Information Arbitrage is How all Businesses Create Success
Paying attention and noticing things others don't.
#scientific method##innovation#think/solutions/approaches#systemthinking#marketentry
Every successful business has an information arbitrage. It understands approaches, methods, or market insight that its competitors don’t, which creates an advantage. It is that know-how of creating this information arbitrage, that is its source of future competitiveness, not the resultant products and services.
Is Apple’s ability to compete in the future and retain its leadership based on the ecosystem of devices & services it has built up?
Or is it the ability to understand consumer behavior and macro trends more profoundly than competitors? So it delivers new technology products that change how we work and live?
The first is its current market position and assets. Powerful network effects, leading talent, ability to ideate and create consumer products at scale. A powerful moat around its current business. But they will not stop a competitor with a novel, better approach to satisfying future demand for products not yet conceived. What may, is the Steve Jobs culture embedded into leadership to combine humanities with technology and create beautiful experiences that are easy to use.
When thinking about your own businesses source of sustainable advantage: ask what information have I turned into insight that is not common? And how has that insight manifested into your creation of a product or service that is better? How did you gain that valuable insight in the first place? What was your approach? Can you codify it and systemize it, so it becomes embedded in your companies DNA & culture as it scales?
One of our companies at Blenheim Chalcot, Fospha, sells a SaaS service to marketing leaders built from its information arbitrage. It is a predictive sales tool that shows companies how to increase sales and profits from marketing investment decisions. It has been built on insight not common in its market. That digital marketing was too complicated and being incorrectly accounted for. Also that knowing how to invest marketing dollars would become increasingly difficult and complex. Moreover that marketing spend is a very big investment for most companies and returns should be accurately measured and ambiguity not accepted. These insights have continued into the culture of the company to constantly strive to clarify exactly how to make marketing investment decisions. It is its source of sustainable advantage. It manifests in the product. Every presentation, dashboard, and insight its users receive is $ based and focused on enabling its users to improve their decision making (investment of marketing spend). Consequently, it has become one of the fastest-growing martech companies and a must-have for Direct to Consumer (DTC) brands. Its machine learning engines, data scientists, SaaS software are all great assets. But it will remain competitive into the future because it continues to exploit its key information arbitrage - treat marketing as an investment and find out how to better measure the returns accurately to drive sales & profits.
Market entry requires a successful execution of information arbitrage. For companies entering the US from overseas, they have an information advantage and an information deficit. They can transfer a better approach from outside the market to a problem not yet being satisfactorily solved in the US. Or so they think. What I have found is there are often niches that overseas companies do not even know exist; with competitors already solving the exact problem using the same approach (or an even better one). The US is the home of venture capital and there are 3M plus new companies started every year, with many thousands shooting for the moon via new technology applications and VC funding. Also, the US market has a state by state regulation, especially among taxes and finance. So many companies entering the US find themselves suddenly navigating rules that slow them down or stop their advantage in its track. Fintech companies entering the US market wrestle with this constantly.
Your information arbitrage can come from first principles thinking and looking at things in a way others don’t. The founder of Starbucks’s knew its customers would come to Starbucks, not for hot coffee, but for the emotional pitstop Starbucks gave them during their daily commutes. This is also why Starbucks has been able to grow incredibly quickly across China, a nation of tea drinkers. It now has 4,400 stores there.
Successful market entry and gaining information arbitrage advantage require being observant and noticing information others don’t, applying it in unique ways, ideating futures that don’t yet exist, observe problems many struggle with; and find or create ideal solutions not yet available. True innovation “means the entire process of moving new and valuable ideas into the marketplace, where benefits accrue to the users and where return is extracted for investment in the process.” Inside Real Innovation.
Information arbitrage & true innovation go hand in hand.