Stage 1: Opening. The first stage generally begins with a single start-up or with a monopoly just emerging from a newly deregulated or privatized industry. But this 100% industry concentration quickly drops off. Soon, the combined market share of the three largest companies drops to between 30% and 10%, as competitors quickly arise to create the frontier of industry consolidation. Newly deregulated or privatized industries throughout the world, such as energy, telecommunications, railroads, banking, and insurance, currently occupy this space. Start-ups in new fields such as biotechnology and on-line retailing also reside here, along with spin-offs that come from completely consolidated industries—as sports drinks and bottled water did from the soft-drink industry.
Companies in stage 1 industries should aggressively defend their first-mover advantage by building scale, creating a global footprint, and establishing barriers to entry by protecting proprietary technology or ideas. Stage 1 companies should focus more on revenue than profit, working to amass market share. And they should begin perfecting their acquisition skills, as these will be key to success in the next two stages of consolidation.