Entrepreneurship Is A Bid for Scarce Resources

Posted 1 month ago | Originally written on 5 Jul 2022
The Garden of Eden was a system for the production and distribution of goods and services, but it was not an economy, because everything was available in unlimited abundance. Without scarcity, there is no need to economize– and therefore no economics.
Thomas Sowell

Every new business implicitly makes the claim that it can raise the standard of living by providing goods and/or services more economically over existing businesses. The ones that get to hang around much longer are those that live up to the claim, the longevity testament to the veracity to their claims. In effect, they have to bid away the use of whatever scarce resources that substitutionary producers use. Over the long haul, society gets to experience a turnover of production processes with newer one replacing those that are unsustainable as it gets to enjoy ever higher standards of living because of the subsequent improvements in quality.

While long standing incumbents may successfully withstand incursions through unsavoury business practices, this can only go on for as long as it takes before a replacement comes along with obvious advantages but able to resist the temptation to be absorbed into the incumbent. For example, Yahoo!'s misfortune of passing up the opportunity to license Google's search technology worked to its disadvantage. In other instances, incumbents may lose their soul and become a pariah. Standard Oil built up a hegemony of oil and gas producers able to so completely dominate the oil market that it succeeded in igniting the ire of the public despite Rockefeller's attempts to ensure the supply of cheap kerosene and oil products and was subsequently disolved. I've previously written about Adobe, whose change of business model has pushed aware scores of users because of their short term aim to strengthen their stock market position. Only time will tell if the emergence of rival firms will prove sufficient to dislodge them from their lofty heights.

Conversely, businesses that are able to perpetually reinvent themselves despite what may appear as a comfortable position are clearly the result of sustained visionary leadership unlike the glut of firms that arose and flamed out in the dot com boom. I recently read about Shimano and how, from humble beginnings, have emerged to have a dominant position in cycle powertrain equipment commanding over 70% market share. I mean, unless you're a cycling enthusiast, you would be hard-pressed to name who their competitors are!

I believe that this economical test - whether your start up can offer oodles of improvments in quality by some measure (typically 10x) - is a powerful predictor of success.