Got Tough Competition? Just Be Glad You're Not in These Businesses

Last Updated Apr 28, 2011 6:48 PM EDT

Pity poor Sprint Nextel Corp. The wireless carrier is locked in a life-and-death struggle in a hyper-competitive industry. That sounds tough. But wait. The same is said of the Houston health-food restaurant scene. And the casual dining business. It's starting to look like Ralph Waldo Emerson was onto something when he asked, "Can anybody remember when the times were not hard and money not scarce?"

Actually, business people who are able to lift their eyes from their own daily grinds for a moment will find lots of examples when competition was a lot harder than what they are facing. For example:

  • The British and Dutch East India companies battled over the lucrative trade between Europe and the Far East for centuries -- and I use the word "battle" literally. Both of these forerunners of the modern corporation employed actual armies. Of soldiers. With guns. And they engaged in some pretty heavy-duty hijinks, including civilian massacres and pitched military encounters, with each other as well as governments.
  • Mexican drug gangs such as the Zetas and the Gulf Cartel are possibly the leading modern-day examples of truly ruthless competitors. In their struggles to control the traffic of contraband to U.S. consumers, they have murdered thousands, corrupted governments and terrorized a sizable portion of an entire nation. By comparison, there aren't a lot of actual buried bodies in, say, the social networking space, despite Zuckerberg's legal travails. And when was the last time you heard of anybody sending a message by rolling the severed heads of a few corporate employees into a board meeting?
  • What's the most competitive contemporary (and legal) business? Grocery stores, with profit margins that barely clear 1 percent, seem like candidates. In recent years, if television ads are any indication, auto insurers are in a rare cutthroat frenzy. But there doesn't seem to be any consensus on what takes the title as the most competitive industry. And, with all due respect to Sprint Nextel's publicity posturing, it's unlikely that the cell phone oligopoly is a serious contender. Nor are groceries, insurance and possibly even illegal narcotics good candidates. "The 'most competitive' industry structure," as a Canadian economics paper notes, "is perfect competition: lots and lots of very small firms, each with a very small share of the market."
That's one way to decide if you're really in a competitive market. A more sophisticated approach described by competition guru Michael Porter looks at several elements including the number and relative size of competitors, whether costs are fixed or variable, how products are differentiated, switching costs, exit barriers, and strategic objectives. Porter apparently doesn't consider severed heads a factor. Nor, it's fair to say, would he list how bad a day you're having as a key variable.

Having said all this, I do sympathize with the businesspeople who see their own as the most competitive industry. For instance, take writers. We have a saying: "Great writers make great money. Good writers make good money. Most writers make no money." (I'm between "good" and "no," in case you're wondering.) In fact, a heavily lopsided income distribution is typical of arts-related endeavors such as music, acting, painting, etc. Sports too. In these fields, something like 99 percent of all the revenue goes to roughly 1 percent of participants. The other 99 percent get to divvy up what's left. That may not be hyper-competition, but it'll do.

Mark Henricks has reported on business, technology and other topics for The New York Times, The Wall Street Journal, Entrepreneur, and other leading publications long enough to lay somewhat legitimate claim to being The Article Authority. Follow him on Twitter @bizmyths.

Image courtesy of Flickr user sawyerlaw, CC2.0

  • Mark Henricks

    Mark Henricks' reporting on business and other topics has appeared in The Wall Street Journal, The New York Times, The Washington Post, Inc., Entrepreneur, and many other leading publications. He lives in Austin, Texas, where myth looms as large as it does anywhere.