Why Hot Opportunities Really Suck

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Consider these two extreme scenarios:

Scenario Football

  • 5,000 football fans want hamburgers.
  • One hamburger joint exists in the stadium.
  • They cost $10 each.
  • Result: Lines out-the-heezy.

Scenario Shushamu

  • 10 people on Shushamu Road want hamburgers.
  • 30 hamburger joints exist on that road.
  • They cost $2 each.
  • Result: "Boo! Where are the lines?!"

Sure, the results might sound obvious; but pay attention to the subtleties for a bit. It's the basic supply-and-demand concept: When supply goes up, demand for each supplier goes down. Thus, and much more importantly, you get:

  • Decreased prices.
  • Decreased premiums.
  • Decreased sales.
  • Decreased profits.
  • Decreased vacations.

It happened with the railroad industry. Then, with the computer industry. Then, with internet startups. Then most recently, with real estate.

  • When you have 986875868876865 people running at something, that something doesn't become so valuable anymore.

The true winners? Those that ignored the crowd, and saw vastly under-appreciated opportunities. Warren Buffett made his billions investing in companies where analysts wholly ignored. Going for what's hot might sound good and tempting, but you'll boost your premiums/profits/sexiness much more by catering to a market that's underserved. That is -- to increase profit margins -- serve markets where few suppliers exist, relative to demands -- and especially, where others aren't looking.

Heed Caution

The Timmy Tooltrap pitfall:

  1. Timmy wants to make kabillions.
  2. So, he thinks he'll just choose a market where's absolutely no suppliers exist for the product.
  3. "I know! Let's invent and sell a fondu set that also combines a radio to break the monotony!"
  4. He declares bankruptcy.

Instead, do this:

How to Choose Your Opportunity

  1. Select a proven market. (e.g. Korean barbecue)
  2. Reframe the industry: Within that market, who's being ignored that you can service better than anyone else? (e.g. Korean barbecue to white people)
  3. Serve that market. (e.g.: Korean Barbecue USA! Red! White! Blue!, Inc.)

What happens?

  1. No established suppliers.
  2. "We can charge premiums!"

And since no second-rate magazines will declare your selected market as one that's "THE TOP 10 HOTTEST MARKETS THAT WILL MAKE YOU RICH", you'll have minimal competition undercutting your prices.

  • Profit premiums: +more.

Now, you know one of the initial success secrets of the Americanized: Chipotle (Mexican), Pizza Hut (Italian), Outback Steakhouse (Australian), Olive Garden (Italian), Starbucks (Italian), China's KFC (American), Boudin Bakery (French), and Hooter's (rich, old, creepy men with midlife crisis, driving Corvettes, thinking they're kewl). Serve the ignored.

Seek what's not hot.

 

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Posted on August 24

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