“There is no such thing as a long-term, sustainable, competitive advantage.”
So preached my graduate school Microeconomics professor, often enough that the old saw about the supply bone connecting to the demand bone sums up the totality of my remembrance from business school forty years after graduation.
That, and, of course, The Lesson of the Lemonade Stand.
Five millennia ago, Chinese warlords began playing what we nowadays call war games. Modified for business the year of my birth, the Top Management Decision Simulation pitted fictional firms against each other in a one-product industry like a golf course of undertakers clamoring to be on top at the last hole. Backed by a computer model that gamed key decisions on product, price, promotion, and place, The Lemonade Stand, named for the hands-on version at the California Science Center across the street, was the consensus highlight of my MBA program.
The Stand was designed not just to maximize participatory development. There was also capitalism to consider. As James O’Toole once quipped, “This is USC, after all.” Pegging the top finisher to an ‘A’ grade incentivized the most extreme takers to win at any cost. Lately exposed to the license to mediocrity known as The Law of Diminishing Marginal Utility, my team chose to fast-follow the Whiz Kids all the way to a guaranteed ‘B’.
“We’ve all got jobs,” they rationalized. “Why break a sweat when a second place still reimburses our tuition?”
Let’s roll the tape on that grand plan.
The first order of business was to allocate our quarterly budget across a host of simulation inputs: how much to sink into plant and equipment, raw material, finished goods, and the like. Aspiring only to place, the Fast Fallers, as I resentfully dubbed our “We’re Number Two!” excuse for a team, played the first round safe by retrofitting a small assembly line, ordering some ‘lemons,’ seeding a flake of market research, and opening a trial stand on the corner to wet the feet if only a modicum of whistles. As predicted, the Kids scooped us out of the gate by placing a dozen stands and an ad in the neighborhood bulletin, and by round two, we lagged the Fake Posers as well.
The Stand simulation ran the bulk of that semester by microwaving three years of business decisions into twelve weeklong quarters. Compression of time on that scale distorts any sense of rhythm one normally senses more than calculates: the flow of materials, the duration of an ad campaign, and the run of a sales cycle. For me, such are choices best made in the face of real data, which, in the early stages of the Stand, everyone lacked. Never hitting our stride, at the halfway mark, still in third position, we consoled each other that at least we weren’t the Slackers who had yet to buy their first lemon. But could they crank out a stand or what? Their overall strategy made no sense. What good was a statewide network of lemonade stands but no lemonade? Did we miss a best practice? A tip leaked from the prior semester? The hidden takeaway behind a business case we Fast Fallers never bothered to read?
As it happened, this was the same year Continental Airlines decided to emulate both industry leader United and up-and-comer Southwest, a move called straddling that two years later would land them in bankruptcy. Caught in the middle between something old and something new, what was half a dozen falling sheep without an iota of daring among them to make of their middle-diddle place on a leaderboard about to come undone? By week nine, we decided to slow business operations and double down on building more stands, which slouched us discreetly into fourth. The Kids were running away with it, and the Slackers, dead last on zero sales, could, if they hadn’t been so private about their ridiculous plan, at least boast several lemonade stands in every California county.
You can see where this is going…
In week ten, ready to offer fresh lemonade at half the price to ten times the drinkers as the rest of us combined, the Slackers opened for business to a hockey stick of earnings and, by week eleven, never looked back. When the bell rang on year three, the What Just Happened’s? were making money so fast their market value eclipsed the field by an order of magnitude. (My normally vicelike memory has conveniently suppressed how far down the leaderboard we Fallers ultimately fell.)
Afternote: Relative to our fictional business school simulation, it would be another forty actual quarters before Jeff Bezos upended the retail marketplace by opening a ‘lemonade stand’ on a global scale. And forty quarters after that to turn a profit. If there is truly no such thing as a long-term, sustainable, competitive advantage—in any human endeavor, which I now feel certain there is not—where do YOU stand?
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