The #1 Money Maker for Big Companies
If honest business were as profitable as fraud, fraud wouldn’t exist. And ‘legal fraud’—that’s the most profitable game in town.
When you buy bread, air tickets, or a subscription to a streaming platform, you’re bearing not just financial costs.
And these costs? They’re just a legal way for some companies to rip you off.
“Users got a problem? Well, that’s their problem!”
In 2023, someone tried to rob me while Meta watched indifferently. A hacker took over my Facebook ad account.
Meta’s antifraud system turned out to be total Swiss cheese. I learned about the hack only when a friend told me my account was advertising lawnmowers.
I was on vacation, but instead of enjoying sunbathing, I stuck emailing Meta support.
The creature I emailed to had a name but felt like a chatbot built in 2008 by a student with a $20 budget.
I sent over 50 emails. I had to block two credit cards, which was a huge hassle. Eventually, the creature informed that Meta solved the problem.
It was a lie. I still can’t use the account. Meta still thinks I owe them $250.
But after that lying email, tech support cut off all communications and ignored my messages.
When you face similar problems, you assume someone in the company is just doing a poor job. Alas, the company’s leaders do it on purpose. They say: “Users got a problem? Well, that’s their problem!”
Strategists (me included) love to say, “Find a customer problem and capitalize on it.” Business leaders take it too literally.
A spherical cow
“Theory, my friend, is gray, but the golden tree of life springs ever green.”
Johann Wolfgang Goethe, Faust
Economics textbooks teach us that competition is good because it makes companies reduce the prices and increase the quality of their products.
It makes perfect sense, but why on Earth are we stuck with overpriced, mediocre products? Why do prices always grow faster than salaries?
Just look at the pictures:
Average new car price in the US, source
Housing prices accross the EU
To be fair, some prices are actually going down—for example, smartphones:
Image source – Statista
But many essentials keep getting more expensive year after year:
- Healthcare Services: +3.32% annually over the past 25 years.
- College Tuition: +175% over the past 25 years.
- Housing: +166% over the past 25 years.
The price of eggs has risen so much in the US recently that people started making memes like this:
When was the last time when you were excited about a product or service? Do you feel that businesses around you genuinely care about you? Yeah, me neither.
If product quality rose as fast as prices and prices dropped as fast as quality, supermarkets would be giving away self-driving golden Teslas with every two bottles of shampoo.
Scientists call abstract theories that work only in ideal conditions ‘spherical cows.’ Competition is one such theory.
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Value inequality
Imagine I baked a loaf of bread and sold it to you for $2. If you believe that $2 is a fair price, it looks like a win-win situation. I am happy. You’re happy. Tax collectors are happy.
It may feel like an equation:
Value Created = Value Captured
I created value for you (a loaf of bread) and captured value from you ($2).
In reality, though, it’s an inequality. Value Captured is always less than Value Created – as long as we’re talking about a competitive market – for two reasons:
- Customers always seek Consumer Surplus, a sense that they receive more than they give. When you exclaim,“Darling, I got it for just 5 dollars!”, it actually means that you were willing to pay $10 and are happy that you saved 5 bucks.
- Competition pushes prices down.
Businesses have found a loophole – transaction costs, or what Thales S. Teixeira called Value Eroding Activities (VEAs) in his book Unlocking the Customer Value Chain.
- For instance, when you listen to the radio for free, the Value Eroding Activity (VEA) is a necessity for listening to ads, too.
- Some retailers offer attractive prices, but their stores are often outside the city.
- Many banks still require you to visit their offices in person to handle certain issues, and the offices are always miles away.
- Unsubscribing from many media outlets or services is deliberately made difficult.
- And endlessly hearing “You call is very important to us” is also a form of VEA.
Any sacrifice you make—time, money, attention, or effort —just to get value is a VEA or non-monetary cost.
The value you get = Value Created – Value Eroding Activities.
If your business is small, young, and struggles for every penny, you’ll try removing VEAs as much as possible to attain and retain customers.
But when it gets big, EVAs turn from enemies into allies – they increase your profit.
Michael Porter taught us to increase customer value to beat the competition in his books. But you may follow another playbook.
Grow, Dominate, Eliminate
Cutting costs is much easier than creating customer value. If a business grows steadily, at a certain point, it reaches a state where it cares less about EVAs. That’s why investors and guys from Wall Street are such big fans of rapid growth and M&A deals.
Size matters.
- Three major players, AB InBev, Heineken, and China Resources Snow Breweries, control over 44% of the global beer market.
- There were 41 banks in my country in 1995. Today we have only 20, and three of them control almost 60% of the market.
- Amazon enjoys 47% of the American online retail market.
- Meta is a social media giant. We have only two smartphone platforms in the world.
Beer lovers managed to start more than 19.000 small breweries producing craft beer. But they can’t start a bank, a social platform, or a major retail chain. Behemoths dominate many sectors, and it’s not going to change anytime soon.
And for behemoths, EVAs are a source of easy profit. It’s basically financial fast food.
They replace call centers with buggy chatbots, offices with clunky mobile apps, and human communications with spammy newsletters.
They. Don’t. Care.
If you’re a startup founder, an entrepreneur, or a CEO, you must choose between two basic strategies:
1. You can work hard, creating customer value and igniting new markets.
2. You can grow fast, dominate your niche, eliminate competitors, and stop caring about value-eroding activities.
The choice is yours.
Download my new mini-book The Plague of Strategic Goals for free here—a gift for my subscribers! Oh, and by the way, the same link also has free checklists (in case you haven’t grabbed them yet)!
Svyatoslav Biryulin
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Read also: Want to create a new market? Focus on what others overlook
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