The Iron Law of the Market
Market matters most; neither a stellar team nor fantastic product will redeem a bad market. Markets that don't exist don't care how smart you are.
—MARC ANDREESSEN, VENTURE CAPITALIST AND FOUNDER OF NETSCAPE AND NING.COM
What if you throw a party and nobody shows up? In business, it happens all the time.
Dean Kamen, a renowned and prolific inventor whose creations include the Sterling engine, the world's first insulin pump, and water purification devices, poured over $100 million into the development of the Segway PT, a $5,000, two-wheeled, self-balancing scooter that he claimed would revolutionize personal transportation “in the same way that the car replaced the horse and buggy.” When the Segway was made available to the public in 2002, the company announced that it expected to sell 50,000 units every year.
Five years into the business, the company had sold a total of 23,000 units—less than 10 percent of the initial goal. (The company's financial records are private, but it's safe to say they don't look good.)
The problem wasn't that the product was poorly designed—the technology that makes the Segway work is extremely sophisticated, and the benefits are significant: the Segway is a convenient, green urban car replacement. The problem was that very few people cared enough to spend $5,000 on a goofy-looking alternative to walking or riding a bike—the massive market that Kamen expected didn't exist.
The same thing happens to new businesses every day. Without enough revenue to sustain it, any business will fail. Your revenue is completely dependent on people actually wanting what you have to offer.
Every business is fundamentally limited by the size and quality of the market it attempts to serve. The Iron Law of the Market is cold, hard, and unforgiving: if you don't have a large group of people who really want what you have to offer, your chances of building a viable business are very slim.
The best approach is to focus on making things people want to buy. Creating something no one wants is a waste. Market research is the business equivalent of “look before you leap.” Books like The New Business Road Test by John Mullins can help you identify promising markets from the outset, increasing the probability that your new venture will be a success.
In the next few sections, we'll explore how to figure out what people want and need before investing your time and hard-earned money into creating something new.
