The Biggest Mistake Is Ignoring the Law of Supply and Demand
Startups, please pay attention. In your rush to start your business, you may have forgotten one important thing.
Just because you have an idea for a business doesn’t mean anyone will buy what you are selling. The principles of supply and demand are elementary but many businesses get this wrong from the start. So before you go any further, ask yourself this question:
Who besides you actually wants what you’re selling? Whether there demand for your product or service is a serious question with two parts. Both must be satisfied. First, people have to want it. Second, they have to be willing to part with their hard-earned money for it.
In sales, it helps if people first want what you’re selling. If you’re not seeing a demand for your product, there might be several reasons.
You just may be too early. The world wasn’t ready for the Sega Channel in 1994. The online, subscription-based gaming platform had 250,000 subscribers at its peak but fizzled out by 1998. Now online gaming is widely accepted. A great idea may simply be ahead of its time.
People may like it, but aren’t willing to pay your price for it, or maybe people just don’t want your product at any price. They may not see the value in it, find it too difficult to understand or just think it’s a dumb idea. Whatever the reason, better to find out now before you really get in over your head.
Once you determine there is a demand, find out how weak or strong the demand is. How many units of the product currently are sold monthly or annually? Knowing the level of demand will help you determine your prices. With high demand, you can set a higher price. If there is low demand, you may need to lower your price.
But wait -- there’s more. If you’re lucky enough to have a product that people are clamoring for, that’s great. But there’s more to consider. For starters, who are your competitors? In a perfect business, you hope to have high demand and just a few vendors competing with you for customers.
In my fifth business venture, I decided to develop online payroll software exclusively for the small business market. I knew there were already well-established competitors in the field. I purposely chose a product that would be sufficiently difficult for others to copy, eliminating possible competition right off the bat. I also knew that my potential customers, small business owners, are a niche market that wasn’t being served well by one-size-fits-all software. I knew we could do better, that our offering would be simpler by design and more affordable.
I have plenty of experience in the software development department, and it can be a long, sometimes painful process. That’s why I wouldn’t have touched this ambitious idea without knowing there was a demand and a way to differentiate ourselves from the competition.
So back to you: You may have just the thing that everyone wants but you may not be the only one selling it. Do your research and ask the following questions:
What is the market area that you plan to penetrate (local, regional, national)?
How many competitors are there for your product?
How successful are they?
How will your product or service compare in terms of quality?
What’s their price, and how will your prices compare?
How quickly can your competitors supply the service or product?
Are you the frontrunner? Great! If not, you’ll need to firmly establish how you are different. Ask why customers should choose you over more established brands. Is your quality superior to the competition? Do you offer top-notch support that is unmatched by anyone else in the business? What is your plan to win them over?
The law of supply and demand is simple but fundamental to your success. Do your business a favor and figure out where you stand before you start your business!