Considering an Online Business? Read This First. Your odds of being successful in any Web-enabled field are much lower than you realize, especially if you conform to all the popular groupthink.
By Steve Tobak •
Opinions expressed by Entrepreneur contributors are their own.
There's a particularly thorny problem plaguing the entrepreneurial community, especially those pursuing an online business strategy. It's been sort of gnawing at me for a while, and, now that I've finally put my finger on it, I wonder how I ever missed it in the first place.
The problem is this: The Internet has leveled the playing field by lowering barriers to entry, making competition tougher and differentiation more important than ever. Meanwhile, social media increases pressure to conform to cultural norms, making you less differentiated.
In other words, your odds of being successful in any Web-enabled field are much lower than you realize, especially if you conform to all the popular groupthink being blogged, tweeted, and posted all over the Internet.
There's no better example of this phenomenon than the feel-good mantra that everybody's a winner, nobody has to lose, and competition is just a figment of your imagination. Not only is that Utopian nonsense patently false, you've got to marvel at the irony.
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Think about it. Everyone and his brother is encouraging you to enter the most crowded and competitive markets in world history while at the same time telling you not to worry about competition or real differentiation. All you need is a website, a personal brand, and some social media followers and everything will work out great.
The only problem is that's not the way it works, not in the real world or the virtual one. Customers want a better product or service for less, simple as that.
I've said this before but it's worth repeating: Markets are essentially zero-sum games. At a macro level, they may tend to increase somewhat over time. But, at a micro level, every deal has one winner and lots of losers. Everyone is competing for the same finite market share, budgets, clicks, and eyeballs.
Here are five equations that each and every one of you needs to pay serious attention to if you want to be a successful entrepreneur:
Low Barriers to Entry = High Competition
High Competition + Cultural Conformity = No Differentiation
No Differentiation = No Pricing Power
No Pricing Power = Dog Eat Dog Business
Dog Eat Dog Business = Poverty
You can avoid that unfortunate outcome by questioning each of these popular myths:
The Web makes business easy. Partly true but not necessarily a good thing. While the Internet did lower the barriers to enter lots of markets, that's a doubled-edged sword. It's true for everyone, meaning the competition is enormous and true differentiation very hard to come by.
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Just do what you love. While you do have a better chance of being successful at something you love, that does not change the law of supply and demand or how customers value a particular product or service. If everyone's doing it, it's hard to make money, simple as that.
Personal branding means differentiation. No matter how you spin it, business always comes down to products and services outperforming the competition in ways that are meaningful to customers. That's what we call a value proposition. Said another way, differentiation is always in the eye of the customer.
Entrepreneurship is a mindset. Entrepreneurship is not a state of mind. It's not about thinking or feeling any particular way. It's all about taking risks, starting a business, developing a product or service, beating the competition, and making money. If you can do that successfully for a good many years, then you're an entrepreneur.
I read it online so it must be true. Talk about leveling the playing field. The Internet has suddenly made everyone on Earth a content expert. If only that were true. Most of what you read online is just a bunch of feel-good fluff designed to get you to click like a lab rat in a behavioral-conditioning experiment. And it works remarkably well.
Look, I'm not saying you shouldn't start an online business. Just remember that it's easy for everyone, including lots and lots of competitors. So make sure you develop products and services that rise above the pack in the eyes of your customers. If you do that, I'm sure you'll do great.
