The Iron Law of the Market

Market matters most; neither a stellar team nor fantastic product will redeem a bad market. Markets that do not exist do not care how smart you are. – Marc Andreessen, venture capitalist and founder of Netscape and ning.com

What if you throw a party and nobody shows up? In business, it happens all the time.

Dean Kamen, and renowned and prolific inventor whose creations include the Sterling engine, the world’s first insulin pump, and water purification devices, poured over $100 million into the development of the Segway PT, a $5000, two-wheeled, self-balancing scooter that he claimed would revolutionise personal transportation “in the same way that the car replaced the horse and buggy”. When the Segway was made available to the public in 2002, the company announced that it expected to sell 50 000 units every year.

Five years into the business, the company had sold a total of 23 000 units – less than 10 percent of the initial goal. The company’s financial records are private, but it’s safe to say they do not look good.

The problem was not that the product was poorly designed – the technology that makes the Segway work is incredibly sophisticated, and the benefits are significant: the Segway is a convenient, green urban car replacement. The problem was that very few people cared enough to spend $5000 on a goofy looking alternative to walking or riding a bike – the massive market that Kamen expected did not exist.

The same thing happens to new businesses every day. Without enough revenue to sustain it, any company will fail. Your income is entirely dependent on people wanting what you have to offer.

Every business is fundamentally limited by the size and quality of the market it attempts to serve. The Iron Law of the Market is cold, hard, and unforgiving: if you do not have a large group of people who want what you have to offer, your chances of building a viable business are very slim.

The best approach is to focus on making things people want to buy. Creating something no one wants is a waste. Market research is the business equivalent of “look before you leap”. Books like The New Business Road Test by John Mullins can help you identify promising markets from the outset, increasing the probability that your new venture will be a success.

In the next few sections, we will explore how to figure out what people want and need before investing your time and hard-earned money into creating something new.

This concept by the author: http://book.personalmba.com/iron-law-of-the-market/

 

Economically Valuable Skills

Do not go around saying the world owes you a living. The world owes you nothing – it was here first. Mark Twain, great American novelist.

If you want to improve your value as a businessperson, focus on improving skills directly related to the Five Parts of Every Business.

Not every skill or area of knowledge is Economically Valuable, and that is okay – there are many things worth pursuing for the sake of relaxation and enjoyment alone.  You may enjoy whitewater rafting, but it is very unlikely anyone will pay you to shoot the rapids unless you apply your skills for the benefit of others. Make the leap from personal enjoyment to Products and Services (discussed later), however, and you will find yourself getting paid – plenty of adventurous souls are willing to pay for rafting equipment and guides.

As Michael Masterson suggests in Ready, Fire, Aim, do not expect skills that are not related to the Five Parts of Every Business to be economically rewarded. Find a way to use them to create Economic Value, and you will inevitably find a way to get paid.

Any skill or knowledge that helps you create value, sell, deliver value, or manage finances is Economically Valuable – accordingly, these are the topics we will discuss in this book.

This concept by author: http://boot.personalmba.com/economically-valuable-skills/

 

 

The five parts of every business

A business is a repeatable process that makes money. Everything else is a hobby. – Paul Freet, serial entrepreneur and commercialisation expert.

Roughly defined, a business is a repeatable process that:

  1. Creates and delivers something of value …
  2. That other people want or need …
  3. At a price, they are willing to pay …
  4. In a way that satisfies the customer’s need and expectations …
  5. So that the business brings in enough profit to make it worthwhile for the owners to continue operation.

It does not matter if you are running a solo venture or a billion-dollar brand. Take any of those five factors away, and you do not have a business – you have something else. A venture that does not create for others is a hobby. A venture that does not attract attention is a flop. A venture that does not sell the value it creates is a nonprofit. A venture that does not deliver what it promises is a scam. A venture that does not bring enough money to keep operating will inevitably close.

At the core, every business is fundamentally a collection of five Interdependent (discussed later) processes, each of which flows into the next:

  1. Value creation. Discovering what people need or want, then creating it.
  2. Marketing. Attracting attention and building demand for what you have created.
  3. Sales. Turning prospective customers into paying customers.
  4. Value delivery. Giving your customers what you have promised and ensured that they are satisfied.
  5. Finance. Bringing in enough money to keep going and make your effort worthwhile.

If these five things sound simple it is because they are. Business is not (and has never been) rocket science – it is simply a process of identifying a problem and finding a way to solve it that benefits both parties. Anyone who tries to make a business sound more complicated than this is either trying to impress you or trying to sell you something you do not need.

The Five Parts of Every Business are the basis of every good business idea and business plan. If you can clearly define each of these five processes for any business, you will have a complete understanding of how it works. If you are thinking about starting a new business, defining what these processes might look like is the best place to start. If you cannot describe or diagram your business idea in terms of these core processes, you do not understand it well enough to make it work.

This concept by the author: http://book.personalmba.com/5-parts-of-every-business/

Value creation

Make something people want … There is nothing more valuable than an unmet need that is just becoming fixable. If you find something broken that you can fix for a lot of people, you have found a gold mine.  – Paul Graham, founder of y combinator, venture capitalist, and essayist at paulgraham.com

Every successful business creates something of value. The world is full of opportunities to make other people’s lives better in some way, and your job as a businessperson is to identify things that people do not have enough of, then find a way to provide them.

The value you create can take on one of several different forms, but the purpose is always the same: to make someone else’s life a little bit better. Without value creation, a business can not exist – you can not transact with others unless you have something valuable to trade.

The best businesses in the world are the ones that create the most value for other people. Some businesses thrive by providing a little value to many, and others focus on providing a lot of value to only a few people. Regardless, the more real value you create for other people, the better your business will be and the more prosperous you will become.

This concept on author’s website: http://book.personalmba.com/value-creation/