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Chapter 6. Exploiting Established Compan... > Why Established Companies Win Most o...

Why Established Companies Win Most of the Time

Established companies are generally better at exploiting business opportunities than new firms for several reasons that have to do with the advantages that firms develop over time: the learning curve, reputation effects, positive cash flow, scale economies, and complementary assets in manufacturing, marketing, and distribution. Let’s take a look at why these things place new firms at a disadvantage in competing with established firms.

The Learning Curve

Most of the activities that firms engage in are things that involve some type of learning by doing. While people can learn some things by watching others or by reading about what others have done, most aspects of learning in business are only learned by doing them. Companies learn how to manufacture more efficiently, market more effectively, manage people better, and a host of other things by engaging in those activities. The effect of this learning means that the more times that firms engage in an activity—be that selling, manufacturing, product development, or anything else—the better they get at that activity. This tendency to learn means that most business activities display a learning curve, which is a graphical representation of the relationship between the number of times something has been done and performance at that activity. Take manufacturing products as an example. The more units of a product that a company produces, the more efficient it gets at production.


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