The Economics of Passion and Obsession: Part 2

The best companies will always have a sustainable competitive advantage, something that will give them an edge over their rivals in the long term. Two companies right now that seem to have a sustainable competitive advantage are Apple and Google. Google has excelled at indexing and finding relevant information better than it’s competitors. Apple has created products around a brand that is known as one of the best in the industry. Both companies have an advantage that they will not lose in the near future.

However if you look at most sustainable competitive advantages, despite what the phrase suggests, the competitive advantages don’t usually last longer than a few years. A great business culture for instance, lasts a fairly long time, but even then their is no promise that the culture of the company will remain in the long term. If profits start getting smaller or the company starts clamping down on un-affordable employee benefits, the culture can change very quickly. Or what happens if a company known for breakthrough technology, suddenly without warning has it’s products become obsolete by the process of creative destruction.

I think it’s fair to say, that most of the large companies that are considered indisputably the best in their industry, only ever remain in that position for less than a decade. After that something changes within the company or someone else in the industry surpasses them. Yes some companies remain incredibly consistent, Berkshire Hathaway and Valve are legends in their industries for producing quality year after year. But examples of those companies are so rare, that’s why everyone revers Berkshire Hathaway. Since companies are dynamic organizations that may not be able to preserve what give them the advantage, even if the leadership of the company tries to preserve it. More likely companies will spend their existence in a constantly try to redefine itself, in the process have good years and bad years(that’s not to say the top caliber businesses do not redefine themselves, they do and well, that’s why they are so good).

But for small businesses it’s different. In these cases very possible to maintain a long term sustainable competitive advantages because the people who are responsible for the success of the company stick around a lot longer because the sense of purpose and community. People make a company and that is especially true with small businesses. It’s very common to see small businesses change management and then go out of business because the business had lost it’s competitive edge. A restaurant loses the quality of it’s food for instance, locals will be less likely to go their eroding clientele. But if the same people work there for a long periods, they help to preserve the competitive advantage. This is why some small companies will last forever under certain people and will close very quickly afterwards.

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