Episode #229: Incumbents Hate Competition (But Customers Love It)


All business people live the ultimate contradiction. They pray at night for supernormal profits and spend their days driving down those profits by competitively supplying customers with more of what they want. As the Austria economist Joseph Schumpeter so poetically phrased it, entrepreneurial innovations make up the “perennial gale of creative destruction,” whereby entire industries have been eliminated due to this dynamism of free markets.

Buggy whip manufacturers didn’t invent the automobile and slide rule manufacturers did not invent the calculator. Both of these innovations, and a plethora of others, rose up and decimated existing stocks of infrastructure and propelled our economy forward.

Be the Ball, Danny…

Businesses are the ultimate change agents in society, ushering in new products, services and ways of conducting our affairs. This role of business is often ignored in the debate over the jobs destroyed in the process, which is the wrong metric: the creativity is more important than the destruction.

For example, Intuit announced assisting bookkeeping at $200/month in addition to its QBO subscription, at the following price points: $210, $217, $230, $260 (self-employed, Freelancer option is $205).

But why would Intuit invest in a dying industry? If anything, this validates the market for bookkeeping, and the human relationship that is required.

Where do we go from here?

Economists like a wide range of price/value points. Markets serve both the rich and poor, and everyone in between — think of the price points available with hotel rooms, cars, restaurants, etc. This puts a premium on positioning.

  • Does the $200 price anchor at too low a price? It could be too high a price for true DIY customers.

The Subscription Economy…Again!

The other overlooked reality of this is it validates the subscription business model. Customers in a free market are free to choose. Does anyone feel guilty using Veem, or buying prescription drugs from Amazon (when they enter that market)? Capitalism is not a “system of competition.” Competition is ubiquitous, no matter the system. Capitalism is a system of voluntary cooperation. Competition does not give rise to voluntary exchange, scarcity does. Competition is a feature, but not the defining feature of capitalism.

The Golden Rule of capitalism: The good fortune of others is also one’s own. It’s not zero-sum.

The impact on jobs is the wrong way to measure the health of a sector. It’s determined by outputs, not jobs. Nobody is nostalgic for bowling pin setter jobs or telephone operators.

So What is YOUR Strategic Response?

Firms need to niche (specialize) as more and more providers enter the market, especially at the low end. Our VeraSage colleague Tim Williams distinguishes between Magic Work and Logic Work. Firms could simply provide bookkeeping for free, along with other advisory (Magic) services.

Focus on customer transformations, which means you are taking responsibility for an outcome, rather than performing tasks. With a transformation, the customer is the product.

Tim has talked about Magic vs Logic before and one of his videos is below. It’s well worth watching.