Reconsidering competitive sets
Most of my writing from 2020-2021 took on a lock down flavour.
I’ve changed my mind about something I wrote then.
“…each market segment has a natural hole it wants to be in. The ball wants to be in that hole just as market segments want what they want. Both games are about guiding something, a ball or market segments, to where they want to go. If you can do it in less time, with fewer strokes, you may end up winning. Whatever your personal definition of winning is. It depends on your comparative competitive set. And don’t you, yourself, decide what that is? Don’t you make your own competitive set?“
I’ve since changed my mind about that last question.
No, you don’t make your own competitive set.
Goldfarb and Xiao
At last month’s MeasureCamp Toronto, I used Goldfarb and Xiao’s (2011) [1] segmentation on leadership strategic capability as The Turn in the presentation on the non-normal distribution of team performance. Managers of type 0 act as though competitors don’t exist. Type 1’s act as though everybody else is type 0. Type 2’s act as if there’s a mix of type 0’s and type 1’s. The Prestige was a suggestion that Type K’s, recursive thinkers, may explain a large part of the non-normal distribution of performance.
The conversations it seeded have been wonderful.
My prior belief, in January 2021, was that Founder-Market fit mattered far more in explaining the performance outcome than anything else. It pre-dated the ENT sessions at AOM, and the discovery of an amazing paper on NK spaces. Previously, my notion of a competitive space was a true volatility surface made of problems and solutions, with equilibria that were attractive to different market segments. In this way, a market segment had a natural hole it wanted to go into. Because market segments actively seek the familiarity of hard technical lock-in. It follows that all a founding-CEO needs to do is help the ball into the hole. As such, entrepreneurism more like golf than hockey because the activity of guidance does not appear to be adversarial.
That’s type 0 thinking.
That Vision Thing
I subscribe to an underlying intuition that I credit Violina Rindova for helping me through. In a special session on entrepreneurial deception, she remarked that society shouldn’t pursue rules that stifle entrepreneurial imagination.
The distinction between imagination, delusion, and fraud went onto trouble me into writing several thousand words.
I haven’t changed my mind that some people pretend to be imaginative for the sole purpose of fraud. You can tell because they have so little interest in cause and effect. They’re saying whatever they need to say in the moment to realize what they desperately need in the moment. There is no future. There is only now. They’re cooking with gaslight.
But there are some rare people, who can imagine a desirable future state, a hole that would be desirable to a market segment, and can imagine the sequence of strokes it would take to sink that ball. That’s that vision thing.
It’s the genuine article.
Of Type 0 and 1’s
The fact that there are Type 0’s who will spontaneously imagine a hole, a point in the problem-solution surface, and pursue it without regard to market or competition, at any given point, means that you, alone, are not defining the competitive set. I have met an astounding number of people building imitation businesses without knowledge of the nursery and graveyard of those businesses. They pop in and out of existence at a frequency I never thought possible. So, no, they might end up picking you as their competitor. At random. Kind of like dice. Because there is no reference to what happened before.
So what if somebody tried the exact same thing last year. They aren’t me. I’m different. It’ll be different this time. Exceptional exceptionalism.
The fact that there are Type 1’s who assume they are the only ones paying attention, charting a course as though the balls in the air are more or less random, is unto itself interesting. They’re assuming everybody is aiming at random holes, without any sort of regard if there is even a problem-need tuple extant in the first place. I used to ask the question “why are people building things that people don’t need?”. Until one day a brave soul decided to respond: “Christopher! Because we’re engineers who just like solutions!”
This answer was sufficient.
Type 1’s might end up picking a type 0 as a competitor.
There are Type 2’s who assume everybody else is of Type 0 and Type 1. I don’t have a massive sample set of Type 2’s in my life. When you do spot one though, and ask what is the distribution between 0 and 1, you’ll often hear a power law curve. 95% are Type 0. 5% Type 1. Maybe. And there might not be too much awareness in a Type 2 that there may be other Type 2’s around.
The fact that there are Type k’s who know they aren’t the only Type k is interesting. And they might end up picking you as a partner, conscious of a constellation of reinforcing goals. And maybe sometimes they’ll reckon you can be a competitor until you’re not.
I suppose the point of being Type k, while presenting as a Type 0, could be a rational position.
But if I squint though, wouldn’t the most stable hidden games involve a set of Type k’s co-authoring an incentive structure by which Type 2’s would flourish, and Type 0’s could still generate enormous volumes of data?
Or perhaps the answer lies in A Short Stay in Hell?
Or why stop at one hole when the surface is pitted with opportunity?
I don’t know. It just seems to me that there are far more holes than balls.
Sticky Prior
In that same 2021 post, I added:
“Best of all – there are plenty of balls and plenty of holes for anybody that wants to play. Granted, the chasm may be a sand trap, so watch out. Do yourself a favour and bring more than one ball.”
I remain convinced about bringing more than one ball.
I started out deeply interested in problems. The problem of failure. The problem of dirty data. The problem of capital replication. And now, most recently, the problem of commercial problems. I’ve Pixar’ed all the way down! What if problems have problems? Each time I learned the reinforcing knot of the problem, and asked myself if I wanted to own a set of solutions.
I brought a lot of balls with me, knowing that I was going to lose quite a few to the water, and possibly, squirrels taking them away.
Each Segment Has A Natural Hole
As a buyer of technology, I’ve rejected firms on the basis of terrible founder-problem fit. I assessed that they had no interest, curiosity, and as a result, care, for the problem. They were certainly motivated by something: money, status, cocaine…something that was an ends to the solution. They were operating a financial vehicle to achieve something, possibly launder money, while they jetted around the world for the applause and glazing.
As a buyer of technology, I’ve bought products on the basis of fantastic founder-problem fit. I had assessed that they had interest, curiosity, passion, and as a result, care, for the problem. They were certainly benefiting from something: money, status….cocaine…something that was a by-product of the solution. And they care. They weren’t merely operating a financial vehicle to achieve something. They were engaged in a conspiracy against the status quo.
As a ball monger, I’m not totally unbiased about the hole I want this one to sink into. Because I’m assessing that I have interest, curiosity, passion, and as a result, care, for the market, problem, and solution. I’m most certainly benefiting from something: currency, social currency…latte…by-products of the pursuit. And I care. I’m not merely operating a financial vehicle. I’m engaged in an active conspiracy against the status quo.
There are several natural holes.
You don’t always choose your competition
And therein lies the intuition for the belief update. You don’t always choose your competition because sometimes your competition chooses you.
K?
References
[1] Goldfarb, A., & Xiao, M. (2011). Who thinks about the competition? Managerial ability and strategic entry in US local telephone markets. American economic review, 101(7), 3130-3161.