I’d like to challenge you to an intellectual game designed to help you make better decisions with your products, your business, and possibly even your life in general:
Imagine you and your main competitor are engaged in an iterative variation of the Prisoner’s Dilemma. You don’t know if your opponent will make a misstep, but you know they have an inclination not to.
Let’s call that the Business Prisoner’s Dilemma.
It’s a fitting name because a) it’s based on the classical Prisoner’s Dilemma from game theory, and b) your choices are influenced by knowing that your opponent is constantly trying to maximize their return.
In reality, you never know what kind of internal decisions are made by your competition. They might be playing the game well, or they might be cutting corners just like you. In the absence of information, it’s better to assume the conditions laid out by the Business Prisoner’s Dilemma.
In that case, there’s only one good strategy you can apply. By the end of this article, you’ll hopefully be able to use this line of thinking the next time you make a decision about your product, your team, or how you run your business, and understand that even minor choices have repercussions.
The Business Prisoner’s Dilemma
First, let’s have some fun with a real-world example.
We all know from a very fine-tuned PR machine that Steve Jobs was a perfectionist who would rather be remembered as arrogant than launch anything other than a great product. True or not, imagine you’re playing the Business Prisoner’s Dilemma against Steve Jobs.
And just to make sure everybody knows what the original Prisoner’s Dilemma is, let’s re-state it with this particular example in mind:
You and Steve are in the smartphone market, initially on perfectly equal positions, and are competing in “business rounds” that would normally have four possible outcomes. Every business round, corresponding to a new product launch, there’s a possibility that:
- You and Steve both compromise on quality for the next generation of smartphones. You launch similarly spec’d phones – neither is particularly good, but you might trick a couple of people into buying them. Sales are not great, but it’s enough for both companies to keep going.
- You compromise on phone quality, but Steve doesn’t. Uh-oh. Steve’s phones fly off the shelf, while your company gets buried. Investors are seething, and demand someone’s head (just between you and me, it’s most likely yours.) Steve knows how you feel. But hey, now he’s being hailed as a genius. Kudos, Steve!
- Steve compromises, but you don’t. We might never know what made Steve accept compromise. However, for you life is good: company stocks are soaring, and you can finally afford to drive the Lambo on your bucket list. Steve wouldn’t feel sorry if he were you, either.
- Neither you nor Steve compromise. Competition is tough and fanboys start taking sides. Sales are great, and the only way you’d have made more money is if Steve had compromised. Darn. You’ll get Steve eventually. Next round. Maybe.
As you can see, there are different payoffs for every outcome. The best scenario is if you put a great product on the market, while your competition somehow manages to botch it up.
But since we said from the beginning that Steve is an overachiever who’d rather drive everybody else insane than compromise on quality, design, or schedule, the Business Prisoner’s Dilemma is reduced to a subset of the original problem. Let’s try to summarize what we know:
The dominant strategy here corresponds to making no compromise, regardless of what your competition does.
Even in the absence of the vital piece of information that Steve (just like his friend Jon) doesn’t bend the knee (and I’m talking about Jony Ive here, of course), there are only two possible outcomes when you compromise:
- You get lucky, and your competition does a poor job as well (resulting in everyone being average);
- You fall behind.
Neither of those are truly good for you. But add to the mix the information that Steve never compromises, and prepare for a very Blackberry-like fate.
The optimal business strategy, no matter what you do: strive for excellence
You could be competing in any domain. But one choice in particular will help you stay ahead no matter the circumstances: never accept compromise. And if you’re ever forced to do, then be prepared for trouble later on.
Think about this: Would you base your product strategy for the next launch around your competition making a mistake? Hopefully not, especially if you’re competing against a Steve-like opponent.
At this point, you might be saying “Well, everybody’s forced to meet deadlines, have budget constraints, and are basically forced to compromise from time to time.” It’s true. There will be rounds where your competition has a slow year and not a very good output. But instead of relying on something inherent and unpredictable, what you should be doing is pushing yourself to excel every time.
What happens if you don’t?
You might find yourself in a particular situation, common to mature markets, where competition becomes stale and some players start to relax: the accumulation of compromises.
When this happens, even established players that seem to be doing an OK job will slowly start falling behind, with no immediate explanation. Top management starts to panic, and chaos ensues. Few companies recover from this. For some, the silver lining is being sold to other companies.
Perhaps the best example of that is Yahoo!, sold to Verizon for $4.8 billion in what was rightfully called “the saddest deal in tech history“. That might not sound too bad to everyone (it is). But know this: at one point in its history, Yahoo! was worth $125 billion, and had previously refused a $45 billion offer from Microsoft.
The bigger picture is harder to see: previous concessions on budgets, engineering or business decisions, and hiring anything other than top talent have a snowball effect. You could say that poor decisions only become critical when you’ve made enough of them.
Therefore, no matter how big or small your company (or your role in your current company) is, I want you to think about The Business Prisoner’s Dilemma right now. Take a moment, and make a list of what you’ve compromised on recently. Then, think about how it could affect you in the future.
Is it worth the risk?
BONUS IDEA #1: The accumulation of compromises also applies to some of your personal choices. Think vices. How many “rounds” ago should you have given up your bad habits? Think toxic friendships. How many years ago should you have given up bad influence?
BONUS IDEA #2: Whereas Steve was an unreliable opponent in the twist to the Prisoner’s Dilemma above, there will be people in your life who you’re better off playing co-op with. Because they’re not like Steve. And because sometimes it’s better to get rich and enjoy life together than to constantly compete against the Steves next door.
