General Electric in the 1980’s, under the leadership of Jack Welch, had a very simple goal for all of its businesses:
Become number one or number two in market share or we (General Electric) will exit the business. The theory was that you just weren’t relevant unless you got to number one or number two in market share.
But bigger is not necessarily better. It’s all about defining your niche.
Let’s use the example of mobile phone sales and Apple.
Apple, when they entered the market didn’t want to sell the most mobile phones. Instead, they created their own niche of smartphones:
So Apple does not make the lions share of the phones, but look at Apple’s share of the profits:
Apple made over 90% of the profits in phones in 2015 because they were number one in their niche. Samsung, the number two player in the niche, made the rest of the profits.
I’ve seen this similarly play out in the businesses I’ve been involved in. The trick was picking a niche big enough that we could make enough money, and we could become at least number two in. Good things (meaning we made a lot of money) happened when got to at least number two. But…
Being number one is beautiful thing.
When you get to the number one position, you truly are in the catbird seat. Apple’s dominance of the profits is not unique to Apple.
The number one player in a niche usually will dominate the profits because they have many advantages:
- You can usually charge a premium as the dominant player, and…
- You have a larger share of mind than your competitors, and…
- Your will have built the trust of your customers, so…
- Your new products will likely be well received, so…
- You will be able to retain your market share.
But, you have to guard against complacency if you’re number one.
Everyone is gunning for you when you’re number one. Bigger and better competitors are going to keep aiming their arrows at you.
The only way to keep your stranglehold on the profits is to keep innovating to keep the natural erosion of your profitably from happening as long as possible. Eventually, all markets become more of a commodity over time.
But, for as long as you can, being number one is a beautiful and profitable thing.
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