If two species occupy the same niche, one will inevitably drive the other to extinction. They cannot coexist together in the same habitat, because they compete for the same limited resources. If you model out the game theory, or just observe what happens in the wild, you’ll see it’s inevitable that direct competition becomes a war of attrition. If one species gains even the slightest advantage over the other, the advantage eventually compounds, and that species will end up dominating the ecosystem over the long term. This leads to either the extinction of the weaker competitor, or a pivot towards a new ecological niche. They must differentiate or die.
Consider the story of craft beer: driven close to extinction in the US in the 20th Century by large-scale breweries. Mass production afforded low prices and big advertising budgets, leaving no shelf space for smaller rivals. Small breweries survived by occupying a new niche – flavor – that was a blind spot for big breweries. The key was that this wasn’t a false differentiation – the same thing with a different label – it was markedly and undeniably different on a dimension that the large breweries can’t compete with. The dedicated craft beer drinker cares less about price than they care about trying new brands and flavors: the apotheosis of large scale standardization. The big 4 breweries’ very strength in mass production left them unable to counter, leaving space for both to coexist. One thousand flowers bloomed, and craft beer made a comeback.
It’s through this mechanism that rationality can actually be a bias, as Rory Sutherland of Ogilvy is fond of saying. Being rational and efficient makes you predictable, and being predictable makes you easy to kill. If everyone hires the same MBAs, from the same schools, who do the same analysis, that inform the same strategies, they’ll all get slaughtered trying to occupy the same niches, that looked so good on paper. This is what occurred in the ride sharing industry, with Uber and Lyft trapped in a Mimetic rivalry to win the market. In this case the weaker rivals weren’t allowed to die or differentiate. Venture capital artificially propped up loss-making businesses, subsidizing rides and incentivizing drivers to the tune of billions of dollars, and induced in some markets criminal behavior: whatever it took to gain the edge.
It’s no coincidence that so many successful start-ups started with products that were dismissed as trivial, or a toy, not to be taken serious. The odds are against new entrants to a market, so they have to occupy real estate that nobody wants, until they’re strong enough to disrupt the entire category. When you do eventually attract the attention of your stronger rivals, you need to be sure they can’t attack you where you live. If they can just add your functionality as a feature to their existing product, and starve you out of the market by abusing their monopoly position, you don’t stand a chance. Better to differentiate on a dimension that works to your comparative advantage, and that nobody else can easily copy. As Thiel says, “Competition is for Losers”.
Competitive Exclusion Principle
Differentiate or Die
How to kickstart and scale a consumer business
Katelyn Bourgoin, cognitive biases and heuristics
Let one thousand flowers bloom
My Conversation with Rory Sutherland: Persuasion, Beer on the Beach, Self-Driving Cars and Japanese Toilets [The Knowledge Project Ep. #19]
Peter Thiel’s CS183: Startup - Class 12 Notes Essay
Small Is Bountiful