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How the Economy Creates Competitive Advantage

April 4th, 2009

When money gets tight people don’t just “spend less”, they become more cognizant of the value they are getting from the money they spend. In fact, as the economy worsens I find myself spending MORE money than I have in the past because I am finding lots of value as prices fall.

Interestingly, I am also finding that when money gets tight, there are a few businesses that will actually grow and profit from this turmoil. 2008 was a down year for all four of my companies, but 2009 is already setting new records of growth for us and I think a big part of it is what Seth Godin describes in his book The Dip (also available in audio format).

The premise I’m referring to is the fact that as one competitor establishes themselves in the marketplace, if they are able to establish a strong competitive advantage they create a sort of gap (what Godin refers to as “the dip”) between them and their other competitors. The wider and deeper this gap becomes the stronger the competitive advantage.

When the money gets tight people don’t stop spending, they just become better consumers. The result is that the poor providers fall to the wayside while the companies that provide superior products and offer impeccable service (like GoDaddy.com) will see their business barely affected during a down economy and many companies will see their profits rise in the coming months.

Even better (for those on the right side of the dip anyway) is that as competitors crumble, even if your total revenues are down, your slice of the total pie is getting bigger and bigger. When we come out of this crises, and we will, then those who have weathered the storm will be a a near perfect position to reap huge rewards.

But, if you aren’t in the right place right now, fret not! It isn’t too late. Even though down economic trends comprise less than 20% of the time, fully 60% of the businesses that comprise the companies used to calculate the Dow Jones Industrial Average were all founded during economic down turns. Now is the time to strike out and make good decisions.

And don’t worry. This isn’t the last economic crisis we’ll face, either. There will be plenty more after this one.

Competitive Advantage, Down Economy