I will get right to it – here are the three words:
“Competition is Evil”
Competition is a truly horrible and terrible thing and should be avoided at all costs! All competition does is destroy your profitability, as we all no doubt remember from our first year economics course in college. Indeed theoretical “perfect competition” reduces everyone’s profits to zero.
The goal in a real estate business – indeed in any business – should not be to “compete” with your “competition” but to do something different.
I didn’t make this up. This comes from just about every deep thinker in the business world:
Peter Thiel, who started PayPal and is now a Stanford professor, gets credit for coining the above phrase – and I heartily recommend his book Zero to One, which delves deeper into his thinking.
The late Peter Drucker, who I mentioned in my first article, and will no doubt quote again as he is one of my personal heroes, says one of the two most critical things for a business to do is to “innovate”, which is the essence of avoiding competition, as the whole concept of innovation is something new and different.
Michael Porter, the Harvard Professor and guru of competitive analysis, says that the biggest mistake businesses make is “trying to be the best” and beating their competition. Instead, he advises, the goal should be to create something new and therefore create value for your business. Indeed, as Porter points out, if you become “better” than your competition, all this (usually) means is that your customers, employees or other parties in the industry benefit, as opposed to your business benefiting. His definition of competitive advantage is instructive:
“Competitive advantage depends on offering a unique value proposition delivered by a tailored value chain, involving trade-offs different from those of rivals, and where there is a fit among numerous activities that become mutually reinforcing.”
Note the key words “unique” and “tailored value chain” and “trade-offs different from those of rivals”.
Seth Godin, who is a more eclectic, but in my view also a brilliant thinker, writes an excellent and easy-to-read book called Purple Cow, which emphasizes a different variant of the same thing; namely, how important it is to STAND OUT, like a purple cow would stand out, as opposed to fitting in and being forgotten.
And there are other books I have read as well by brilliant and creative thinkers. They all say versions of the same thing; namely, that it is more critical to be different than it is to be better.
So I urge you to sit down – with a bottle of single malt scotch (if you have my taste in liquor) – have a couple of snifters – turn off your iPhone or other machinery – and have a good look around at what you are doing in the real estate world. Consider:
Are you doing what others are doing?
Is your day spent trying to figure out how to be “better” than others?
Is what you are doing “different” than others somehow – possibly in the way you do business, the way you treat and incentivize employees, in what you offer to customers, in how you build your product, in how you use technology, in how you lend out money, in how you invest money, or in any other way? Or is your entire business exactly like someone else’s?
How much of your time spent on analyzing your business strategy is spent on thinking about macro things that are really in the nature of trying to time the market or the cycle with your crystal ball?
How much of your free time is spent thinking about how to be different?
Have you read any of the books I have mentioned above?
If the answers to the above questions lead you to the view that you aren’t really trying to be different and instead you are trying to do things better, then my guess is that on a risk-adjusted basis, your returns are more like to be average than to out-perform.