You always have a choice.
This in one line was the crux of Mahesh Murthy’s talk on ‘Money management lessons for startups’ at the E-cell Entrepreneurship Summit 2016 organised at IIT Mumbai recently. Mahesh spoke to budding entrepreneurs and starry eyed students from IIT on the dynamics of competition, the fault in skyrocketing valuations, big ass marketing budgets, and the hazards of falling for the lure of big ticket funding rounds. In his typical no-nonsense approach, he laid bare the truths behind building successful companies, without falling into the trap of billion dollar funding rounds.
The Rise Of Dominant Market Shares
Starting with the changing face of competition and dominance, Mahesh stated how instead of competition in the market, it’s actually dominance that has increased. Said Mahesh, “When I was growing up, I used to believe that competition is going to rise in the world. And proof of that was that market shares are very close to each other in any sector you looked at be it autos, pharma, cement. If we look at the world today, and business that have come up in the last 5-10 years, you see an interesting trend. For instance, in the energy drink business, Red Bull has 47% market share, Coke and Pepsi together have 11% market share. In luxury electric cars, Tesla has 98% market share, BMW has 1% and everyone else is 0.xx%. Similarly, if we take women brands, very few brands are close to each other. Zara’s business stands at $21 Bn in sales, almost 10 times larger than Calvin Klein which is $2 Bn. If you come to the digital world from the analog world, say search engines, then Google has 91% share, Bing has 3% and I don’t know who is number 3 and 4.”
He stressed that while once upon a time, one could easily name the top 10 pharma companies in the world or the top 10 auto companies but now it is difficult to even recall the number three search engine now. So, basically while everyone expected competition to go up, it’s in fact the opposite that has happened- dominance has gone up.
He added, “The world’s largest companies now have extraordinarily dominant market share. Say in micro blogging one company Twitter has 100% market share. There’s no rival to it. In mobile chatting, Whatsapp is at 75%, WeChat at 17%, and Viber at 2-3%. This is what I call the era of dominance of dominance.”
The Investor Conundrum
So while market shares now are following a logarithmic rule rather than linear, what does it spell for investors looking to invest in startups? Mahesh very aptly relayed the problem for investors in today’s era of dominance. He said, “10 years ago as an investor, one would be very happy to invest in the number four pharma firm, but now one can’t even invest in the number two search engine because they are not number one. This means that we have come from a point where the world was very forgiving and an entrepreneur could launch a copycat firm to a point where if he is not number 1 or number 2, he doesn’t count.”