Business & Biology

The Noncompetitive Advantage

hunter_hunted

Have you ever been chased by a bear? Heart racing, adrenaline pumping, looking for the nearest tree to climb to avoid almost certain death? Yeah, me neither. And that factā€”that lack of being chasedĀ or having natural predators or competitionā€”is precisely why humans have such long lifespans, and why some companies dramatically outliveĀ their peers.

For years, biologist have made the simple observations that “bigger animals live longer lives.” The idea is that the bigger an animal becomes the more efficient they become. Itā€™s a fact of biology, which extends into the world of business, urban planning, and organizational ecology. As theoretical physicist, Geoffrey West, puts it, ā€œThis might also explain the drive for corporations to merge. Small may be beautiful but it is more efficient to be big.ā€ As with all rules, however, there are exceptions. But before we discuss the anomalies, let’s examineĀ our options for survival.

There are three main strategiesĀ for small animals, organizations, businesses, cities, or powerlessĀ individuals to survive in theĀ world of Big: (1.) direct competition, (2.) indirect competition,Ā and (3.) noncompetition.

Direct competitionĀ is the easiest to understand, but is also the least effectiveĀ (lowest survival). This isĀ like turning toward that grizzly we talked about earlier and fighting back. There’s a chance of survival, but it’s not great. And at what cost? In business, small companies thatĀ use thisĀ strategy areĀ labeled sustaining entrants.Ā They compete in an established market against powerful incumbents by making some improvement to mainstream products.

As Clayton Christensen noted when developing the theory of disruptive innovation back in 1995, in the case of ā€œthe disk drive industry, only 6% of sustaining entrants managed to succeed.ā€ And this makes sense, right? To directly compete for high-end or mainstream customers in an established market is going to draw attention from much more established players who have the ability to either defendĀ (kill us) or acquire (eat us). Either way, survival and longevity are limited.

Indirect competition is a different game. We can view this as the dog eating food scraps that have fallen from the dinner table. While directĀ competition between small, young entrants and large, established incumbents is inherently unfair, indirect competitionĀ serves customers that are of little interest to large incumbents. Young firms appeal to low-value customers by providing lower quality products outside the mainstream market. This type of business calls less attention to itself, because it serves customers that would be a “waste of time” to larger incumbents.

NoncompetitionĀ is the anomaly in our discussion.Ā This strategy is exactly what it sounds likeā€”not competing. It’s finding or creating a niche that insulates us from hazards and outside competition. In business, as you might have guessed, noncompetition is rare.

In biology, it’s extremely rare for small animals to live for long periods, but birds and bats seem to break all the rules when it comes toĀ life expectancy. Despite being small and having rapid metabolic ratesā€”both significant indicators of short lifespanā€”birds and bats live 3-3.5x longer than animals of a similar size. In a world where corporate life expectancy is decreasing, many in business would be happy with a three-fold increase in survival.

For birds and bats, it’s a matter of flying. They’ve taken themselves out of the terrestrial equation, out of reach of countless potential predators and hazards. They’ve developed a mechanism to explore the sky, a niche aboveĀ us land-based creatures. Their competitive advantage is simply not competing. They justĀ fly away.

When we look at businesses that have defied the odds of survival, our view turns east toward Japan, where a handful of companies are over 1,000 years old. Just as flying has insulated birds and batsĀ from harm below, older Japanese companies benefit from insulation. They are often small, primarily serve Japanese markets, run on values beyond profit-at-all-costs, and operate in a culture where acquisitions and mergers are avoided (compared toĀ the West’s seeming love of M&As). Thousand-year-old Japanese enterprises are muchĀ different than the S&P 500, like the difference between earth and sky or mammals and birds.

Google, Amazon, Appleā€”TheseĀ are the big game animals, the predators, the bears chasing us up a tree. Perhaps we (and our businesses) can thriveĀ for decades without becomingĀ or competing with giants. Humans transcended the law of the jungle; birds and bats transcended the limitationsĀ of land.Ā In order to be exceptional, we mustĀ strive to be an exception, no matter how small. RatherĀ than competing head-on in an unfair fight, why notĀ learn to fly?

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Christensen, Clayton M., Michael E. Raynor, and Rory McDonald. “Disruptive Innovation.” Harvard Business Review 93.12 (2015): 44-53. (Source)

Daepp, Madeleine I.G., et al. “The Mortality of Companies.” Journal of The Royal Society Interface 12.106 (2015): 20150120. (Source)

Munshi-South, Jason, and Gerald S. Wilkinson. “Bats and Birds: Exceptional Longevity Despite High Metabolic Rates.” Ageing Research Reviews 9.1 (2010): 12-19. (Source)

West, Geoffrey B., and James H. Brown. “Lifeā€™s Universal Scaling Laws.” Physics Today 57.9 (2004): 36-42. (Source)

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