Finding and filling gaps in the market is one avenue for entrepreneurial success. Obviously, the first to tap into an unmet consumer demand can unlock massive profits. But unless there’s some comparative advantage, competition will quickly commoditize the market and profit margins will decline to just above breakeven.
Unfortunately, finding and filling gaps in the market is much easier said than done. Even the most successful serial entrepreneurs fail more than they succeed. What’s more, success in one endeavor doesn’t guarantee success in another.
Anyone who has ever developed and marketed a new product from concept through sale knows how difficult it is to achieve profitability. For every good idea there must be a hundred bad ones. Yet the only way to really know the difference between a profit generating idea and a cash hemorrhaging fiasco is through trial and error.
Success and failure provide real feedback. They deliver information – at a profit or loss – to businessmen and investors. What’s working? What isn’t? What adjustments can be made to help eke out a profit? These are the types of information that only the market can provide.
But what happens when the feedback loop is short circuited and a potential gap in the market is not really a gap after all? What if fraud and folderol turns a desert wasteland into a tropical oasis mirage? What happens, is otherwise intelligent investors are duped into throwing good money after bad.
This post was published at David Stockmans Contra Corner on August 12, 2016.
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