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This post is the second installment in my article series on how to find, assess and take advantage of opportunities in the modern business world.
The series is based on the phenomenal presentation by Matt Barrie, CEO of Freelancer.com, titled “Opportunity”. The presentation can be found online on Youtube, and I encourage you to watch it from start to end.
In the first post of the series, I discussed what successful businesses look like and identified what sort of businesses we should be building.
In short, we should go after businesses that are scalable, in other words, those that can grow profits faster than costs.
Additionally, I highlighted the fact that we need to be seeking large addressable markets, markets that are huge in size and where people spend lots of money in.
Finally, I mentioned that products that are solving a painful issue for customers (“painkillers”) are better than those that are just improving a facet of their lives (“aspirins”), and even better are those that customers get “hooked” on them and return on a consistent basis (“narcotics”).
In this post, we are going to discuss some more important points that we should consider when building a new business. Let’s do it!
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Secrets and Inconvenient Truths
In order to be successful in business, you need to have a competitive advantage.
Matt argues that one of the best advantages to have is to know something, a “truth”, that nobody else knows about or even considers wrong.
This is based on the thought-provoking question that billionaire investor Peter Thiel likes to ask:
“What important truth do very few people agree with you on?”
Alternatively, in its business version, the question is:
“What great company is nobody building?”
These secrets are unconventional or uncomfortable truths that are very hard to discuss with the majority of the population.
To better understand the concept of “truths”, let me provide some examples.
In this spirit, Thiel claims that Competition and Capitalism are not synonyms, like most people would argue, but are in fact antonyms.
Thiel states that in a market where rampant competition exists, all profits are competed away, thus no Capital can be accumulated, thus Capitalism will not flourish.
On the other hand, businesses that are so powerful and ahead of competition that can establish “soft” monopolies, are those that are able to generate huge amounts of profits, thus can accumulate Capital, and thus have Capitalism prosper.
For a more product-oriented example of “truth”, consider the case of digital books.
Jeff Bezos, Amazon’s CEO, was first to identify that people would switch from physical books to digital ones. He went ahead and created a dedicated device (Kindle) where you can read your favorite ebooks on and store all your bookshelf in.
Amazon managed to dominate the digital book market, creating a vast ecosystem around it. This looks painfully obvious now, but at the time, this was a “truth” that Amazon could see whereas others were completely oblivious.
In fact, most of these secrets look completely obvious in hindsight. At the beginning, they look counterintuitive and that is what allows the original builders to get ahead of the competition. At the end, the “truth” appears as a no-brainer.
Trends and Movements
The next critical point to consider is that of trends, i.e. “where is the world heading to?”
If you are a regular reader of this blog, you should be nodding right now. The reason is that around 18 months ago I published a short essay titled “10 Emerging Mega-Trends: Are you prepared for a new world?”
In that essay, I make the case that in order to succeed in business and in life, you need to be on top of the big trends that are going to change the way we live. Furthermore, I identified and described 10 mega-trends, which are large scale trends that take years to unfold and have a tremendous impact on the world.
In his presentation, Matt presents some trends that he thinks are going to play a huge role in the future. He mainly focused on the technological trends, something that I also mention in my essay (Section 2. Technology will even more massively influence our lives).
More specifically, Matt describes the Law of Accelerating Returns, in other words, how we can use technology to build even more sophisticated technology. For example, we can build a basic computer, and then leverage that computer to build a better computer, and so on.
The end result is that technology improves in an exponential way.
This is HUGE. This fact is going to have such an impact on our civilization, we can’t even imagine its consequences.
Unfortunately, human brain has not evolved to have a good understanding of exponential curves, we do better with linear trends. This means that we need to do some hard thinking in order to comprehend how exponential trends are going to impact our world.
The most prominent example of the Law of Accelerating Returns is Moore’s law which states that the number of transistors on integrated circuits doubles approximately every two years.
This has allowed us to build increasingly more powerful computers and to reach a point where a smartphone has more computing power than the systems that enabled the US to send a man on the moon.
Another great example, is a similar observation, called Kryder’s Law, which theorizes that storage capacity doubles every 12 months. For example, Dropbox, an online storage service, was able to leverage this exponential trend.
When Dropbox was starting out, it might not have been economically viable to hold several Megabytes (or even Gigabytes) per user on your servers, but the trend was clear. After a few years, such a value proposition made sense and Dropbox was able to take advantage of that and build a great product and a powerful business.
As I have also stated in my article, there are several technological fields that are growing extremely fast. Matt goes on to list several of them. Here are some of the most important ones:
- Augmented Reality
- Virtual Reality
- Machine Learning
- Machine Learning
Apart from those, Matt also touched on some “macro-trends”, i.e. those that impact the world on a macro-scale. These include the increasing reach of the Internet, the shift of demographics with developing countries booming in population, the rising of middle class in developing areas, and the inevitable aging of the population.
In this post, I discussed two major mindset pieces that you need to consider.
The first one revolves around “truths” and “secrets” that you might discover and will allow you to build a powerful business leapfrogging the competition.
By their nature, these “truths” can be inconvenient and unconventional, so it is hard to find them and keep a belief in them. Only after they are established and generally accepted, they look totally obvious.
The second one is about identifying long term trends, both in technology and macroeconomy, and getting onboard of them.
Whenever there is a new “wave” coming, you should position yourself and your business in a way that you are going along with it, and not against it.
Stay tuned for the next part where we will be discussing how to evaluate opportunities, how to build enduring companies around them and of course, how to make money!