Myth of Market Share: Why Market Share Is the Fool's Gold of Business

Chapter One Fool's Gold: Why the Myth of Market Share Is Wrecking the World's Great Companies In reading the history of nations, we find that, like individuals, they have their whims and their peculiarities; their seasons of excitement and recklessness, when they care not what they do. We find that whole communities suddenly fix their minds upon one object, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it . . . -Memoirs of Extraordinary Popular Delusions Charles Mackay (1841) THE OBSESSION Business leaders are gripped by the cult of size, the dogma of bigness. They are mad for market share. Nearly every company is mesmerized by it. Keeping it, growing it, justifying it-try to talk to a senior executive without the subject coming up. "I can't predict the economy," Scott McNealey, the legendary chief executive of Sun Microsystems, told Barron's recently, "but we will gain share." Nearly every time I meet with a CEO or senior executive, market share comes up. The reason is no mystery: Top executives know that they are measured by it, and they know that they measure their subordinates by it. Market share is also an obsession among Wall Street analysts, institutional investors, financial journalists, growth-minded entrepreneurs, high-flying consultants, self-styled gurus, and almost everyone with a 401(k). It seems like a neat shorthand for understanding the value and growth potential of any stock or business plan. It is easy, deceptively easy-and, too often, wrong. Why do so many people believe that market share naturally and inevitably leads to world-beating profits? Most business schools are temples to market share and churn out more acolytes every year. The guy in the big corner office is always asking about it. On the conference call, the fund manager wants to know why share isn't growing. The consultants always seem to have a magic plan to produce more market share. And when was the last time you heard someone say that his business plan would succeed in reducing market share? Like all dogmatic beliefs, followers explain away all of the contrary evidence or simply ignore what they cannot explain. Periodically, a researcher will emerge with new evidence about market share and profits. Eyes weary from poring over earnings reports, the unwelcome prophet will say something like: "Market share is the fool's gold of business. It looks valuable and it takes a lot of hard work to get-but it is nearly worthless. It wastes time and money while the competition is digging out the real thing. It hobbles, cripples, and kills great companies!" And, like most prophets, he will be ignored. Maybe the discouraged prophet will drop his yellow legal-size tablets on the ground, allowing us to read his notes: "The market-share obsession, based on flawed and outmoded theories, drags down corporate profits and pushes companies into costly moves. It makes companies bigger without making them more profitable." Sometimes it seems to coincide with profits; too often it does not. This book is about two powerful ideas: the obsession of market share and the proven path to profits. Once decision makers understand the misguided role that market share plays in corporate strategy, this book will show them how some companies achieve strong growth and above-average profits, using techniques that have worked in a broad array of industries. It will not make the true believers happy. THE CULT OF SIZE Let's start by looking into the world that really matters-the realm of results. Consider the roll call of companies that achieved large shares of the market in their industry sector or dominated their line of business. Far from being dominant giants, many were sold, were acquired in hostile takeovers, or simply went bankrupt. And the rest?Miniter, Richard F. is the author of 'Myth of Market Share: Why Market Share Is the Fool's Gold of Business' with ISBN 9780609609880 and ISBN 0609609882.