The book (available on Amazon) contains 18 chapters and is divided into 4 parts. Each chapter is appraised. If you prefer you can read my short review of the book here.
Part1: Great Simplifiers
Chapter 1: Henry Ford.
He simplified the Ford Model T so that it was not only easy to build and maintain by also could be driven by anybody. But in fact Ford’s insight was the fact that by reducing the price the market size was dramatically increased, everyone wanted more mobility, so price was a driver. In addition the car industry in 1909 was extremely fragmented. With hundreds of suppliers making hand built cars for rich people. So simplifying the industrial process of car manufacturing was possible.
Chapter 2: Ingvar Kamprad (IKEA).
This is similar to Ford. The Furniture business was (is?) highly fragmented. By using Flat Pack Furniture the customer solved the installation problem for the company. In addition (new to me) IKEA selected what I call the Wal-Mart model. They achieved price levels that blocked competitors with big stores outside town and direct delivery from the manufacturer to store. R. Koch sees it the same way but calls it differently. While Walmart has not doing too lately, c.f. Who Killed Wal-Mart’s Business Model? I haven’t seen anything like this for IKEA, I am not sure why, but one thing might play a role. IKEA is not cheap, it is value for money. Looking at their customers I see people who are responding to the products, their design and the thought that went behind them. I suppose that is the point, never never never sell on price, sell a proposition.
Chapter 3: The McDonald brothers & Mr. Kroc (McDonalds).
The story of a simple menu with good food at a price half of what you would expect anywhere else. In some ways similar to the fixed ‘menu’ in my local Gasthaus ‘Zum Hirschen’ run by Anton Postl in Burgau, Austria. By the way I am just mentioning that as an example that good ideas are all around you, you just need to keep your eye’s open and watching how people react & behave.The menu is fixed in price and the choice has been decided by the restaurant. But in addition McDonalds makes a point of usability, e.g. no tipping. However it was Mr. Ray Kroc who bought the idea from the McDonald brothers and franchised it worldwide. i.e. he propagated the idea. New for me was why McDonald French fries are apparently so good. A researcher at the Potato and Onion Association told Kroc that the McDonalds potatoes were being dried in their wire baskets in the wind and turned the sugars into starch. It seems you need a better and excellent product as well as low price.
Chapter 4: Steve Jobs & Apple:
This section is weak, but is used as an example of proposition simplification and the Apple Mac. I would have used the iPod and Music, The Mac was good and its story about how the Apple Mac came to be is also interesting was also but clearly outshone by its Windows rivals. Here the point is it that the Mac commanded higher margins. But in reality the Mac was really just a niche product, unlike its predecessor the Apple II. The simplification came from Microsoft and Windows and not IBM and the business success was it ran on low cost PC’s. Apple had to wait a few years for real glory, the iPod. The birth of the iPod story is fascinating, it marked a sea change in the music industry.
Chapter 5: The Consultants.
The author worked in BCG and later Bain. There he learned the Boston Consulting Groups 4 box system, cash cows, question marks, dogs and stars. It was a simple package that enabled young rookies (like the author, he was just 25 years old) to “advise” companies what their strategy should be. But the chapter contains insights in how this simplified consulting strategy also allowed the consulting process to be deployed within a company. Employees in the company benefiting from BCG’s advice were being given a complete package of communication with the 4 box system. It was also a communication concept. McKinsey by comparison sold experience and seemed to focus on the senior corporate level.
Chapter 6: Uber and Apps:
Uber is strong on simplifying – not a surprise. It also targeted a heavily regulated taxi industry. It used technology to link customers with providers and take a 20% cut of the fee! Welcome to the 21st century of a networked world. Uber scores well on ease of use and utility (as an economist would call it) and the ‘Art’ as the author calls it, he means the overall experience. But Uber has issues in its industry. It suffers from extremely low barriers to entry, so copy cats are everywhere, which is forcing them to invest now in rolling out the service worldwide. I suspect the power of networks are playing an effect here. Even though the networking effect is mentioned at the end of the book, the topic is not really explored at all.
AirBnB also is explained, same idea as Uber, matching providers with customers, in a effect a virtual market place.
Finally Spotify is mentioned, but this is very different proposition. While at one level it can be seen as matching musicians with listeners, the music industry and many other industries as well, seem to have given up on the idea that internet can be a big leveler and give every industry an equal chance. Musicians still need the good old fashioned marketing basics. It is a bit of a cliche, but the 4 P’s of marketing are still as valid as ever (Product, Price, Place and Promotion). I digress, back to music and Spotify. The barries for online music are very high. However the author skips over the fact that Spotify still hasn’t got a viable business model yet. The power of networks plays a role here in all the examples. So scale is important. I think for Uber it is because they need a certain size in a city to offer a competitive service, having one car is not enough, having many is. And for Spotify being big means it gets deals with the record labels.
Chapter 7: Mosquito bomber and Penguin paperbacks.
This section compares the two simplifying principles: price or proposition. Price is seen as mass market. And proposition is seen as premium. A bit simple. There are three “keys” (the author means methods) to achieve a 50% (or more) price reduction:
(1) make the product (a lot) cheaper, reduce cost, including your own companies overheads and even reorganise your entire industry more efficiently e.g. Ford and Ikea.
(2) remove ‘utility’ that people might describe as nice to have e.g. less models, less colours etc.
(3) increase low cost utility e.g. Fords better low cost design was also inherently more reliable, less to break down.
How you carry out these three steps is left to your imagination as the author says, but the key is to put yourself in the shoes of the consumer and see it with their eyes.
There are two keys to making a better proposition:
(1) make it a pleasure to use by adding utility. The Apple Mac is given as a example.
(2) is a bit weak and just says use simplicity to ensure the extra utility covers its costs.
The concept of virtuous trade-offs: The Mosquito twin engined RAF bomber from WW2 was built of wood as metal was in very short supply during World W 2. But then it was so light it dispensed with armor and became even lighter and faster. Actually the history is just a little bit different. It is less related to wood and more to the benefit of reducing weight to fly faster. Flying faster and higher than a fighter turns out to be a good strategy for a light bomber. Anyway the Mosquito was a very successful concept.This is all true. But be aware trade off and weight is what many designers of products constantly wrestle with in both the military and consumer space. Take a car, they have got a lot heavier over the last thirty or forty years. But they have also become faster but also much safer… The Fiat 500 in 1957 weighed in at 499 kg, the modern equivalent Fiat 500 in 2007 came in at 865 kg.
I prefer the second example in the book of virtuous trade-offs as it shows the key element behind price simplicity. The second example is the Penguin paperback. It was created by Allen Lane in 1935. What is not mentioned in Simplify is that Lane actually got much of his inspiration for Penguin from the German publisher ‘Albatross‘. It seems Lane showed the typical acumen of the founders of many of the companies listed in Simplify, he recognized a idea when he saw it AND how it could profitably be put to use somewhere else. He took the concepts from Albatross and brought them to England. He sold a limited number of books at rock bottom prices in a quality paperback format. The point being a book was the content not the cover. Up till then hardbacks commanded a x 10 premium or so it seems. He got authors and publishers to go for low prices. Even George Orwell of ‘Nineteen Eighty Four’ and ‘Animal Farm’ fame thought selling his books for a very low price in paperback format would be bad idea. Orwell didn’t realize that he would not sell more books to the reader but books to many more readers and create a much bigger market. it is a debate that is still going on today and centers around the concept of price elasticity.
This section was to try to convince people that there are two key principles to adhere to. But in short nothing new, big price reductions like 50% or more can lead to huge increases in market size. Reduced prices can dramatically increase the market size like a factor of 10 or more. However ‘the make it simpler to use’ proposition is rather different and might even command a premium!
The conclusion of Section 1 is a bit waffely, it runs along the lines of you have now lots of examples so all you have to do is chose either one of the two principles and then “flesh it out in detail and work out how to execute it brilliantly”. OK so to here there is nothing really new, but it is entertainingly told.
Part 2: How to Simplify
Chapter 8: Which type of Simplifier Will You Be?
It starts with the “Aptitude test”. This is a questionnaire with 25 questions, if answered honestly it gives a good idea if the culture and competences in your company are geared to driving lower cost or making a better proposition. A useful tool. Something similar was done by Richard Koch in Investing called ‘Investors Guide to Selecting Shares That Perform’. I liked the pragmatic style, with questionnaires and tests.
It is followed by the ‘Gap Test’, try to determine if there is a gap in the market that fits your aptitude. The example given is of Honda in the 1960’s trying to unseat the sitting incumbent of bikes in the USA – Harley Davidson. Another example of Pepsi-Cola that discovered they could use price to compete against Coke again in the 1930’s. The insight was that most of the cost was in the bottling and distribution not actually in the drink. They could offer twice as much for the same price. Coke never saw them as a threat. In fact this sounds a bit like Judo economics to me, or avoid picking a direct fight. The third example is of GM and Ford in the 1920’s. Ford dominated so GM focused on a simplifying their proposition. They offered 5 brands but at different prices and got customers to trade up. It is a completely different proposition to Ford. The odd thing here is the Ford proposition was simpler, just one car, one colour, but peoples tastes had moved on. The market had segmented, so in some ways this is not really an example of simplification but the opposite, the customers had become more varied!!
The third test is the “Keys Test”. This is the key to unlock the market. Unfortunately and I completely agree with the author, insight does not come from market research but rather as a flash of insight. However the authors sum it up as
- Price Simplifiers: reduce variety, automate, co-opt users e.g. Ikea and McDonalds, develop new distribution channels e.g. selling books through newsagents (e.g. Penguin). There are a variety of these items on p111
- Proposition Simplifiers: Make your product more intuitive to use, a joy to use as the author repeatedly says. It leads to higher premium / high end. Segment the market like GM did, make it super easy to use and leverage word of mouth e.g. Uber.
The Final test is the “Better Skills test”. This says that in order to simplify your company needs skills for its market and also to be better at applying them. This is the toughest test as it is easy for a company to delude itself that it is better than it is. A discussion is then made on how Xerox invented the technical benefits of the modern desktop computer’s graphical interface and mouse but failed to see the commercial potential, Apple visited them and saw it. But the example is best illustrated (I think) with IBM and the PC. Apple moved to the high end (niche) premium segment of the market with the Mac computer and IBM was beaten by low cost rivals Dell, Compaq etc.
I think that as industries develop they need new skills. Sony and Philips both struggled with their audio businesses as the audio business became increasingly connected and online. But they key point is the really successful companies who took over the lead from Sony and Philips int he market were lead by people with communications backgrounds or computer companies. Look at the founders of Sonus, or Apple a computer company with a distinct inclination to see their products being used in the creative industries.
Lessons Learned? This reminds me of the Porters Generic Strategy theory, either provide a premium and you might have to share the market with others or go for lowest cost, deliver via the lower price and be the dominant player. The point the authors make is that it depends on the culture in the company. IBM did not have the mind-set of price and low cost and therefore could not put that at the core of everything they do, they left it to Dell…
Chapter 9: How to Proposition Simplify:
This is based on three steps.
Step 1 Make the product/service easier to use.
This is achieved in 5 steps
- Eliminate features of your current product to get back to the core. In my opinion this is easy to say, but in reality hard to implement. I found it easier to tackle the other way around and start with the proposition for the user and build up using good human interaction and product design principles, but as the author points out, the key point is to not lose focus of your proposition. In many cases I have found that features creep in (indeed we call it feature creep). By the way there are international (ISO) guidelines for design rules of Human Interaction (as it is called in the trade), the following is a quick and simple introduction to the topic: Complete Beginner’s Guide to Interaction Design.
- Make your product intuitive and easier. This is hiding complexity from the user. Think about automatic setup .c.f link on interaction design.
- Make it Faster. Sort of self-explanatory even though Nespresso is given as an example, faster coffee anyone?
- Make it smaller/lighter/portable. The Sony Walkman is given as an example, but somehow this, I think, is heavily dependent on the end use of the product. Making something portable might open up a new market but portability is not in itself a requirement.
- Finally make the product/service easier to obtain. I agree with the author that iTunes is an example of a holistic system to buy and enjoy music. The author also indicates other examples like ZipCar as an idea where renting a car for an hour or two and having the cars parked on the street close to where you live is an example of this. In fact Zipcar and its many competitors like Cambio in Belgium and Germany are a form of car sharing.
Good if you have done Step1 you have made your product / service easier to use with a liberal degree of common sense, but I suggest to approach it more practically, put yourself in the customer’s shoes and design your product from the viewpoint of the user.
Step 2: Make it more useful
Again there are five ways of doing this.
- Vary the performance (make it more or less powerful)
- Improve quality, Hmm what is meant by quality? Reliability is something else, just make sure you don’t mix the two up.
- Add new features, but only if it does no undermine step1, This sound nice to have but I am hard pressed to think of good examples, Don’t we do that anyway?
- Provide a wider range of services.
- Personalize it. If you have been using good human factors principles this would come under the hierarchy of tasks. Task 1 is get your (new) product to work, Task 2 is get it to work to me. Etc.
Step 3: Make it more aesthetically appealing
No comment needed, this is obvious, product design is a crucial aspect of any consumer product, web design etc. Bu the author does indicate a reason for MySpace’s demise. It had a cluttered and messy interface when Facebook offered a nice clean one. I wonder if Microsoft trying to do something similar with the apps for Windows 10? The apps are so clean that people abandoned them and with back to the more flexible desktop apps? Simplify should not mean Dumb It Down!
Lessons Learned? As the author points out, proposition simplifying can be used to establish you in a profitable niche. If you are lucky and your niche goes mainstream like Apple and iTunes then you can win big time. The drawback is that competitors will be copying you, you will therefore need to engage in innovation and development to stay ahead of them. One point I noticed, but is not mentioned, is that while Apple did a superb job of simplifying music, Others like Amazon and Microsoft (Zune anyone?) tried very hard to emulate it and failed, why ? first mover advantage or was something else playing out here, the power of networks ? This is not touched at all in this section.
Chapter 10: How to Price Simplify – part 1
This chapter focuses on the product offering and seeks to radically reduce the costs not just within the product but also the company to allow a profitable price reduction. To be meaningful the price has to be reduced by 50% or more.
It is assumed by the author that your business is very price elastic. If you drop the price many more people will use your product. Think airlines, initially over the decades the airlines added features, functions, price segmentation (e.g. 1st class, business class, economy/coach etc.) but somehow lost sight of the fact that all a person was interested in was flying from A to B. The second aspect and it is extremely important, is that the volume of business has to rise by much more than the decrease in price, so if the price drops by 50% the volume of business has to rise by substantially more than 2 to make it worthwhile. I am being a bit simple here, there is also the possibility that if the price drops by 50% you might force out your competitors and YOUR market share rises by much more than 2. You grow the overall market by allowing many more customers to take part in it. Examples are given of how Henry Ford popularized motoring as it gave ordinary people with limited means the ability to travel.
I’ll use example here not mentioned in the book. Would tooth paste be price inelastic ? We can assume every wise person is brushing their teeth. You only have one set and they have to last a lifetime. Would you buy more if the price dropped ? Nope, you are already fully maxed out brushing your teeth, Will more people buy toothpaste, again Nope, everybody is already brushing. So what do the P&G’s and Unilever’s of this world do? The segment and add different toothpaste at a premium. Check out what the guys at Unilever came up! Toothpaste for Men. You can get a glimpse of the diversity the toothpaste people have come up with here.
Once those basics are out of the way the author suggests a nine step method to achieving price simplification.
A quick summary is given here.
Step1: subtract features, they cost money and do not add to the core proposition. E.g. serving meals on plane. It is not a restaurant, it is transport system, therefore cut the cost, forget the meals and reduce the price and fly.
Step2: Reduce variety, I suppose Henry Ford’s old mantra of any colour so long as its black. But as the author admits, Dell managed to offer customized PC’s and increase variety. You have to check what you should do for your own business, what would it be like if you had 1 product, and then 2 or even 10 etc. would that greatly increase your internal complexity and therefore costs?
Step3: Add cheap benefits, ok sounds easy, but is difficult, if it could be done it has. The author uses examples of IKEA and child minding services in their stores, yes that is correct, but that is part of a wider concept.
Steps 1 to 3 are part of what is called Simplifying the Product Design
Chapter 11: How to Price Simplify – part 2
This is called Business System Redesign by the author.
Step 4: Automate, here the author means be able to scale your product selling. It requires a standard product that can be sold in any region or country. When Uber designed their Taxi app in San Francisco, the concept could be rolled out in any city. The example of the Ford Model T is given, but really that is what mass production can do. Nothing new there.
I could see this in the Consumer Electronics industry is also based on this. An audio HiFi or DVD player system can be sold anywhere in the world. Some variation comes about by local standards, e.g. If you want to plug in your new piece of electronics the manufacturer will have to supply completely different plugs ( and power supplies), UK uses this, The USA this and much (not all) Continental Europe is this… actually that is also a simplification. But this is man made diversity that has crept in over time. Curiously the food preparation industry is less global than you might think, peoples eating habits and tastes differ around the world. I suppose Rice cookers are more popular in Japan than in the UK for example.
Step 5 Orchestrate: This in essence is possible when your industry is in a highly fragmented state with many players. As the author points out the furniture industry is one such case split over manufacturers, retailers, distributors and installers. IKEA tackled this problem and greatly simplified it. With a simple product line but running in huge volumes, IKEA has ‘orchestrated’ furniture industry. I could imagine the auto parts supplier ‘Magna’ doing something similar. However sometimes the suppliers are so big they can influence what the brand can deliver, this is not orchestrating. Even Philips left the TV and Audio market, the products may be designed by new companies but often the products are being supplied on a ODM or even an OEM basis.
Step 6: Co-opt customers: This means getting customers to do things for themselves that were normally provided by companies. McDonalds is cited, it is in fact a self-serve restaurant, but now the customer dispenses with a waiter and orders and carries their own food to the table, they even clean up afterwards. IKEA is also cited as the user armed with a hefty catalog is directed (orchestrated?) to walk the long walk through the IKEA store and its many model rooms to choose their furniture, orchestrated to avoid the need for sales people.
Step 7; Sell direct, obviously, dispense with the whole retail chain and save money. But you still need distribution of some sort. Three case ‘studies’ are given, Direct Line, (a UK based on-line car insurance system), Charles Schwab and The Vanguard Group.
Step 8: Use simpler technology: This is a rather strange section. It quotes a lot from Clayton Christensen, him of ‘The Innovators Dilemma’ fame. In fact this is most often not a simple technology but a very sophisticated one that allows an outsider to take a small and uninteresting part of the market from the sitting incumbent and grow from there. Strange here is that the oft quoted Christensen thinks Uber is NOT an example of a disruptive technology. But then again others (strongly) disagree.. check out this. In short this section shows just how fluffy sometimes a lot of the arguments are, beware if you are looking for simple truths.
Step 9: Scale Up: this means to grow as quickly as possible. This is essential to make it difficult for anyone else to copy your business. Roll out your business to every city and to every country. As it is claimed IKEA places a major store in its key market thereby blocking any competitor. This by the way is a standard text book play think of Walmart.
Lessons Learned from Section 2: there are some useful things like the 25 point questionnaire. The structure is good and the section is useful for the clarity it brings and the questions that the Author continually raises, ‘ Could your company do this or that….”
Elements like the Simpler technology from Christensen are bending credibility a bit. How much is actually new from the author, actually nothing really, he is just pointing out the elements that a diverse range of companies have been doing over many years, sometimes, some of these things have proved very beneficial.
Part 3 – Save the Dinosaurs
Chapter 12: Do They Need Saving?
As the author points out ‘We don’t know’ if the sitting incumbent / market leader is threatened by a simplifier. There are many individual cases where it is true e.g. IBM and the pc. There seems to be just as many examples (or more?) where the incumbent simply survives. The insinuation is that a very successful simplifier is maybe a rare thing. Unilever and P&G are still around and don’t seem to be under threat at the moment. Others like IKEA didn’t actually topple a market leader, as there was no one there, it was instead a totally fragmented industry.
A list of ‘warning signals test’ is given.
For price simplifiers it basically boils down to a much cheaper product (at least 50% or more) appears on the market and at least some of the market accepts it. This new low cost firm also seems to be growing. There are more signals on page 181 but those two are basically it.
For proposition simplifiers the key point is that product concept from the competitor is using new technology or methods or makes very different assumptions about the customer than you do. The product is sold at a premium BUT is taking your market share.
Lessons learned? Watch your market for very low price products that are being sold successfully or premium products that are taking your market share. It is a warning signal and take heed.
Chapter 13: The Weakness of Strong Firms
A good section: It outlines the inherent 5 traps of successful companies that hold them back from simplifying.
- The Overhead Trap: It revolves around the well-known fact (c.f. Clayton Christensen) that the incumbents tend to avoid lower margin business, it is not profitable enough to sustain their existing business. But a new leaner business probably can survive and thrive on this lower margin and unwittingly the incumbent has open the door to a future competitor.
- The Cannibalization Trap: If you can cannibalize your existing business then you probably should, or someone else will. Think Barnes and Noble the book sellers and Amazon.
- The Customer Trap: Over focusing on your existing customers makes you blind to new ones who might want some of your products benefits. Think airlines offering full services and seeing the economy/coach only passenger as just one segment rather than the basis for a new low cost industry.
- The Complexity Trap: As the book puts it nicely, by searching for expansion, companies add new models, more features but this leads to a more complex company often capable of handling a dazzling diversity. Rather the idea is to have one product with very wide appeal.
- The Skills Trap: Sometimes the skills that make you good can hold you back. The example is given of Penn Central seeing itself as a railroad company rather than a transportation company. But with their skills, they still could not have run an airline even if that industry was taking away their customers. I have already pointed out the apparent difficult many companies in the consumer electronics audio area had dealing with music when it moved to computers and networks and away from CD’s.
Lesson Learned? Probably the best way to counter these traps is to set up and run a separate company. A bit like HP and their ink jet business in Vancouver and their Laser Printing business in Idaho.
Chapter 14: How Market Leaders Can Simplify without the Tears.
Countering a price simplifier in your market is pretty straightforward. The best method seems to be to setup a parallel business, either buy one or spin one out. Sometimes it will be possible to radically change direction and change your product portfolio, but this is rare it seems.
Countering a proposition Simplifier is much more difficult. It might be a development that has taken years to put together, it might even be simply invisible to you until it is too late. If the product is as the book calls it ‘a joy to us’ then it probably will have first mover advantage.
Lesson Learned? Beating a price simplifier might be easier as the incumbent usually has more resources, money and people. The Proposition simplifier is sort of left hanging here…
Part 4: The Rewards of Simplifying
Chapter 15: Does Price Simplifying Pay.
In a word yes, the books lists several examples with huge CAGR’s (Compound Annual Growth Rate) e.g. Ford, Honda, Ikea etc. and have managed to sustain the CAGR over decades.
Lessons Learned? Nothing, this section could be condensed to just one or two charts.
Chapter 16: Does Proposition Simplifying Pay?
In a word yes, sometimes. But the examples given stretch credibility a bit. Yes Amazon is clear and Google, the iPod is also given, but could have been explained better. And Amazon’s attempt with Music along with Microsoft (Zune ?) seems to be missing. Others are ARM, Tetra Pak & BCG
There is quite some text on being both a Price and Proposition simplifier which basically comes to the conclusion that technology will diffuse over time, it is on page 235 -237 and needs to be reread a few times to make sense of it
Chapter 17: The Success of Simplifying
Pages of comparisons, but not unsurprisingly the examples all show stellar CAGR growth rates.
The really interesting bit is on page 260. The author lists a variety of industries which seem to be unlikely candidates for simplification. They are inherently complex.
Biotechnology, The Oil & Gas industry, Pharmaceuticals, Defence, the Drinks industry (based on the observation that Coca-Cola gets most of its profits from just three drinks, Coke, Diet Coke and Fanta.
Lessons Learned? I have a sneaking suspicion that Simplifying is really for consumer orientated industries. A key point the author states is the ability to roll a low cost product on a world-wide basis. This moves it from being a niche to being a huge market, sort of obvious when you think about it. As he notes, though the original founder of the McDonald franchise Ray Kroc, did not move from Hamburgers into for example Chicken, even though he had the perfect formula for self-serving low cost food.
Chapter 18: The Limitations, Power and Glory of Simplifying
Just for the record there are many non-simplifying successful strategies. The most obvious example are luxury goods, e.g. Patek Philippe watches.
The author breaks it down into three areas
- Elaborating: the opposite of simplifying, make things deliberately more complicated, the example of a mechanical watch is given. Often Entreprise Software used in companies contain a myriad of ever increasing complexity, which becomes a self-fulfilling prophesy, others call it lock in. Think SAP, or I suppose the use of Microsoft Office, the sunk costs make it difficult to move, the increasing complexity requires every more expertise and training which makes it less likely something simpler with less functionality will replace it.
- Invention: Sometimes inventions simplify life but not always. Apart from the Airbus A380, the author gives no examples of this. In my opinion I think examples could be the pharma industry with every more complex and expensive medication that is needed, also banking might come in here too. They all seem to be doing just fine, apart from some banks.
- Discovery: This is the opposite of Invention, and according to the author most of the worlds mining industry would fit here. The author mentioned Bio-Tech here, but gives no reason why, Maybe he means the human genome is being ‘discovered’ rather than invented?
The final section in this chapter lists many more ‘Strategies’ to bypass market forces.
- Network effects: this, in my opinion, is not really bypassing market forces but is a new effect that has recently become very prominent. In fact you could say it is Metcalfe’s law, the value of a network is the number of people using it. So the more people that use Facebook the more useful and valuable it becomes. However it is not always beneficial, Telco’s are often cited as a negative example, or does the author mean a monopoly ?
- Regulation: obvious one
- Intellectual Property: or the use of patents, if you spend the time and money obtaining and then defending your patent it generally gives you a 20 year lock on your proprietary technology. Just a side remark, Googles search is so good because it is protected by patent for “Page Rank“, soon to expire in 2017.
- Lock-in & Switching Costs: obvious, think Microsoft office. But here is another example that is curious, the switching costs (for a user) between browsers e.g. Microsoft and Internet explorer in the 1990’s is compared to Google and switching search engines is deemed to be much lower. Like we saw with Uber, sometimes you can grow very quickly, but there is a still a low barrier to entry.
- Personal Relationships: true, and often overlooked.
- Scarcity: Obvious, especially I think for business where geography / location plays a role, I can think of some examples, usually there is only space for ONE airport at a city not two, or three or four ?
- Niche Effects: If you are small and profitable then you might be just left alone as the market can’t support two firms competing. The newcomer does the maths and doesn’t bother. Standard Strategy.
- Government: the author is a bit negative here, but is this not the regulated businesses like water ? we even call them public utilities.
- Not-for-profit Organisations: seen by the author as the small relation of government.
Lessons Learned? Simplifying is just one possible way of doing business. It has been very successful for some but is not a panacea for everything.
Cautley Consulting 
