Island Economics

Have you ever wondered why one company thrives while another fizzles? It is a question that I come back to on a continual basis. The more I process the factors associated with success and failure of businesses the more I realize the answers for both are numerous. I don’t like this. I have to believe there is an inherent simplicity underlining it all.

How is it that a once successful business that was a world leader can crumble while a college kid and his roommate can create a huge venture out of lines of code? What are the sands that seem to shift under our feet, constantly changing the game that create an opportunity for one and mean doom to anther? This dynamic is constant and while I can’t quite put my finger on it I think I can demonstrate it through the following.

I will do my best to illustrate where I am coming form with an example of a fake isolated economy consisting of two men on an island. I realize that in my example I may give into some traditional ways of thinking but for right now it is how I see it so bear with me.

In an economy where currency does not exist value is present when one man has something another man needs. One could assimilate it to the potential difference with in an electrical circuit. In an electrical circuit electrons don’t flow until a potential difference exists. So long as both men on the island have everything the other has, there is equilibrium of value. It isn’t until there is an imbalance that value can exist.

So, to create an imbalance let’s make one man big and tall and the other small and short.

Now, in the day to day life of our two islanders both will encounter situations which the other is inherently better suited to handle. When this happens each man is in need of the other. For a moment each man is valued by the other. Equilibrium of value is once again established once each man assists the other equal number of times. If more is required of one man than of the other indefinitely we would consider that to be unjust if there wasn’t a correlative shift of debt. In other words one man would be habitually indebted to the other.

In our fake economy business is simply the concert of maintaining the equilibrium. The imbalance is what many would refer to as a competitive advantage.

Our real economy of course is not this straight forward. We have men and woman of all shapes and sizes, each with their own set of needs. This reality makes it possible for us to facilitate the needs of more than one person and consequently establish wealth. To think of it without currency; if we were to provide a service to 100 people we would have 100 people whom “owed” us their services in return, we would be wealthy. If no one needed the service that we had to provide we would be poor.

I know this is a crude example but I hope it helps you understand where you can add value in your own situations. I see a lot of young zealous entrepreneurs who don’t seem to understand that value doesn’t simply fall from the sky; it is established by virtue of a potential difference. No venture is going to be successful until it can find a way to offer a product or service that isn’t already available.

A great way to insure you are headed the right direction is to follow a pull strategy. Facilitate an unmet need that already exists. Rather than trying to force what you want to offer upon others, why not take some time to meet a need that no one else has met. This is one of my biggest concerns regarding many MLM businesses. People sign up thinking they have the world at their fingertips and don’t understand they are simply a marketing company competing with a bunch of other marketers to ultimately sell dreams. Without a potential difference or a fundamental value to bring to the table it becomes the job of the marketer to skilfully craft a sales pitch containing perceived value in order to expand their network.

This idea of course is not new and years ago people began facilitating common needs. Companies that matured with their markets and made the appropriate changes over time are now leaders within their respective industry. However, if they don’t continue to adapt and change as the needs do they will lose their competitive advantage and an aspiring young company will rise up to take their place. This can happen more than you realize as companies become overly bureaucratic and lose the ability to compete with smaller businesses.  I hope you are that aspiring young company I read about next!

TJ

About TJ

Engineer and Entrepreneur