Markets exhibit the Pareto principle in that most of the advantages accrue to a small number of players—mostly number one. These advantages include growing faster, network effects, recruiting the best people, expanding to new opportunities quickly and most of the 7 Powers.
That’s why it makes sense for businesses to aim to be the market leader or create a new market. That’s also why startups tend to use high-variance strategies (being number one is basically a tournament) rather than more incremental ones.
- No one notices this happening and it seems giant companies appear over night because compounding benefits occur at the end
Links to this note
There are two common elements of economic superstars. First, there is a close connection between personal reward and size of the market. Second, there is a tendency for market size and reward to be skewed to the most talented people in the field.
The Growth incidence curve from 1988 to 2008, also known as the Elephant Graph, shows the income growth by percentile of global income distribution. It shows two things: global inequality has declined and the middle class (80th and 90th percentile of global income) stagnated.