Accumulating advantages

Nearly all companies ossify as they grow larger. Product, organization, and operations become more unwieldy, more complex, less agile, and less innovative, Newer and nimbler competitors slowly steal market share, and the cycle continues. 

The most resilient and durable companies - say, Apple, Facebook, Google, United Healthcare, LVMH, etc. have one essential quality to outweigh the forces of ossification - powerful and inherent flywheels to get better and more competitive as they scale. 

These “accumulating advantages” can come in many forms - as network effects, economies of scale, brand and marketing efficiencies, IP, data, deepening product or operational expertise, capital, regulatory capture, etc. Google’s search becomes better as more people search and more publishers follow Google’s standards; Facebook gets better with more people and content; LVMH’s brands become more popular with more customers; and United Healthcare can offer bigger networks and better pricing. 

The best forms of flywheels are those that are organic to the product or business model; they are automatic and resilient to inevitable incompetence and complacency that come with scale. A business with such advantages can continue to thrive even with “idiots in charge”, as the PayPal mafia famously described their eBay acquirers. Those are the only businesses that have a chance of escaping the natural forces of innovator’s dilemma and creative destruction, and surviving long-term. 

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