On Competitive Advantage – Part 2

There must be a difference.

Imagine you and I freely decide to earn money by cutting trees. Suppose the wood will fetch roughly $5 per log. One may suggest that to get ahead I should reduce costs or increase efficiency, or both. As in Rock–paper–scissors we are competing. In a free society this remains true whether we know it, or indeed whether we like it. So we begin:

Without any tools to start, suppose we punch down the tree. This process is slow. However, in about the same time we each recover one log. Tie.

Imagine in the second round, we save and fashion a couple of wood axes. The tree falls much faster than before. Nevertheless, we finish the work in roughly the same time; tied again.

Suppose after many rounds of competition, we each procure the finest axe the world can know. The tree falls so fast that it’s difficult to tell, but in truth we have once again completed our task in roughly the same time. Tied.

By now you will see we – once again – have decided to behave the same way when confronted with the same opportunity. As a consequence, neither one of us can have an advantage. Greater efficiency and lower costs are not enough to generate a competitive advantage. At the very least, there must also be a difference between our behaviors. While it remains to be seen, unlike Rock–paper–scissors this game does have skill. So our opportunity is whether to play and what to choose.

If my goal is to make money in a free society and I have decided to play a skill game then I must behave differently to win. To generate a competitive advantage there must be a difference.

On Competitive Advantage – Part 3