Yesterday, I read an article titled Invisible Industries.

The reward for being overlooked is, paradoxically, the opportunity for supranormal profits.

A couple quotes from the article stood out to me, so I wanted to spend more time on it over the weekend.

At what point is an industry no longer ‘Invisible’?

Companies are invisible primarily because no one is paying attention to them. There are four main reasons this happens: No. 1, they are unknown; No. 2, data about their existence or profitability is private, missing, or obscure; No. 3, they are misunderstood because their markets are assumed to be mature, shrinking, or too small to matter; or No. 4, they are disdained, because the work is low-status, unpleasant, parochial, or socially stigmatized.

The article explores why industries remain invisible. But at what point is an industry visible? If we apply the negation, we get the following:

  1. Company names are well known
  2. Data about financial information is well known
  3. Their market is considered booming
  4. They are socially accepted

There is a strong argument that knowing exactly when a company goes from invisible to visible is important, as the article notes:

Or, if they think they are about to lose their cloak of invisibility for some other reason, they might decide to shed it pre-emptively. They might decide to launch a brand-building campaign, for instance. Or they might decide to go public and use the money raised by an IPO to build an enduring competitive advantage—with the strategic fillip of exposing their competitors to scrutiny, who then lose their invisibility without any offsetting benefit.

Early Stage

  1. Hard to attract top talent.
  2. Employee/Client churn is high.
  3. Industry requires multiple conversations to explain.
  4. Most people do not know how to do X.

Mid Stage

  1. Incumbents who grew on shitty fundamentals collapse.
  2. Market dynamics make it rare for new entrants to get in touch with top brands/clients.
  3. Moats are being generated by the top decile companies/incumbents:
    1. Excess profits -> Marketing/Technological Moats
  4. Salary bands have become defined.

Last Stage

  1. Entering the market is no longer profitable or requires significant investment. Incumbents have created large moats.
  2. There is a clear group of winners/the industry has turned into an oligopoly.
  3. Employees are easily replaceable.

How do you combat bad actors in ‘Invisible’ industries that have recently become ‘Visible’?

And last, look for industries where new entrants almost exclusively come from existing companies, where there are businesses being started, but not by outsiders. If there is outsized profit, existing employees will know about it. Some of them will decide to compete, even when no one outside the industry can see the opportunity.

The biggest problem in social commerce/booming industries is there are no employees with the necessary skill set. Effectively, you have to train them (oftentimes intensely) and afterwards you lose them due to the training process. This loss is accelerated when your industry is becoming visible and everyone needs talent.

Employees, and to some extent rightfully so, have a zero sum mindset that any learning is at the cost of them instead of the benefit of them.

Great Employees (5 to 10%) - they stay. They understand why they’re working long hours and it makes sense to rapidly increase their compensation.

Bad Employees (50%) - they’re fired, and they’re the blight of the industry. They can weaponize their understanding of the industry to consistently get new jobs and their only abilities seem to be rapidly destroying the industry salary bands. Top grading becomes essential at this stage

Ok Employees (40 to 45%) - the most susceptible to churn/poaching. We’re still trying to figure out how to retain them.