Hidden Competition Leads to Creative Destruction
In 2000, Kodak still dominated the photography business. They saw Fuji as the big rival, and their boardrooms obsessed over film quality and price. But Kodak didn’t die because of Fuji. The killer came from outside: digital cameras, that eventually had their own lunches eaten by smartphones. A similar story can be told of independent video stores. Their owners were losing sleep over the prospect of the big bad Blockbuster coming to the neighbourhood, while Netflix first changed the game with mail order rentals, and then together with other streaming services put them right out of business.
That’s the danger of creative destruction. The real threats don’t come from the shop across the street. They come from outsiders who rewrite the rules while you’re busy watching your obvious rivals. And owing to the technological advances of the past several generations, we have seen many examples in our everday lives.
The post office lost volume to the fax machine which was made mostly redundant by email. Alongside that was the typewriter that was first supplanted by the dedicated word processor whose demise was sealed by the PC.
The Nature of Creative Destruction
in his 1942 book Capitalism, Socialism and Democracy, economist Joseph Schumpeter coined the phrase “creative destruction” to describe how innovation constantly reshapes markets. New businesses, technologies, and ideas rise up to replace the old. Not in any malicious sense but rather in the natural cycle of progress, like a forest fire is part of a natural growth, destruction, and renewal process.
The problem is that you can’t fight what you don’t see. Most businesses spend their time looking horizontally, at competitors who look like them. Restaurants obsess over other restaurants. Bookstores watch other bookstores. But disruption usually comes diagonally, from someone solving the same customer problem in a completely different way. The blind spot is costly. Billions get spent defending against the wrong enemy.
Why We Miss the Hidden Competitors
First and foremost, it’s easy and comforting to focus on beating existing competitors. It feels familiar, so we keep fighting the same battle, and don’t necessarily watch our flank as we should.
There’s a psychological trap: it’s tempting to dismiss outsiders as “not real competitors.” Taxi companies said Uber was illegal, and attempted to dismiss them, hoping they’d go away. Uber responded by becoming legal, and put a massive dent in the taxi industry by offering a package of services that people valued more.
How to See What’s Coming
The other reason we miss hidden competitors is because they are hidden. Until they’re not. It’s a rare person who can spot these often cataclysmic industry changes before they happen. But some business owners keep missing these threats as they happen. The smart operator will have a broad worldview and a wide variety of inputs of new information so that they spot trends early (or hear from those who have). A few pointers:- Consume a steady diet of mainstream news, trade or industry information, podcasts, business and political news, and even a bit of popular culture. Be among the first in your game to know what’s coming, and be aware of your own biases so you avoid dismissing threats. The current buzz around AI will surely lead to major disruptions in some industries, and small businesses operating in those domains are better positioned to adjust than larger ones. Do it early.
- Keep your eyes open to customer behaviour, not industry boundaries. Customers don’t want a taxi; they want mobility. They don’t want a hotel; they want a bed and a safe place to stay. And they don’t want a travel agent; they want to book a vacation. When you frame it that way, more substitutes become visible.
- Watch the fringes. Early adopters and subcultures often preview the next wave. Teenagers embraced TikTok before adults realized it was more than lip-sync videos. By the time businesses woke up and created YouTube Shorts and Instagram Reels, TikTok had reshaped how an entire generation consumes media.
- Study nontraditional rivals. Ask: “If my customers didn’t use me, what would they do instead?” The answers are rarely the competitor you obsess over. A restaurant might lose a customer not to another restaurant, but to a meal kit subscription or a grocery store with hot meals.
- Practice institutional humility. Assume the next threat is invisible right now. If your business strategy is built entirely around fighting today’s known competitors, you’re leaving yourself exposed.
Don’t Get Blindsided
It’ll rarely be the direct competitor that kills you. The danger is from the outsider who rewrites the rules while you’re focused on the familiar battle. Small or large, every business owner needs to widen their radar. Pay attention to shifts in customer behavior, new technologies, and alternative ways people meet the need you serve.
You likely can’t prevent the creative destruction of your industry, but you can foresee it, if you’re looking.
If you liked this, you might like this related post about breakeven point.
