell customers what and why you’re doing something before losing their attention. This is one of the crazy things that gets harder to do the smarter you are. There’s a bias called “the curse of knowledge,” which is the inability to realize that other people with less experience than you have don’t see the world through the same lens you do. I once saw this firsthand when a financial advisor told an utter novice grandmother than a higher bond allocation didn’t make sense “because of the inverted yield curve.” She had no idea what this meant, and she told me experiences like this eroded trust, as she couldn’t distinguish confusion from obfuscation.
The willingness to fail more than your competition
Having no appetite for being wrong means you’ll only attempt things with extremely high odds of working. And those things tend to be only slight variations on what you’re already doing, which themselves are things that, in a changing world, may soon be obsolete.
Here’s Bezos again: “If you double the number of experiments you do per year, you’re going to double your inventiveness.” The key is creating a culture and financial structure that allows you to fail without ruin. This means not docking employees for trying things that don’t work, and not betting so much on a single idea that its failure could cripple the company. It’s exactly the kind of mentality needed to shake up industries stuck in old habits — like groceries, which is about to get a jolt of Amazon’s inventiveness with the acquisition of Whole Foods.
Amazon and , I’m convinced, are better and more willing to fail than any other company. Which makes they far more likely to win than another company.
The willingness to wait longer than your competition
The world of rewards sits on a spectrum: Small rewards in the short run, big rewards if you wait longer. Business teams need time to figure out how to sell new products, markets need time to learn what’s a fluke and what’s a real trend, and compound interest grows exponentially with time.
It’s amazing how much of a competitive advantage can be found by simply having the disposition to wait longer than your competitors.
If you can wait five years when your competitors are only willing to wait two, you have an advantage that is both powerful and uncorrelated to intelligence or skill.
See original article on Fortune.com
More from Fortune.com
