As regular readers will doubtless be aware of, we at MEDIOLANA® can never get enough of Kjell A. Nordström, who as well as co-authoring (with Jonas Ridderstråle) two of the most important business books of the late twentieth and early twenty-first centuries – Funky Business: Talent Makes Capital Dance and Karaoke Capitalism: Management for Mankind – is also an inspiring public speaker. While revisiting one of his clips recently, we came across one of the most important business and life insights you are ever likely to hear about: the strategy of non-competition.
Echoing a leitmotiv of his written work, Nordström posits that successful companies do not compete. Instead, they formulate a unique product or experience that no one else is providing, and ride the wave of the ensuing temporary monopoly – though the meaning of ‘temporary’ in this case can be somewhat elastic.
In a business world which many would argue is defined by competition – from CEOs dressed in Rambo suits to litigation-happy multinationals – this makes for counterintuitive and perhaps uncomfortable reading. But after some reflection, we think that Nordström has hit gold. Other strategies have too many limitations by comparison:
- Branding. A commercial modus operandi followed by many corporations – particularly but by no means exclusively large ones – is to brand their way out of a hole. Allocate enough advertising dollars to the right billboards, buses and boxes, and even an offering for which there are obvious alternatives will be shielded from the competition. But this is an inefficient and ultimately futile strategy: marketing is expensive, and better alternatives will have their day. The erosion of McDonald’s share of the Swedish hamburger market to a competitor emphasising health and sustainability is a prime example of this eventuality.
- Quality. Perhaps more controversially, quality is not necessarily an effective business weapon, at least insofar as a product or service is generic enough for cheaper alternatives to tempt customers away. Additionally, it may be difficult or unappealing for customers to perceive quality, and beyond that to make a rational economic decision about their best interests. Wonderful material inputs and stellar after-sales or continuing service is simply not enough for many people to choose a higher-quality option if they can save a few short-term bucks.
- Uniqueness. Nordström uses the example of IKEA to illustrate the power of a temporary monopoly. One may absolutely detest IKEA, but bar a handful of vaguely similar enterprises – Denmark’s Tiger and Turkey’s Istikbal come to mind – no one else offers the same formula of self-assembly furniture and household items + restaurant + creche + IKEA Foundation + locations at transportation nodes. This insight applies to SMEs, too: on the corner of Charlotte Street and Goodge Street in Central London, there is a pizzeria which has been selling real, Italian-style pizza + food made freshly in an open kitchen + entry-level, attention-grabbing prices + a wide selection of newspapers + great coffee + free televised news and football. It has been doing a roaring trade for at least a decade-and-a-half. In its sandwich chain-saturated market, it still has no competition.