The key to a (local) monopoly could be behind the reception desk

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The entrepreneur Peter Thiel once said competition is for losers while monopoly is for winners.

Thiel meant that the goal of every company should be to become a monopoly because it underpins high margins and allows it to think outside the box. Without high margins, a firm cannot develop and enjoy sustainable competitive advantage over the long term, and it will be forever caught in the tit-for-tat copying of rivals rather than exploring innovation.

Since monopolies are tough to achieve, most firms settle for the next best thing: duopolies. Duopolies occur when large competitors have agreed not to compete, or to compete on everything but price. Pepsi and Coke are good examples.

But suppose a monopoly and a duopoly are both out of the question for most firms, especially on a national or international scale. In that case, it is still possible for any company to create a series of local monopolies and wrap them into something with some serious power.

In his book Competition Demystified, Bruce Greenwald explained how every company can tap into monopoly advantages locally if they leverage the industry expertise and relationships held by their staff and managers.

For example, the front-line manager of a retail chain or the country manager of a service firm should have the power (and the obligation) to pursue all local competitive advantages for the company. After all, they know the local market better than anyone in the head office; they know where all the local opportunities and problems are; and they know all the big players.

The idea of building local monopolies touches on two important intangible assets: relationships and industry expertise. Who your front-line staff knows and what they know about the local market can be valuable assets.

One notable example of this strategy is the Coors Brewing Company, which aimed to dominate small regions in the western US to avoid spreading its resources too thin before it considered broader expansion.

Crucially, Coors maintained strict control over its distribution network by handpicking a small number of exclusive distributors who were required to sell only Coors products. Coors also selectively targeted its marketing efforts at the local level based on the social intricacies of the town or city. The exclusive distribution agreements and the marketing insight created significant barriers to entry for other brewers trying to enter the same markets.

Coors couldn’t have achieved this success without leveraging the industry expertise and relationships held by both its distribution partners and its own staff, since many of those staff had lived in the towns for their entire lives and knew all there was to know about who’s who and how to do it. They knew better than anyone how to serve their fellow residents with products that made the most sense for them.

An important part of Coors’ competitive advantage turned out to be their local staff and front-line managers. What they knew and who they knew were both intangible assets.

Unlocking employee expertise and leveraging their relationships is not an easy task, but the Coors example proves it is possible. The reason this approach is hard is because a lot of industry expertise is tacit, rather than explicit. Tacit knowledge is difficult to discuss since it is the totality of all the information and insights a person gathers over a long career.

The key to unlocking industry expertise is to take your people seriously.

The very act of listening seriously will telegraph to your staff that their expertise matters. It shows that the company is willing to play a team game and that it understands how any success requires the unique talents and skills of each employee.

To that extent, managers should encourage each of their staff to always be looking for gaps and opportunities in everything they do. When your staff are looped into an evergreen conversation to uncover and fix vulnerabilities – and they are rewarded for doing so – they will have the incentive to leverage all their industry expertise.

They will also start to think more clearly about the expertise they already have. Rather than loosely held inside their brains, beyond words, staff will actively find ways to formally describe what they know and put it on paper. Once this expertise is written down, this knowledge becomes valuable content for the company – which is another intangible asset.

Unlocking the industry expertise and relationships of your staff and managers is a great way to create a local monopoly that will help boost margins and make it much harder for rivals to operate in your territory.

In other words, the path to building a local monopoly may be sitting behind the reception desk right now.

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