Tag Archives: Price

Defensibility

Entrepreneurs are doers by nature. They have ideas for what customers want, build teams to execute on these ideas, and execute.

Assuming that the entrepreneur has correctly identified a real customer want, this approach will likely produce a business that makes money in the short term. However, this isn’t enough for the business to survive in the long term.

The reason is that, if the customer want is really there, competition will either already be there or it will soon emerge. The bigger the customer want the entrepreneur identified, the greater the competition.

And for a business to survive in the face of competition, it needs to be defensible. In other words, it needs to have a characteristic, or a combination of characteristics, that stops its customers from moving to the competition.

Defensibility comes in many forms. It could be a very strong brand that has perhaps even given its name to a product category, like Coca Cola. It could be the lowest price provider due to a combination of economies of scale and the leveraging of an intrinsically low cost customer service channel, like Amazon. Or it could be a business with strong network effects that prevents users from having the same experience on an alternative network, like Facebook. Or it could be a combination of these characteristics.

Without a source of defensibility, a business’ initial growth will soon taper off and may even reverse into decline, thereby threatening the company’s survival.

As a result, you need to think about the defensibility of your business before jumping into execution. Your company’s survival, and thereby your return on the years of work that you’re going to put in, depends on it.

Consuming

In an earlier post, I wrote about the meaning which you get from producing, and how I believe that it’s worth trading off some short-term happiness for that meaning.

This post is a short observation on the other side of the equation, that is consuming. Consuming doesn’t generate meaning but it does produce a short-term burst of happiness.

When consuming something that you need to pay for, there’s a general correlation between how much you pay and the short-term happiness that you get from the product. For must product categories, the more you pay the higher the quality of the product that you’re able to consume and therefore the greater the short-term happiness that you get from consuming it.

However, in many product categories, this correlation breaks down after a certain point. After a certain point, you’re no longer paying for the higher quality of the product but the social signal that using that product sends to other people, or more accurately the social signal that you believe using that product sends to other people.

When you cross the line where you begin to pay more for a product because of its social signaling value, you’ve effectively agreed to make your happiness dependent on other people’s perception of you.¬†And that’s a fickle source of happiness.