Week 2, 2026—Issue #395

🤕 Why Smart Firms Lose in Commodity Markets

File this under #businessresilience

Photo by Phuong Nguyen on Unsplash

“In a business selling a commodity-type product, it’s impossible to be a lot smarter than your dumbest competitor.” — Warren Buffett

It’s easy to misread the above quote as important only to real commodities like crude oil and pork bellies. But that’s not quite right. Buffett’s point is actually much broader and much more uncomfortable, because it applies anytime buyers struggle to tell meaningful differences between products or services.

Consulting is a case in point.

As an owner of a consulting firm, I might not think Buffett’s quote applies to me. After all, I sell expertise, judgment, and thinking — not commodities! But the truth is that many consulting firms look like commodities in the eyes of the customer. And that’s the only thing that really matters.

Credence Goods

Consulting is what economists call a credence good. So called because customers cannot reliably assess its quality before buying it, and often not even long after delivery. Was the project successful because of the consultant, despite the consultant, or due to external factors? No one can say with absolute confidence.

When quality cannot be evaluated directly, buyers fall back on proxies like credentials, references, brand, and process. And, once a basic threshold is met, they fall back on price.

Which brings us to procurement.

Buyers of consulting services typically run a formal procurement process in which they solicit competing bids from three or four firms. All bidders pass the same qualification criteria. They must all appear competent. And when the bids come in, they all say roughly the same thing: We have great people, proven process, strong track record, etcetera.

True or not, the firms look interchangable from the customer’s point of view. Sure, the people are different, but they all look talented. And sure, the processes are different, but they all have a process. And so, in the lack of other useful proxies, the rational decision is to look to price.

Broken Systems

Who wins?

Well, it’s usually not the firm that understands the work best. And it’s certainly not the firm that estimates most accurately.

The winner is usually the firm that:

• underestimates the work (a fact that will only become visible halfway through the project when timelines slip or quality erodes), or
• deliberately discounts the work in the hopes of getting a foot in the door and making up lost margins on follow-up work at a later date.

Both strategies are common.

Neither is smart in the long run.

This is what Buffett means by “dumb competitors.” Not unintelligent, but actors trapped in a system that rewards short-term wins and penalizes discipline.

The real problem is not that these “dumb” competitors exist. The problem is that the system is broken.

If you are the disciplined bidder, the one who prices honestly and knows what good work actually requires, you lose. Worse, you learn nothing! You never find out whether you lost because you were inefficient, because the client could not see the difference, or because the winner was reckless or incompetent or both.

It’s a closed system without proper feedback.

And let’s be clear, this isn’t an isolated incident; it’s a pattern that plays out every time there’s a bidding process. It’s a lose-lose-lose proposition for everyone involved. And the unfortunate result is eroded trust.

Specialization

This is not a failure of marketing.

It is a failure of the business model.

Breaking free from a broken system requires focus and specialization, not in the vague sense of “we are experts,” but in the operational sense of narrowing what you do, who you do it for, and under what conditions.

It means designing a business where comparison is moot because your offering is uniquely specific, constrained, and opinionated.

Just as importantly, it requires the willingness to say no. “No” to work that does not value your way of operating. “No” to procurement processes that collapse everything to price. “No” to clients who want optionality more than outcomes.

You do not win by being smarter inside a broken system. You win by refusing to play that game at all.

That, ultimately, is Buffett’s lesson.

/Andreas

Sidenotes

☕ Morning Brew

I’ve done away with my Gaggia espresso maker. I now make my morning brew using an Aeropress and Prismo combo, with beans roasted by The Summer Coffee Company here in Bangkok (I alternate between Morning Person and Mr Rum Raisin). It saves time, effort, and counter space. And it tastes amazing!

🍌 That’s Bananas!

From Bill Bryson’s wonderful A Short History of Nearly Everything 2.0: “Remarkably, we are even quite closely related to fruit and vegetables. About half the chemical functions that take place in a banana are fundamentally the same as the chemical functions that take place in you. It cannot be said too often: all life is one.”

How can we build better organizations? That’s the question I’ve been trying to answer for the past 10 years. Each week, I share some of what I’ve learned in a weekly newsletter called WorkMatters. Back issues are marinated for three months before being published to Medium. This article was originally published on Friday, Jan 9, 2026. Subscribe at www.workmatters.studio to get the next newsletter delivered to your inbox. 😁