Knowing What To Sell.
Part I: what demand, supply, risk and scale has to do with you making money.
Not all income is created equal.
If you are reading this, you probably have no option but to participate in the economy for your survival.
Before you start scrambling around for avenues to participate, let’s take a step back and understand the factors that contribute towards your potential earnings.
Demand
“The world is not kind to those who can’t create value in the marketplace”
The demands of the market reign supreme. That is, what people and businesses want counts more than what you have to give. If you aren’t meeting these demands, survival will be tough. You will have a harder time changing the demands of the world as compared to changing your own response to them.
The good news is that most of the driving factors behind demand are rather timeless:
Lower prices
Faster solutions to problems.
Greater control over your time.
More choices.
Added comfort.
Entertainment/curiosity.
Deeper human interactions.
Greater transparency.
Less collateral damage.
Higher social status.
Increased confidence/trust.
Sharpen your understanding of them and see how they impact every industry. You may notice demands shifting overnight, be prepared for it. If we are headed into a socially distanced recession, people will be critical of what they spend on and where. Don’t get caught doing things no one wants to pay for.
Essential services may be in perpetual demand, but how much you can earn off them depends on your place in the hierarchy of things. We shall discuss that later on.
Supply
“If you want to be the best, you gotta do things that other people aren't willing to do.”
- Micheal Phelps
If the demand is established, the nature and quantity of supply decide how the money from the opportunity is going to be distributed out. Whether a given person can execute on the work at hand depends primarily on their ability and willingness.
Ability
As a rule of thumb, try to get yourself in positions where you are one of the few in the world who have either the expertise or capacity to cater to massive demand. Web developers, growth hackers, and cardiac surgeons take home good money because of these roles require expertise in niche domains which very few possess.
Willingness
There are two ways of looking at the willingness factor.
If you operate in a domain where increasing expertise makes a sizeable difference in your earnings, the willingness to put in efforts will set you apart. If being the best is worth it, do things that others aren’t willing to do. Undergo the pain which is known to pay off.
Secondly, this factor holds true for taboo domains as well. We’re starting to see folks make a sweet $15k/mo by running an OnlyFans account posting nudes. Adequate compensation for social costs? You decide. Willingness to do things which others avoid doing pays.
Incentives & Risk
“A ship in harbour is safe, but that is not what ships are built for.”
– William G.T. Shedd
Risk is what you don’t see. The upper bound on what you can make is usually linked to the risk that you are willing to handle. This informs the broad category of ‘business models’ for individuals. We’ll look at them in descending order of risk.
Selling Outcomes
Businesses and consumers are more likely to buy into outcome-based compensation than pay for labor or product alone. There’s a lot to profit, but they are also tougher to deliver on.
Few prime examples of selling outcomes are as follows:
Taking a commission on sales done through a channel.
Charging coaching fees based on an increase in earnings (artists, sports, tech).
Compensation pegged against a metric (leads converted, growth in following)
Return on capital (equity) sold to investors in exchange for capital.
Producing & Selling Goods
Producing goods, moving them around, holding inventory, or selling them has been around for ages. Each stage in there takes up money in the form of raw materials, labor costs, fuel, and real estate. There’s a chain of credit and unrealized costs till the goods reach the hands of the consumer. For those who can handle this risk, there are decent profits to be made.
Digital goods such as software tools or media stand out because there’s next to no cost involved in producing a copy. This sounds lucrative! But since everyone can cheaply produce these goods, getting them in the hands of the customers is where most meet their death.
Selling Labor
Time is an asset that all of us possess. Throw in some directed, productive efforts and we’re ready to get salaried or paid by the hour. Walk away from the rewards associated with your labor is indeed the ‘safest’ way of ensuring that you have a source of income.
Global trends point towards a rise in the percentage of salaried workers among those who are employed. The internet gig economy leads to additional avenues of income.
Renting Out Assets
Minting money while you sleep is the capitalistic dream. This is where it is at. Own assets and lease them out to people who can put them to more productive uses, without taking on any risks or actively putting in one’s labor. We’re acquainted with the idea of putting out real estate, agricultural lands, and vehicles on rent. Airbnb & Uber built off multibillion-dollar marketplaces off these ideas.
Today, you can own and lease out digital real estate - domain names, social media handles, and even accounts on curated service marketplaces (violates the ToS, though).
Even though renting out assets seems to be an easy way of making money, most aren’t fortunate to be born wealthy. To get there, risk-taking to sell outcomes or goods is due.
Sphere of Influence
The scale of operations and distribution adds another dimension to this scene. This goes hand in hand with risk. Your favorite mom-and-pop restaurant and McDonald’s may both serve burgers but the scale at which they operate is different.
Local Swarms
Most firms and individuals have a rather small sphere of influence through their actions and operations. Think of your neighborhood salon or dentist. Their earnings aren’t in the millions of dollars but nor is their failure rate.
Winner-Takes-It-All
This is the domain of moonshots. The winner-takes-it-all businesses and individuals who are recognized by the masses. The rest who try and play in this territory are decimated.
In the case of internet platforms, social networks and marketplaces exhibit a perfect example of monopolies. Think about how hard it’d be for a mobile messaging platform to come around and replace WhatsApp. Massive grocery chains, banks, and telcos do exist, but they are so few in number. As for individuals — artists, sportsmen, and influencers face similar trajectories.
“There will be certain points of time when everything collides together and reaches critical mass around a new concept or a new thing that ends up being hugely relevant to a high percentage of people or businesses. But it’s really really hard to predict those. I don’t believe anyone can.”
- Marc Andreessen
It is glamourous to buy into the influencer/unicorn startup buzz and chase scale but think hard on the expected outcome for you.
Lesson
When thinking about what to sell, base your risk appetite off your obligations :
Debt
Health
Family
In the long run, get yourself in a position where there is :
High demand for what you can provide.
Next to no competition.
Room to sell products or productized services, not your time.
Readings
The ladders of wealth creation: a step-by-step roadmap to building wealth
How to Get Rich - Naval Ravikant
Career Moat 101 - Commoncog Blog