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Today’s leading edge technology is tomorrow’s commodity.Identifying the technology that will be popular tomorrow entails risk.Small companies can afford to take only a single position. They devote all their resources to that position.If they have made the right bet they survive and grow. Losers leave the market.Larger companies can pursue a variety of options, while waiting for the smoke to clear. By diversifying to reduce risk, large companies average their wins and losses.

Mature markets reduce the friction between companies. Reducing friction between companies reduces the advantage of vertical integration. Market pricing provides a more efficient mechanism than transfer pricing. When the market efficiency gain exceeds the residual friction of the market, companies can reorganize to produce the product through a network of companies each exercising its own distinctive competence. Economies of scope replace scale economies as companies provide a more focused set of activities with greater competence for a larger audience.

A company may be a market leader and shaper making big bets. It may be an agile follower, or may take steps to reserve its right to enter a field at a later date. Companies establish various postures in a marketplace depending on their own distinctive competencies and the uncertainty associated with the marketplace. Startup companies are generally limited to placing big bets.

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