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Heuristic of the Day

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I am back from vacation and was immediately immersed in work (why did I write that in the passive voice? Hmm.) I’m too scatterbrained from sun and sea to really write anything, so I’m taking the lazy man’s way out. The Heuristic of the Day.

Well, at least it’s not as lazy as the quote of the day. (Which, btw, is “if you can’t solve a problem, make it bigger.” My morning meeting attributed it to Eisenhower. I believe it was recently uttered by Donald Rumsfeld. Regardless, sheer genius. Of course, I just use it in my personal life, not in international relations. I’m not sure how wise it is in international relations. Actually, it hasn’t worked so well in my personal life, either, but I still think it’s genius.)

In my life as venture capitalist, I had several rules of thumb. I liked to think of them as primary drivers and limitations of business change, but same difference. Here’s one on market evolution.

As markets get bigger, companies that specialize in each piece of a process chain replace end-to-end players.

There are a lot of reasons for this and a complete proof (such as it is in economics) would have to take into account the rationale for the firm itself, the economics of the knowledge economy and producer-consumer learning, etc. But the easy reason is that you can be better at something if it is all you do.

Well, duh, you say. Isn’t that the theory that made Adam Smith famous, when applied to pins? Yes it is, grasshopper. I didn’t say I made them up, I just said I used them.

But, you know, it’s something that entrepreneurs forget all the time. After a while I got tired of successful entrepreneurs–especially marketing entrepreneurs–thinking that because they’ve become good at one thing (marketing, that is) they should immediately branch out into their customers’ business. The old “I’ve sold a lot of soda for that guy, so maybe I should get into the soda business.” We’ve all heard it, and it’s a seductive idea. If you provide a product you want to provide a service also, if you provide a service, you want to provide a product also.

Sometimes it works. Everyone has a success story to point to. I’ve never seen it work, personally, and I’ve seen lots of people try it, but that’s me. It just seems to me that if you’re really good at something, the best business strategy is to do more of that.