[akula]

In how my career is turning out, I get a chance to listen to a lot of wonderful people discussing entrepreneurship and pitching their ideas.

One of the most contentious points is people arguing over what is it that they should be focusing on doing as entrepreneurs and how is an entrepreneur different to your everyday small business operator.

In my mind, entrepreneurs are different to small business owners because of the different decisions they make in regards to their businesses. One of these decisions is about growth. Entrepreneurs want to create very fast growing, large companies as opposed to your everyday, sole trader, 1-4 person corner shop. Entrepreneurs want to create multi million and billion enterprise values and the way to do it starts with identifying different qualities of demand.

Demand, as it turns out, is not all created equal and the type of demand you choose to service is going to have a great deal in determining how valuable your enterprise is going to be.

Life or death, mission critical demand. This is demand for things that people and organizations can't live without. (e.g industrial strength disinfectant for hospitals, ani-phishing software, chemotherapy drugs, smoke detectors for night clubs). This kind of demand is often legislated, or comes about after a set of unfortunate circumstances. This is the best demand to service because it's price inelastic. No matter how far you raise your prices, the volume of purchases made is unlikely to change significantly.

Companies that do this are typically called the antibiotics.

Helpful, but can live without it This is the demand for things that can deliver quantifiable benefits but which don't necessarily fix severe, immediate problems. Stuff like a personal trainer, advertising services, many types of software fits into this category. These things are all great, but people can live without them...if they don't make the purchase immediately, they can put off until an indefinite future and survive quite comfortably.

Companies that service this kind of demand are typically called vitamin companies.

The nice-to-haves This is the kind of demand for lifestyle purchases and most consumer goods and services. Sure it'd be nice to have things like a better flat screen TV, music, fashion, entertainment, a nicer car, a nicer house, but the benefit of having these things is largely unquantifiable.

Companies that service this kind of demand are typically called candy companies and they are often the most unreliable to work with. The quality of the demand is is to superficial and variable. This is the first kind of demand to die off when people's circumstances worsen.

So, if you want to be a really successful entrepreneur,and have a better shot at making a very valuable company, it's often a good idea to examine what you are doing and then choose to serve the stronger kinds of demand than demand for nice-to-have kind of things.

In other words, are you an antibiotic, a vitamin or a candy business?

[skatewhale]

Well, "anti-biotics" are not necessarily making more money than Candy businesses lol. Think about it, we need water and food to live, these industries got huge demands. However would you actually pay $1000 to get a piece of cheese? lol Candy Businesses are usually targeting rich people, or people who can afford all the fancy things. You can make thousands of dollars by selling one car, but you might only be able to make few bucks for every cheese you sold.
Rich people are looking for more than just the basic and necessary things. They will pay big bucks for Entertainment/Fancy Products of Candy Businesses.

In Anti-biotic businesses, there is also such thing called Competition. There are lots of smoke detector companies out there. Unless you are the only company making the smoke detector, you probably can't increase your price that much.

Cheers,
Nick,
ps: Candy Businesses are gonna be pretty rich today. Trick-or-Treat! Halloween! Candies please

[akula]

Originally Posted by skatewhale

Well, "anti-biotics" are not necessarily making more money than Candy businesses lol. Think about it, we need water and food to live, these industries got huge demands. However would you actually pay $1000 to get a piece of cheese? lol Candy Businesses are usually targeting rich people, or people who can afford all the fancy things. You can make thousands of dollars by selling one car, but you might only be able to make few bucks for every cheese you sold.
Rich people are looking for more than just the basic and necessary things. They will pay big bucks for Entertainment/Fancy Products of Candy Businesses.

In Anti-biotic businesses, there is also such thing called Competition. There are lots of smoke detector companies out there. Unless you are the only company making the smoke detector, you probably can't increase your price that much.

Cheers,
Nick,
ps: Candy Businesses are gonna be pretty rich today. Trick-or-Treat! Halloween! Candies please

Good Post Nick!

I think you have a good point and I wanted to add some more thoughts.

1) Longevity. Statistically speaking, if you look at the world's stock markets, you will notice that these type of antibiotic tend to survive and prosper for much longer than the millions of candy businesses that come and go every year.

Likewise, antibiotic business are not the type that sell cheese. Antibiotic businesses typically supply an industry- in this case it would be the milk pasturisation machinery, and other cheese making technology. And the point is the same- you should try to be a supplier to an industry- that's the strongest postion in the market. The guys who supply server monitoring software to hosting companies are going to survive years after all the many hosting companies have gone under.

2) Financing. In the venture community, unless everybody is following a hype, people refuse to invest in candy businesses- for all the right reasons. So normally, as an entrepreneur, it is easier to gather support for your venture if it's an antibiotic.

3) Meaning. Entrepreneurship is an emotional experience. You can either piss your life away doing frivolous things for rich people, or you can tackle important worldly problems. Making a decision about the type of demand you want to service, says a lot about the entrepreneur's personality, and people doing antibiotic businesses are typically much more fulfilled individuals.

The important point. Nick, you nailed it on the head. The majority of businesses thought about on this board and many other boards, would typically service the "nice-to-have", lifestyle purchases kind of demand. But the thing is, the people who are doing this, often try to compete on price. When they should be selling these goods at premium prices to rich people who can afford them, people's market positioning is completely misaligned and they try to sell luxury goods, at low prices, to people who don't need them or are willing to pay for them. This is one of the most common scenarios seen in business plans - people trying to sell top quality goods for cheaper prices- and I can tell you, this movie never ends well.

This is my position on entrepreneurship: choose meaningful, important problems worth solving, build a defensible antibiotic-type business around this demand and you'll be a very rich and happy human being.

There's always going to be room to mess around with fun, frivolous little candy-type businesses that are gonna fold within a couple of years, but over the long term, you really should focus on building something stronger than that, and you'll be better for it.

[akula]

I've just had a second to think about this post and clear up something because what I have said here can be interpreted as negative or condescending.

If you're starting a venture like a skin care retailer or something a long those lines, which caters for consumer demand- there is nothing wrong with that.

The point I was trying to make is that if you are searching for that scoop to really kick start your career as an entrepreneur, there is a decision for you to make regarding the kind of demand you want to service.

So what I am saying, is, if you really want to have a shot at building a large, valuable business- taking a tip from the collective history of commerce, you might want to consider positioning your self as a supplier to an industry. It's a stronger position than being one of the millions of retailers out there trying to make a dollar.

It's just a choice really.