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Draft Kings and Fan Duel Merge

Saturday, November 19, 2016 7:23
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How many more of these kinds of mergers are on the horizon?  DraftKings and FanDuel always seemed like the same exact business to me.  I never used them, but saw their ads.  I am not the target market.

Other mergers of startups have created some nice companies.  Chicago’s GrubHub merged with New York’s Seamless and created a company big enough to go public.  There are a lot of “find a parking spot” apps out there.  The two major ones being Parkwhiz and SpotHero.  Of course, when it comes to cars there is also Uber and Lyft.  If you thought about it long enough, you could find a lot of companies in startup land that were pretty similar.

In some cases, the market is big enough to have more than one competitor.  Competition is good for everyone.  Demand curves slope down.  In the US I don’t think we have enough competition in certain industries which is why all of us are paying the price.  Health insurance is a perfect example.

In other cases, businesses are fighting over a market that isn’t big enough to support more than a few businesses.  It’s smarter for them to merge and attack it head on.  Customer acquisition can be extremely expensive.  Given the lifetime value of customers in a particular market, it just makes sense to merge.

Competition also drives innovation. Look at carbonated beverages. There is Coke and Pepsi.  But, there are a lot of other beverages in the marketplace that are fulfilling different niches.  There are dominant local brands and there are private labeled brands.  But, Coke and Pepsi dominate and set the pace.

Here is where it gets complicated.  What if Coke were to make bad business decisions and go out of business?  Or, what if someone out innovated Coke, and they lost so much market share, it was unprofitable to operate the company?

Creative destruction and capitalistic principles say “Let them die”.

Unfortunately in the last 16 years we haven’t done that in America.  Taxpayers have bailed out company after company.  Subsidies are propping up bad businesses.  Subsidies are creating adverse effects on markets.  Those policies are limiting competition.

One piece of advice any good mentor will give a startup.  If you think you are the only person in the world working on a particular idea, disabuse yourself of that notion.  There are billions of people in the world and someone somewhere has to have a similar idea.  Success comes down to execution.

One of the biggest advantages of the startup community is that they know there is more than one.  If a company can’t execute, they don’t prop it up.  They let stuff die and move on.  They understand the hard things about hard things.   The rest of America needs to understand that too.  When it comes to companies they don’t always make it.  99.9% of the time, it’s better to let them die and let someone else start something new.  They need to understand that when it comes to bad government policy too.


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