Tuesday, April 15, 2014

"Rational entrepreneurs seek out gaps and niches in the market"

Quoted this in my review of Innovator's Dilemma, it was a comment on an Oddball Stocks post:

"Rational entrepreneurs seek out gaps and niches in the market which means that businesses which are already operating are left undisturbed for no other reason than that they were already there. It's only when entrepreneurs behave irrationally that they enter a market and cause industry wide returns to fall below the cost of capital. From a business school perspective this behavior is random because it does not follow rational principles. From observation it tends to happen in industries that people think are exciting or that people get into for no other reason than that everybody else is doing it. A business being in a boring, obscure and uneventful industry can therefore be a lasting source of excess returns on capital."
Was just thinking about it today after reading the BI article about "stealth mode" startup "Clinkle" last night. "Stealth mode" = "a company for carrying out an undertaking of great advantage, but nobody to know what it is".


James said...

Poyais was another notorious "stealth mode" start-up:


whydibuy said...

More ivy league professor claptrap.

As Buffet has said, business is very simple. If you can't explain to a 10 year old how the business has a advantage, it doesn't.
Furthermore, any business that is highly profitable will draw in competitors. Very simple. You make alot of money, you get knockoffs and followers. Until that great profit vanishes due to supply overwhelming demand.
Of course if you are speaking of the stock market valuing these niche companies that will never turn a dime of profit sky high, then that is another matter. I think I read that, historically, 40% of the companies on the nasdaq have never made a profit and never will.