5. Start-Ups: Competitors or Monopoly?
You’re walking in the grocery store, it’s been a while since you did groceries. You have to go to a meeting in 15 minutes so there is not much time to waste effort on what you take for breakfast tomorrow morning. Here is where traditional marketing comes in. You enter the aisle with bread spreads, and the Nutella jar catches your eye. Great, decision made and on you go with your life. Though, if you think about it, has it ever occurred to you that there are more chocolate/hazelnut spreads? Growing up in California, I knew nothing better than to have Nutella on my toast every morning. My Nutella bubble bursted once we moved to the Netherlands, and all my peers ate a phenomena called “Duo Penotti” on their bread, basically a two-colored sweeter version of Nutella. Living in Iceland now, I choose to buy the cheap Euroshopper chocolate spread. Now every country has it’s own B-version of the famous hazelnut spread, but still internationally seen, Nutella runs the monopoly.
Competition is an important part of a well-functioning market. It prevents big companies from becoming bullies, and drives for motivation to invest in innovation. Firms within an industry tend to be very much similar, even more so than you’d think. If you’re wearing Chanel sunglasses you frown upon Ray-Bans, but in the end they’re all from the same factory. Of course, it depends which specific market we are looking at. Google drives an absolute monopoly, whereas stores like H&M and Zara tend to live in a perfect competition world. Nutella is an interesting case, as they deal mostly with local or country specific competition.
Even though competition is good for the consumers, it shouldn’t be your main focus when developing your business. It only distracts you from focusing on your specific customer and the product you will deliver to him. Of course looking at your competitor’s way of operating can teach you a big deal, but you want to differentiate yourself from the existing brands, your products are not meant to be exactly similar. Furthermore, competing too badly would only lead to destroying profits for all competitors.
A monopoly is on the other end of the competition timeline. In the good old days you could be a monopolist by simply having the power over everyone else. Monopoly has gained a bad reputation, as it didn’t seem open to innovation and created artificial scarcity. Yet, times have changed and we don’t live in the static world anymore. Take the favorite monopoly example: Google. They have work very hard on escaping any unwanted attention potentially showcasing that their monopoly could be bad for the world. By positioning themselves in their consumers’ minds as ‘just another tech company’, the media will find less reason to criticize. However, if we look at the real numbers, they own the Search Engine Market, Online Advertising Market, US advertising market and the Global Advertising Market (worth $495 billion last time we checked).
Though you want to ensure that your position in the market is solid, even being the little kid between giants, be careful when it comes to outsmarting the competition. You definitely don’t want to be associated with any forms of illegal activities or the goody two shoes government favorites. What the world wants to see is the new iPhone, the new Facebook, something that can’t be that easy replicated by another firm. There has to be a new form a value to the relationship the customer has with your offering, they have to perceive it being so strong that they’ll pay premium price. The old textbooks may say that monopoly is bad in theory, but what if your business could be the next Google? Reinvent the world and it’s way of living, but still be the only one to collect the profits?
This post is part of the series on “How to Start a Startup”, based on lectures taught at Reykjavik University. For more information check out the website: Startup Iceland
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