The internet promises unlimited connectedness to markets and customers. To thrive, businesses must specialize. The alternative is deadly competition.

A tale of two villages

Imagine two villages, separated by a large river. To reach the neighbouring village, villagers have to travel for a week. There's a cobbler in each of the villages. They produce and repair shoes for the locals.

One day, the mayors of both villages decide to build a bridge over the river. Villagers now only need half an hour to go from one village to the other.

Now what will the cobblers do?

The Luis I bridge over the Douro river (© Miquel Fabre )

The cobblers' dilemma

The cobblers have three options:

  • Remain a generalist cobbler and keep providing the same services as before;
  • Specialize. One cobbler could become the go-to place for leather, the other for linen and felt;
  • One of them specializes, the other doesn't.

Without changing their offering, the cobblers will compete on price. The cost of this arms race is enormous. Even if one cobbler goes out of business, it will have cost the surviving cobbler a fortune.

But instead of competing on price, the cobblers can distinguish themselves through their services. Being the go-to shop for specialist services allows for pricing premiums. Growth does not happen at the cost of a competitor. Customers have more choice and can enjoy more sophisticated services.

What the specialist cobbler does, the generalist cobbler does only half as well. This generalist's lack of ambition and focus means the door is open for anyone to nibble at parts of his business. One will go for the leather, another goes for the felt and linen. Eventually, the generalist has nothing left to distinguish himself with.

A tale of many villages

Today, there are trillions of villages, bridges and cobblers. The internet has connected customers and businesses at an unprecedented scale and speed. Customers have access to a global marketplace of goods and services, all at the touch of a fingertip.

Businesses today must make the same decision as the cobblers. Either they enter an arms race and spend fortunes to try and kill competition. Or they cater to more specialised customer needs. As with the cobblers, it's only by specialising that more value can be created and captured.

Digital amplifies the need for businesses to specialize. Businesses who understand this and act upon it will set themselves up for solid growth.

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