gladiator

gladiatorAfter they achieve some success, most companies fall into a success formula – constantly tyring to improve execution. And if the market is growing quickly, this can work out OK. But eventually, competitors figure out how to copy your formula, and as growth slows many will catch you. Just think about how easily long distance companies caught the monopolist AT&T after deregulation. Or how quickly many competitors have been able to match Dell’s supply chain costs in PCs. Or how quickly dollar retailers – and even chains like Target – have been able to match the low prices at Wal-Mart. These competitors end up in a gladiator war. They swing their price cuts, extended terms and other promotional weapons, leaving each other very bloody as they battle for sales and market share. Often, one or more competitors end up dead – like the old AT&T.


Or Compaq. Or Circuit City. These gladiator wars are not a good thing for investors, because resources are chewed up in all the fighting, leaving no gains for higher dividends – nor any stock price appreciation. Like we’ve seen at Wal-Mart and Dell. The old story of David and Goliath gives us a different approach. Instead of going “toe-to-toe” in battle, David came at the fight from a different direction – adopting his sling to throw stones while he remained safely out of Goliath’s reach. After enough peppering, he wore down the giant and eventually popped him in the head. And that’s how much smarter companies compete. When everyone was keen on retail stores to rent DVDs, Netflix avoided the gladiator war with Blockbuster by using mail delivery.While United, American, Continental, Delta, etc. fought each other toe-to-toe for customers in the hub-and-spoke airline wars (none making any money by the way) Southwest ferried people cheaply between smaller airports on direct flights. Southwest has made more money than all the “major” airlines combined.

gladiator