It seems to be an unwritten law that markets consolidate and we end up with mighty few and the small but nimble many. In his book “Inside the Tornado”, Geoffrey Moore describes the protagonists as The Gorilla – who owns the Market (think Oracle) the chimps who are the runners up (think Sybase and Informix) and all the rest of us who are merely monkeys. If you’re a monkey life can be ok – you can capture territory but not hold on to it but you can earn a decent living on your own terms by trading with other monkeys and ignoring the world of the Gorilla. The distribution of power in a market tends to follow a power law in which the market leader has twice the share of the number 1 chimp and 3 times the market share of the number 2 chimp. That means that if the Gorilla owns 45% of the market then there’s 17.5% left for everyone else after the number 2 chimp – about what you find in the the fruit and Vegetable market in the UK vis a vis the Multiples. And if the Gorilla gets to 60% – there’s 5% left.
I have 2 main research projects going on at the moment – one about how small companies in the aerospace supply chain can use social media and the other about how best to build a sustainable workforce for the horticultural industry. What’s fascinating is that in both areas I keep coming back to the market distribution and the key issue for strategy about whether you want to play by the Gorilla’s rules and get into the supply chain – or whether you can find a niche where you can live your life on your own terms as a monkey trading with other monkeys. And of course the obvious corollary – how big and successful can I get while still remaining a monkey.
I’ve started to see it in terms of a power curve with a discontinuity – to the right we’re in monkey territory. To the left we’re in the Gorilla’s World
In the Gorilla’s world this is what happens
- Supply chain heads dictate the terms
- E-procurement cuts costs
- You have to dance to their tune
- Progressively the hurdles get higher
and the money gets less
- Firms go out of business
- The industry consolidates
In the Monkey’s world by contrast the rules of networking with which we should all be familiar hold sway
- Collaboration is the name of the game
- Being known for what you do is critical
- Having a clear story
- Being able to Deliver
- Doing what you say
- Getting back quickly
Gets the results you want.
In the world of horticulture – for instance – we are talking about edibles (as the industry describes it) the supermarkets run most of the market. There is only a small amount left at the right hand end.
In our business – because we’re based in the “alternative crescent” where lots of people think local organic Veg. is important – we can play by the monkey’s rules and trade with other small businesses. We wouldn’t have to be much bigger to be forced into the Gorilla’s zone. In the “ornamentals” sector the boundary is much further to the left as Messrs Homebase and B&Q don’t seem to own the market in quite the same way and there’s lots of scope for companies in the monkey zone to get bigger.
What this means for your business strategy is you have to look at the market you’re in – what your profit targets are and whose rules you need to play under. And of course what’s going on in the market. I’ve said before that markets are more like weather systems than anything else and sometimes water flows up hill. Customers revolt against the big battalions sometimes. But what would this mean really. In organic vegetables could the tide go out from 5% to 10% – probably. Could it go to 25% – probably not.
So you need to know where you are – what’s likely to happen – and how big you can grow with your current business model.
Food for thought – what do you think?