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defeating. It holds an umbrella over the competitor. What looks like
higher profits for the established leader is in effect a subsidy to the
newcomer who, in a very few years, will unseat the leader and claim
the throne for himself. “Premium” prices, instead of being an occasion
for joy—and a reason for a higher stock price or a higher price/earn-
ings multiple—should always be considered a threat and dangerous
vulnerability.
Yet the delusion of higher profits to be achieved through “premi-
um” prices is almost universal, even though it always opens the door
to entrepreneurial judo.
5. Finally, there is a fifth bad habit that is typical of established busi-
nesses and leads to their downfall—Xerox is a good example. They
maximize rather than optimize. As the market grows and develops, they
try to satisfy every single user through the same product or service.
A new analytical instrument to test chemical reaction is being
introduced, for instance. At first its market is quite limited, let’s say
to industrial laboratories. But then university laboratories, research
institutes, and hospitals all begin to buy the instrument, but each
wants something slightly different. And so the manufacturer puts in
one feature to satisfy this customer, then another one to satisfy that
customer, and so on, until what started out as a simple instrument has
become complicated. The manufacturer has maximized what the
instrument can do. As a result, the instrument no longer satisfies any-
one. For, by trying to satisfy everybody, one always ends up satisfy-
ing nobody. The instrument also has become expensive, as well as
being hard to use and hard to maintain. But the manufacturer is proud
of the instrument; indeed, his full-page advertisement lists sixty-four
different things it can do.
This manufacturer will almost certainly become the victim of
entrepreneurial judo. What he thinks is his very strength will be
turned against him. The newcomer will come in with an instrument
designed to satisfy one of the markets, the hospital, for instance. It
will not contain a single feature the hospital people do not need, and
do not need every day. But everything the hospital needs will be there
and with higher performance capacity than the multipurpose instru-
ment can possibly offer. The same manufacturer will then bring out a
model for the research laboratory, for the government laboratory, for
industry—and in no time at all the newcomer will have taken away
the markets with instruments that are specifically designed for their
users, instruments that optimize rather than maximize.