Why Most People Suck At Business -- Supply & Demand
There's a quote Peter Thiel said a few years ago that has really stuck with me. If you don't know who Peter Thiel is, he's one of the co-founders of Paypal and one of the largest shareholders of Facebook. The guy is brilliant. To paraphrase, his quote goes something like this:
Competition is overrated. In practice it is quite destructive and should be avoided wherever possible. Much better than fighting for scraps in existing markets is to create and own new ones. Sometimes you have to fight. When you do, you should win. But conflict tends to be romanticized, and people tend to get sucked in. It is worthwhile to think about how to run away from the fighting and build a monopoly business instead.Peter Thiel
This is a very powerful message that goes against what most people think of when they think of business or even life. You want to go where nobody else is. You want to avoid competition. You want to innovate so you don't have to compete. The people who compete are the people who copy what is already done.
Supply & Demand
What Peter Thiel is really talking about is the most basic part of business and economics, namely: supply and demand. Supply and demand is everything when it comes to business. If you offer something that nobody else does you have a monopoly. If you offer something that everyone else offers you are competing against them.
When there are a lot of people in an industry the supply goes up and the demand goes down. This is what happens in pretty much every industry out there. A new service or product will come out and then other businesses will flood the market and increase the competition and drive down the prices. This is great for the consumer, and a healthy thing for an economy, but it is something most businesses don't think about.
Look at mobile phones. It wasn't until Apple released the iPhone that phones were really done right. As soon as Apple released the iPhone they held a monopoly on phones. At that time there was really no product like it on the market. The iPhone crushed it because the supply was so low for such a quality phone and the demand was so great. But after about a year or two many other competitors came into the market and Apple had lost some of their market share due to competition. They can continue to stay out in the forefront by continuing to innovate, but innovating and reinventing yourself again and again is very challenging.
Take a look at the music industry. This is one of the most competitive industries by far. There are millions and millions of people trying to make the next big hit and there is only room for so few people to really do that. Writing the best song doesn't mean anything in the music industry. For every hit there are millions of non-hits. While the demand for music is large, the supply of music available to meet the demand is far, far larger. This is why so many musicians are poor, struggle and end up having to do it on the side as a hobby and not a career. You can't make a career in music because everyone wants to do it. And because everyone wants to do it the price of what you can make off your music goes down. If I want to pay a band to play live at my venue I will be able to find thousands of bands very easily who will all be driving the price that I pay them down.
Sports is the exact same. There are millions of people who want to be the next Lebron James or Peyton Manning, but there is very, very little room at the top. That's why there are so many athletes who end up never amounting to anything after high school or college. They may be a great athlete, they may even be better than the athletes that do make it, but the competition is just too fierce and they usually choose to face the reality that not everyone can be in the NFL or the NBA. Not even close.
The main point
This brings about a point that is worth mentioning. Almost all the people that become big in any saturated industry do so by doing something new and innovating. While most people are too busy copying other people and chasing what is already done, the winners of every industry are creating their own market and doing something unique. They are going where there is no supply. This is the most basic thing people learn in business, but they never seem to truly grasp the gravity of it.
"Would you rather have had Steve Jobs create the iPhone or would you rather have had Steve Jobs open a really tasty Mexican restaurant?"
Math is literally telling you, go where there isn't any supply. The universe is bringing people and things into your life for you to create your unique supply of one. Your inner voice is telling you, do what is unique to you. Be yourself. But nobody seems to get it. They would much rather avoid math, avoid the universe and avoid their inner voice and instead do what everyone else is doing. They go where the supply is, rather than away from it.
An objective view
Think about it from an objective view. What is better for the world as a whole... another restaurant opening offering Mexican food that is a little bit better or different than all the other 100 restaurants, or a business opening up offering something that people don't have access to at all right now? Do people want a slightly better or different food or do they want something innovative and revolutionary? Is there more value writing another song or is there more value supplying a demand?
Would you rather have had Steve Jobs create the iPhone or would you rather have had Steve Jobs open a really tasty Mexican restaurant? Would you rather have had Google create the search engine they did, or would you rather the 2 founders go work for IBM? Would you rather Elon Musk and Peter Thiel create Paypal or would you rather them have become engineers at an existing technology company? The answer is obvious.
The world as a whole benefits much more from a completely new industry or innovation than it does from another variant of something that already exists. People get too caught up in small details of existing industries and forget about the big opportunities elsewhere. Going against the grain and creating something different is better for the world as a whole. And it is also the correct mathematical decision. Supply and demand tells us that.
"You don't make money fighting over the remainders of a market, you make money creating the market."
People who compete fight over the remaining 5% of an industry while the true innovators own 95% of an industry. When Apple first released the iPhone they basically owned the whole smartphone market. That was their market. But then the competition came in to fight over the remaining market. You don't make money fighting over the remainders of a market, you make money creating the market. And that's what Apple did with the iPhone and iPad.
Google created the search market. Sure, Altavista and Yahoo offered search long before Google. But Google innovated in search and turned it into a monopoly. At the time sites like Yahoo would offer search as a supplement to their online service. But Google made search their only mission, and they owned that industry. They invented what we know as search. And they owned search so hard that even today nobody even comes close to touching them. They have an innovation monopoly. They are so far ahead of others they don't even compete. That's how you truly make it.
When you are in a new industry that nobody else is in you can afford to make mistakes. When you are in an industry that has very little competition you have the financial padding to charge a lot for things and have very low overhead. When you're competing with everyone else margins get tighter and tighter until you eventually fold. It's just not worth it.
You see this all the time when industries emerge. When the Internet first started to rise in popularity people were charging thousands and tens of thousands for simple little websites. Then as everyone else jumped in the price of a website dropped dramatically to where today you can get one for free. There is a time and a place for all things.
The right time to be in an industry is when the supply is low. The wrong time to be in an industry is when the supply is high. And again, this is perfectly mathematical. You are less needed when supply is high. You are more needed when supply is low.
So why do most businesses fail? Because they shouldn't be in business in the first place. You shouldn't be in business just because you can, you should be in businesses because there is no supply for it. Whatever is lacking you should fill. If you see a better way to do something that has never been done, then you should do it. That's where the real value is. Forget about copying everyone else and competing with others. Find a missing supply that is needed. And then bring that supply to people. You will reap all the benefits of no competition and aligning yourself with mathematics, the universe and your own unique voice.Filed under: Business, Supply & Demand, Innovation, Creativity, Monopoly, Competition