So what are these businesses? How do you prevail when your competitor isn't playing the same game? Better mousetraps don't matter when someone else is selling 100x than you using VC powered marketing.
DDH has a cult of personality, and Basecamp wouldn't be the same without it.
Honestly, the problem being highlighted is similar to what happens in the gaming community. Some people hack, either out of a sense of trolling or "everyone else is probably doing it, too, so I need to do it to keep up". Eventually it becomes a self-fulfilling prophecy as more and more players see other players hacking and succumb to the pressure to do likewise. Then the game becomes hot garbage and the good players depart, leaving the game to collapse on itself as it becomes a wasteland of cheaters.
In the 1950s to the 1970s (when taking on debt was considered a sign of weakness, not the current "prerequisite for success" Wall St. convinced companies it is these days), there used to be this corporate ethos: "A decent amount of profit, a decent amount of the time."
The basic idea is that if you were making an "indecent" profit too often, you were engaging in 1 of 3 possible activities, each of which, despite seeming like a good idea in the short-term, would lead to ruin in the long-term: (1) You were fleecing your customers, leaving open a space for a less-greedy competitor to snatch your customers by replicating you at a lower price point (2) you were doing something illegal (Google "J.P. Morgan-owned ship caught with over $1 billion in street value worth of cocaine") or, (3) you were doing something that, while not "technically illegal", was probably not in your company's long-term best interest (for example, when it was discovered that Disney bought out companies that ran production studios that made "erotica" for cable TV channels, "because it was profitable, so, "Why not?").
That ethos was healthy and realized that business is NOT a "dog eat dog, law of the jungle" world but rather an ECOSYSTEM that needs to be maintained in balance for the long-term good of everyone involved, INCLUDING "competitors".
Yes it sounds a bit like "collusion" signaling through market-mechanisms, but it was a GOOD collusion that ensured the long-term health of the overall landscape.
At some point in the late 70s and 80s, things like Malthusian-driven "Club of Rome" enclaves and "Peak Oil" scares (nowadays "Won't SOMEBODY think of the environment!?") gave rise to a culture where more and more "Pre-("Terminator") and Post-("The Last Man On Earth") apocalyptic SciFi films flooded the general consciousness, which seems to have affected a lot of things including the psyches of business executives who seemed to have adopted this "Everything is falling apart, so grab what you can, while you can!" attitude (Not necessarily true (https://en.wikipedia.org/wiki/Julian_Simon), but highly-profitable for Wall St. and an ever-sprawling cottage industry of NGOs).
Does it "have to be" this way? Obviously not, as at one point it clearly wasn't. But some folks at the top make a lot of money by maintaining the illusion that "Yes this is reality and there's nothing you can do about it ("Hate the game, not the player") except to try to find a knife or club and realize that you're stuck in (https://en.wikipedia.org/wiki/Battle_Royale_(film)) ... which ironically has come full circle and seems to be the dominant theme in even video games themselves these days, thus subtly subconsciously imprinting this narrative on a whole new generation.
With linear growth in #customers/revenue/profit, percentage growth in #customers/revenue/profit drops every year.
In the limit it becomes zero.
Because of that, I think few CEOs would be happy with it in the long term.
Yes, you may be profitable and the best in your branch of work and be the largest in your branch of work and be a good employer, but if you’re close to that point and see a smaller company in your branch of work grow and thus take market share, you should be concerned that they will out-compete you in the long term.
OK, but consider the long-term: If (especially publicly-traded) companies are driven by the "You must increase profits indefinitely no matter what" ethos of "fiduciary responsibility to stockholders", when you've racked your brain and ran out of ways to increase new markets, by which point you're probably hyper efficient and figured out every cost-saving measure imaginable, then what?
You then are, if you seek continuously-higher-and-higher profit margins, cornered in such a way that you have 1 of 3 options out (see my reply to the first poster above).
The fact that more and more companies (1) are so myopic they can't see this coming and (2) openly embrace 1 of those 3 options when they're eventually forced to is how, for example, we've arrive at a world where formerly "Don't be evil" Google has morphed into "SOMEBODY is going to make some extra money becoming CyberDyne Industries, and so "Why not us?".
Not saying what you said is not part of the consideration, but imagine the world your kids will grow up in if more and more companies behaved this way.
It's the "ponzi scheme of capitalism". We're all playing because we've not come up with another better way yet. We've tried others but they weren't great either for various reasons / still are.
It should be clear to everyone that you can't forever grow profits, even if you assume that you're the only company in that segment. At some point you simply run out of uncaptured market to grow from. But you "have to grow" and you even have to grow the rate at which you grow.
Of course that leads to certain incentives. Especially if there actually are competitors in play. And then throw in inflation in general and some of your "growth" is actually eaten up by inflation too.
If there's a winner somewhere that means there's a looser somewhere else. It applies in business overall and in the stock market. If you make a profit from selling high after buying low, there's someone that sold to you at the lower price and they lost (either they lost out on more growth or even made an actual loss overall because they bought even higher).
The whole idea of "value add" is really just "exploitation" in various forms in many cases. You need a raw materials supplier to add your value. That raw materials supplier could've just taken the raw materials and "added value" themselves. But instead you got them to sell to you somehow and they lost (for whatever reason, such as missing knowledge, missing capital etc.). Over time that might change and they acquire those things and take over. Little by little. Bow you're the looser.
So what are these businesses? How do you prevail when your competitor isn't playing the same game? Better mousetraps don't matter when someone else is selling 100x than you using VC powered marketing.
DDH has a cult of personality, and Basecamp wouldn't be the same without it.
Honestly, the problem being highlighted is similar to what happens in the gaming community. Some people hack, either out of a sense of trolling or "everyone else is probably doing it, too, so I need to do it to keep up". Eventually it becomes a self-fulfilling prophecy as more and more players see other players hacking and succumb to the pressure to do likewise. Then the game becomes hot garbage and the good players depart, leaving the game to collapse on itself as it becomes a wasteland of cheaters.
In the 1950s to the 1970s (when taking on debt was considered a sign of weakness, not the current "prerequisite for success" Wall St. convinced companies it is these days), there used to be this corporate ethos: "A decent amount of profit, a decent amount of the time."
The basic idea is that if you were making an "indecent" profit too often, you were engaging in 1 of 3 possible activities, each of which, despite seeming like a good idea in the short-term, would lead to ruin in the long-term: (1) You were fleecing your customers, leaving open a space for a less-greedy competitor to snatch your customers by replicating you at a lower price point (2) you were doing something illegal (Google "J.P. Morgan-owned ship caught with over $1 billion in street value worth of cocaine") or, (3) you were doing something that, while not "technically illegal", was probably not in your company's long-term best interest (for example, when it was discovered that Disney bought out companies that ran production studios that made "erotica" for cable TV channels, "because it was profitable, so, "Why not?").
That ethos was healthy and realized that business is NOT a "dog eat dog, law of the jungle" world but rather an ECOSYSTEM that needs to be maintained in balance for the long-term good of everyone involved, INCLUDING "competitors".
Yes it sounds a bit like "collusion" signaling through market-mechanisms, but it was a GOOD collusion that ensured the long-term health of the overall landscape.
At some point in the late 70s and 80s, things like Malthusian-driven "Club of Rome" enclaves and "Peak Oil" scares (nowadays "Won't SOMEBODY think of the environment!?") gave rise to a culture where more and more "Pre-("Terminator") and Post-("The Last Man On Earth") apocalyptic SciFi films flooded the general consciousness, which seems to have affected a lot of things including the psyches of business executives who seemed to have adopted this "Everything is falling apart, so grab what you can, while you can!" attitude (Not necessarily true (https://en.wikipedia.org/wiki/Julian_Simon), but highly-profitable for Wall St. and an ever-sprawling cottage industry of NGOs).
Does it "have to be" this way? Obviously not, as at one point it clearly wasn't. But some folks at the top make a lot of money by maintaining the illusion that "Yes this is reality and there's nothing you can do about it ("Hate the game, not the player") except to try to find a knife or club and realize that you're stuck in (https://en.wikipedia.org/wiki/Battle_Royale_(film)) ... which ironically has come full circle and seems to be the dominant theme in even video games themselves these days, thus subtly subconsciously imprinting this narrative on a whole new generation.
With linear growth in #customers/revenue/profit, percentage growth in #customers/revenue/profit drops every year.
In the limit it becomes zero.
Because of that, I think few CEOs would be happy with it in the long term.
Yes, you may be profitable and the best in your branch of work and be the largest in your branch of work and be a good employer, but if you’re close to that point and see a smaller company in your branch of work grow and thus take market share, you should be concerned that they will out-compete you in the long term.
OK, but consider the long-term: If (especially publicly-traded) companies are driven by the "You must increase profits indefinitely no matter what" ethos of "fiduciary responsibility to stockholders", when you've racked your brain and ran out of ways to increase new markets, by which point you're probably hyper efficient and figured out every cost-saving measure imaginable, then what?
You then are, if you seek continuously-higher-and-higher profit margins, cornered in such a way that you have 1 of 3 options out (see my reply to the first poster above).
The fact that more and more companies (1) are so myopic they can't see this coming and (2) openly embrace 1 of those 3 options when they're eventually forced to is how, for example, we've arrive at a world where formerly "Don't be evil" Google has morphed into "SOMEBODY is going to make some extra money becoming CyberDyne Industries, and so "Why not us?".
Not saying what you said is not part of the consideration, but imagine the world your kids will grow up in if more and more companies behaved this way.
It's the "ponzi scheme of capitalism". We're all playing because we've not come up with another better way yet. We've tried others but they weren't great either for various reasons / still are.
It should be clear to everyone that you can't forever grow profits, even if you assume that you're the only company in that segment. At some point you simply run out of uncaptured market to grow from. But you "have to grow" and you even have to grow the rate at which you grow.
Of course that leads to certain incentives. Especially if there actually are competitors in play. And then throw in inflation in general and some of your "growth" is actually eaten up by inflation too.
If there's a winner somewhere that means there's a looser somewhere else. It applies in business overall and in the stock market. If you make a profit from selling high after buying low, there's someone that sold to you at the lower price and they lost (either they lost out on more growth or even made an actual loss overall because they bought even higher).
The whole idea of "value add" is really just "exploitation" in various forms in many cases. You need a raw materials supplier to add your value. That raw materials supplier could've just taken the raw materials and "added value" themselves. But instead you got them to sell to you somehow and they lost (for whatever reason, such as missing knowledge, missing capital etc.). Over time that might change and they acquire those things and take over. Little by little. Bow you're the looser.
One day this book will become much more popular and seem obvious in retrospect: https://en.wikipedia.org/wiki/Finite_and_Infinite_Games
This is completely infeasible for a publicly traded company or one one VC investors unless you want nobody to invest in you.
Which is completely fine. Not every company should look for VC investment or to become publicly traded.