The Investment Required to Attack a Leader is 70 Percent of Their Sales

A rough but useful rule of thumb is that the total investment a market leader has made to establish their position is approximately equal to their annual sales revenue.

This investment is spread across multiple areas:

Assets (65-70%): Plant, equipment, inventory, and accounts receivable.
Product Development (30%): The cumulative R&D spending to create and enhance the product line.
Channel Development (5-10%): The cost of training and building an effective sales force.
Marketing & Support (5-15%): The cost of building a brand image, customer support, documentation, demo equipment, and spare parts inventory.

The 70% Rule for Attackers

To compete effectively in a head-on assault, a follower must be willing to match the leader's level of investment in product development, sales, and marketing. A follower who is half the size of the leader will be consistently outspent and outmaneuvered.

Therefore, a follower should plan to reach at least 70% of the leader's market share to be effective. This leads to the formula for the cost of a head-on attack:

Cost of Entry ≈ 0.7 x (Leader's Sales)

Strategic Implications:

Don't Try Without Deep Pockets: This formula explains why head-on assaults are so often suicidal. The capital required is massive. If you don't have deep pockets, don't even try.
The Value of Niches: It provides a clear, quantitative reason why market segmentation is the only viable strategy for a smaller competitor. Be different, pursue a niche, but do not attempt a head-on assault.
The First-Mover Advantage: It explains why it is so much easier for small companies to enter a market before a major, entrenched competitor exists. Once a leader is established, the game shifts from one of pure invention to one of massive investment.