Counting Market Share Before You Chase It

Business is like the game of Poker

Watch a poker tournament and you will eventually see a man celebrating the largest stack at a shrinking table. The other players have drifted to a bigger game next door, and our champion is king of a pot that shrinks every hour. He has gained share — nearly all of it. What he has not gained is money. Market share is a percentage, and a percentage is only as valuable as the thing it is a percentage of. A bigger share of a shrinking game can be a smaller prize, and the press is full of companies that fought to own a larger piece of less.

The arithmetic takes one breath to state, and a thousand boardrooms ignore it. A company with thirty percent of a market earns from the thirty percent, not from the number thirty. If the market halves, yesterday’s thirty percent is worth what fifteen percent used to be worth — the company can win share every year and still shrink, applauding itself in the annual report. Blockbuster did not lose its grip on video rental; at the end it held an enviable share of it. The market left. The finest typewriter maker, the largest film manufacturer, the dominant seller of encyclopedias in volumes — each won its game. The game was the problem.

The second error hides inside the first: share can always be bought, and buying it feels like winning. Cut price, and volume follows — along with the ruin of every margin in the category, including your own, since competitors will match you down. I watched builders do this in falling markets, bidding tracts and subdivisions at prices that guaranteed a busy year and an empty one, each explaining that he was “maintaining share.” What he was maintaining was payroll. Share gained by surrendering your profit is not an asset purchased. It is your inheritance spent on applause.

The third error is the quietest, and accountants are its accomplices: defining the market so narrowly the share looks grand. The leading maker of premium buggy whips held one hundred percent of a market that mattered not at all. Every company draws the circle around its market, and the temptation is to draw it around the ground it already holds. The honest question is never “what is our share?” but “share of what, measured against every way the customer can solve his problem — including substitutes arriving from other industries?” A share figure that excludes the substitute is a lullaby.

None of this means share is worthless. In the right market, share is a weapon: it brings volume that lowers cost, distribution that shuts out rivals, a name that becomes the default choice. In a growing market whose economics reward size, those same points are worth fighting for. That is the point — the worth of share is not in the share. It is in the market’s future size and in what the share costs to hold. A poker player counts chips relative to the game, not relative to his stack an hour ago. The question is whether the game deserves the fight.

So the discipline comes first, and it is a counting discipline. First, count the market: is it growing, level, or shrinking, and by whose honest measure? A market shrinking two or three percent a year will eat most share gains. Second, count the cost of the next points: what price, promotion, or acquisition buys them, and what those points return in profit — not revenue, profit — across their life? Third, count what the same money earns elsewhere: in a growing adjacent market, in cost reduction no competitor can take away, in reserves for the day the shrinking game is sold cheap by men who chased share to the end.

In my development years I learned to ask about a town before I asked about my place in it. A modest share of a market where employers are arriving and incomes rising beats dominance in a town whose main plant has announced its closing. The town was the market. My ranking among its builders was a vanity number until the town’s number made it real.

Here is the takeaway. Before you spend a dollar chasing share this year, write down three numbers: the size of your market today, its honest size in five years at the current trend, and the profit — not revenue — that one more point of share in that market will pay you. If the trend is down and the points pay thin, stop chasing and start moving: take the cash the shrinking game still produces and seat yourself at a table that is growing. The champion of a dying game is still seated at a dying game, and the chips he wins there spend no larger for the trophy beside them.

Business is like the game of Poker

Watch a poker tournament and you will eventually see a man celebrating the largest stack at a shrinking table. The other players have drifted to a bigger game next door, and our champion is king of a pot that shrinks every hour. He has gained share — nearly all of it. What he has not gained is money. Market share is a percentage, and a percentage is only as valuable as the thing it is a percentage of. A bigger share of a shrinking game can be a smaller prize, and the press is full of companies that fought to own a larger piece of less.

The arithmetic takes one breath to state, and a thousand boardrooms ignore it. A company with thirty percent of a market earns from the thirty percent, not from the number thirty. If the market halves, yesterday’s thirty percent is worth what fifteen percent used to be worth — the company can win share every year and still shrink, applauding itself in the annual report. Blockbuster did not lose its grip on video rental; at the end it held an enviable share of it. The market left. The finest typewriter maker, the largest film manufacturer, the dominant seller of encyclopedias in volumes — each won its game. The game was the problem.

The second error hides inside the first: share can always be bought, and buying it feels like winning. Cut price, and volume follows — along with the ruin of every margin in the category, including your own, since competitors will match you down. I watched builders do this in falling markets, bidding tracts and subdivisions at prices that guaranteed a busy year and an empty one, each explaining that he was “maintaining share.” What he was maintaining was payroll. Share gained by surrendering your profit is not an asset purchased. It is your inheritance spent on applause.

The third error is the quietest, and accountants are its accomplices: defining the market so narrowly the share looks grand. The leading maker of premium buggy whips held one hundred percent of a market that mattered not at all. Every company draws the circle around its market, and the temptation is to draw it around the ground it already holds. The honest question is never “what is our share?” but “share of what, measured against every way the customer can solve his problem — including substitutes arriving from other industries?” A share figure that excludes the substitute is a lullaby.

None of this means share is worthless. In the right market, share is a weapon: it brings volume that lowers cost, distribution that shuts out rivals, a name that becomes the default choice. In a growing market whose economics reward size, those same points are worth fighting for. That is the point — the worth of share is not in the share. It is in the market’s future size and in what the share costs to hold. A poker player counts chips relative to the game, not relative to his stack an hour ago. The question is whether the game deserves the fight.

So the discipline comes first, and it is a counting discipline. First, count the market: is it growing, level, or shrinking, and by whose honest measure? A market shrinking two or three percent a year will eat most share gains. Second, count the cost of the next points: what price, promotion, or acquisition buys them, and what those points return in profit — not revenue, profit — across their life? Third, count what the same money earns elsewhere: in a growing adjacent market, in cost reduction no competitor can take away, in reserves for the day the shrinking game is sold cheap by men who chased share to the end.

In my development years I learned to ask about a town before I asked about my place in it. A modest share of a market where employers are arriving and incomes rising beats dominance in a town whose main plant has announced its closing. The town was the market. My ranking among its builders was a vanity number until the town’s number made it real.

Here is the takeaway. Before you spend a dollar chasing share this year, write down three numbers: the size of your market today, its honest size in five years at the current trend, and the profit — not revenue — that one more point of share in that market will pay you. If the trend is down and the points pay thin, stop chasing and start moving: take the cash the shrinking game still produces and seat yourself at a table that is growing. The champion of a dying game is still seated at a dying game, and the chips he wins there spend no larger for the trophy beside them.

Business is like the game of Poker

Watch a poker tournament and you will eventually see a man celebrating the largest stack at a shrinking table. The other players have drifted to a bigger game next door, and our champion is king of a pot that shrinks every hour. He has gained share — nearly all of it. What he has not gained is money. Market share is a percentage, and a percentage is only as valuable as the thing it is a percentage of. A bigger share of a shrinking game can be a smaller prize, and the press is full of companies that fought to own a larger piece of less.

The arithmetic takes one breath to state, and a thousand boardrooms ignore it. A company with thirty percent of a market earns from the thirty percent, not from the number thirty. If the market halves, yesterday’s thirty percent is worth what fifteen percent used to be worth — the company can win share every year and still shrink, applauding itself in the annual report. Blockbuster did not lose its grip on video rental; at the end it held an enviable share of it. The market left. The finest typewriter maker, the largest film manufacturer, the dominant seller of encyclopedias in volumes — each won its game. The game was the problem.

The second error hides inside the first: share can always be bought, and buying it feels like winning. Cut price, and volume follows — along with the ruin of every margin in the category, including your own, since competitors will match you down. I watched builders do this in falling markets, bidding tracts and subdivisions at prices that guaranteed a busy year and an empty one, each explaining that he was “maintaining share.” What he was maintaining was payroll. Share gained by surrendering your profit is not an asset purchased. It is your inheritance spent on applause.

The third error is the quietest, and accountants are its accomplices: defining the market so narrowly the share looks grand. The leading maker of premium buggy whips held one hundred percent of a market that mattered not at all. Every company draws the circle around its market, and the temptation is to draw it around the ground it already holds. The honest question is never “what is our share?” but “share of what, measured against every way the customer can solve his problem — including substitutes arriving from other industries?” A share figure that excludes the substitute is a lullaby.

None of this means share is worthless. In the right market, share is a weapon: it brings volume that lowers cost, distribution that shuts out rivals, a name that becomes the default choice. In a growing market whose economics reward size, those same points are worth fighting for. That is the point — the worth of share is not in the share. It is in the market’s future size and in what the share costs to hold. A poker player counts chips relative to the game, not relative to his stack an hour ago. The question is whether the game deserves the fight.

So the discipline comes first, and it is a counting discipline. First, count the market: is it growing, level, or shrinking, and by whose honest measure? A market shrinking two or three percent a year will eat most share gains. Second, count the cost of the next points: what price, promotion, or acquisition buys them, and what those points return in profit — not revenue, profit — across their life? Third, count what the same money earns elsewhere: in a growing adjacent market, in cost reduction no competitor can take away, in reserves for the day the shrinking game is sold cheap by men who chased share to the end.

In my development years I learned to ask about a town before I asked about my place in it. A modest share of a market where employers are arriving and incomes rising beats dominance in a town whose main plant has announced its closing. The town was the market. My ranking among its builders was a vanity number until the town’s number made it real.

Here is the takeaway. Before you spend a dollar chasing share this year, write down three numbers: the size of your market today, its honest size in five years at the current trend, and the profit — not revenue — that one more point of share in that market will pay you. If the trend is down and the points pay thin, stop chasing and start moving: take the cash the shrinking game still produces and seat yourself at a table that is growing. The champion of a dying game is still seated at a dying game, and the chips he wins there spend no larger for the trophy beside them.

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