Update/Contest: Two years after the original publication on November 2, 2016, Bret Chilcott took his company, AgEagle Aerial Systems, public. The company continued to steer clear of the commodity trap by focusing on innovation. AgEagle, founded in 2010, initially specialized in agricultural drone solutions but later expanded into defense and other industries. They went public in 2018, trading on the New York Stock Exchange under "UAVS." For more information, search online for “Drone Life” and “Ag Eagle Aerial Systems, Inc.”
Many small businesses get caught up in the commodity trap, selling a product viewed as a commodity by consumers. The small business owner engages in a race to the bottom, competing with other small businesses or the dreaded “box” stores to offer the lowest prices. It’s very, very difficult to win the race to the bottom without eventually going out of business. Overhead costs of providing the products at the lowest prices are just too high.
In a timeless business curve, new innovations eventually become commodities as more and more people in the market begin to use the products or services. The desk top personal computer serves as a good example. I became an early adopter of personal computers when I purchased a machine called the Apple II C in the mid-1980’s. It did not come from what we now call a “box” store. The period was pre-Internet so it didn’t come from an online company. Personal computers were purchased from small retailers who specialized in either just computers or electronics with computers as a new product line.
Over time, personal computers began to become commodities meaning one brand wasn’t distinguished from another and as prices came down, people started to make the buying decision based on price. Many, many of the small computer specialty shops are gone. The owners couldn’t compete on price in selling a product that was viewed as a commodity by the average consumer.
In the past, American communities of all sizes have engaged in a race to the bottom to offer the lowest wages, highest tax incentives and even free land to attract companies to come to an area. It’s difficult to win that race to the bottom too. Some other community is nearly always willing to go lower and give away more. It’s a commodity trap.
How do we avoid the commodity trap? We move ourselves back toward the beginning of the business curve by using innovation to distinguish what we’re doing so we’re not viewed as a commodity. Then, every time our products and services begin to move toward the commodity side of the business curve, we innovate again and then again.
In 1992, the rebuilding of fuel controls for medium-sized jets was viewed as a commodity by the market. Vendors providing the work all had to have the proper inspections and approvals so quality in the work was a given. The innovation that Curtis Lavine provided with his start-up, Kansas Aviation, was turn-around time. The standard turn-around time in the industry was 30 – 60 days. Kansas Aviation could provide the same service in 7 – 10 days.
In 2008, Brian Hight and Ryan McDiarmid built what is now Magnolia Scents by Design in the commoditized candle market. Their laser focus on the positive customer experience has been their innovation.
In 2010, Bret Chilcott of Neodesha noticed that his emerging vacuum injection mold business was in a commoditized market. He used his interest in aviation to pivot his efforts and became a world leader in unmanned aerial vehicles (UAV) used for agricultural. His company, Ag Eagle is still riding on the innovation part of the curve, selling UAV’s all over the world.
These three companies know that they have to continuously innovate in order to avoid the dreaded commodity trap. Innovation, by definition, can never become a commodity. We should all strive to move back to the innovation side of the business curve.
