Have you ever thought to yourself:
“I have this idea, and I really would like to do something with it. I wish I knew how to take this idea and turn it into a product so I can become a successful entrepreneur!”
Or maybe you have thought:
“I tried to turn one idea into a product but it did not work very well. What can I do to improve the odds of my next idea succeeding?”
Here are a few examples of idea areas:
- I have an idea for a book
- I have an idea for a video
- I have an idea for a web site
- I have an idea for a restaurant
- I have an idea for an app
- I have an idea for a physical product
Let’s say that all you want to do is turn an idea into a product. Then it’s fairly easy because all of these are somewhat mechanical processes.
Want to write a book? Sit down and write the book in something like Microsoft Word. Then do some Kindle formatting on it (very easy, see this Kindle formatting guide). Then upload it to Amazon. Done.
Want to create a video? Write a script, record some shots with a camera, edit the shots together with some video editing software, and then upload to Youtube. Done.
Want to create a physical product and have it manufactured in China? Here is a nice guide to get you started: The Ultimate Guide to Designing, Prototyping and Mass Manufacturing Your Product Idea. Done.
But what if you want to produce a successful product. That’s a little different, and harder. And it is not 100% certain that you will, especially on the first try. But you can significantly improve the odds of success by keeping a few simple rules in mind. And that is the purpose of this article. My goal today is to change the trajectory of your life in some way, by showing you the difference between ideas and successful ideas.
How does Entrepreneurship Work in the United States?
Let’s step back for a minute, because it will help set the stage for you. We need to ask, “How does Entrepreneurship Work in the United States?” Because if you understand this, it makes it much easier to come up with product ideas. The basic process of Entrepreneurship in the United States involves three key elements:
- The United States has a $18 trillion economy
- Anyone can create (almost) any idea and insert it into this economy
- If people like the idea, then money flows your way
$18 trillion is a big number. Almost impossible to imagine. But think about it as a giant river of dollar bills, where 18 trillion dollar bills flow past you every year. That is nearly $50 billion per day. This money represents the total value of all of the transactions in the economy. So if you buy a bottle of water for $1, that is one tiny part of the $18 trillion. Anything you buy: shirt, book, laptop, table, car… It’s all in there – all of the transactions in the U.S. economy add up to $18 trillion per year.
So how do you become an entrepreneur? It is super simple: The day you decide that you want to stick a new product or service into this gigantic economy, you are an entrepreneur. Some would say that it is the moment of insertion that makes you an entrepreneur, but to me it is the moment when you acknowledge your intent. If you are working toward inserting a new product or service into the economy, you are already an entrepreneur.
A key thing to recognize is that you can insert nearly anything into the economy. Any product. Any service. With any price. At any terms. The “economy” does not care what you try. Try almost anything you like – as long as it is technically legal, you’re fine. Can your new product be a personal fragmentation grenade for self defense? Probably not – that falls outside the bounds of “legal”. But nearly anything that is legal is fine. Go for it – create any product or service that you can imagine, and you can insert it into the economy and see what happens.
The gigantic amount of freedom here is important to understand. You can inject nearly anything you like into the economy. It can have whatever features you choose. It can have any price you want to set. It can have a lifetime warranty or no warranty. Whatever you want.
And then the third thing happens. The people who make up the buyers in the economy will then choose to buy, or not to buy, your thing. They vote with their dollars. If people like what you are selling, they will consume it under whatever price and terms you have set. Usually we say that they would “buy it”, but that is not always the case, so it is better to say that they will consume it.
Here’s an example of the difference. I am the founder of HowStuffWorks.com. This means that one day I decided to create the web site, so I bought the URL, I wrote, illustrated and formatted the first article (It was “How Car Engines Work”), and I put my website online for the world to see. Then I wrote another article, and another… Initially the world did not notice my website at all. For six months traffic was essentially zero. But then one day a journalist came to HowStuffWorks and wrote a little article about it, because he liked it. And then another journalist, and another. Once HowStuffWorks reached a certain critical mass, people found it useful. They would come back, and they would tell their friends. Traffic grew.
Were any of these visitors “buying” anything from HowStuffWorks? No, not at all. To them, HowStuffWorks was free. They were consuming HowStuffWorks, not buying it. However, as traffic grew it became possible to make revenue – it became possible to sell advertising. As traffic grew, advertising revenue grew. Fast forward 9 years and HowStuffWorks sold to the Discovery Channel for $250 million. The point being: some companies make their money directly, and some make it indirectly. And there are even web sites that sell for big bucks and make very little revenue at all. Youtube was like this when it sold to Google, and Instagram and Whatsapp were like this when they sold to Facebook – lots of visitors but very little revenue. Google and Facebook were buying the traffic and/or the registered users and hoping to turn them into revenue eventually. Looking back at our three steps:
- The United States has an $18 trillion economy
- Anyone can create (almost) any idea and insert it into this economy
- If people like the idea, then money flows your way
In the case of HowStuffWorks, YouTube, Instagram and Whatsapp, the ideas were inserted into the economy, people in the marketplace liked those ideas in large numbers, and then money flowed to the creators. This is the essence of entrepreneurship.
What does it look like when people really like an idea?
What does it look like when people really like an idea? Watch this video and watch Jeremy Clarkson’s reaction to the Ariel Atom, especially around the 1:45 point in the video:
Things to notice from this video:
- The car comes from a tiny company (only 7 people at the time)
- This is the product of mechanical engineers
- Jeremy really, really, really likes this idea
- (and so do millions of other people, because Jeremy showed the world how cool this car is)
This segment ran on the BBC show Top Gear, and millions of people learned about the company and the product as a result. If you are a car enthusiast, the Ariel Atom is incredibly interesting because it is so light and fast. This Top Gear segment acted essentially like an 8-minute product endorsement for Ariel, and the company took off.
Here are some other examples:
- Five hour energy
- Dollar shave club (the famous, highly resonant video that launched it all is here)
- Silly bands
- Nike (definitely read Shoe Dog)
- There are millions(!) of these
These are all ideas that, once they were inserted into the economy, they took off. People really liked these ideas, for whatever reason. It’s not always completely obvious why people like them. For example Twitter. Pre-twitter – like before twitter was invented – if someone had come up to you and said, “I am going to invent something I call micro-blogging, where people can post things like a blog, but there is a 140 character limit,” would you have said to yourself, “Wow, that’s a great idea! That is really going to take off, and eventually the company will go public, and eventually a United States president will campaign and communicate with it!” Speaking for myself, pre-twitter, I never would have guessed that. It seems impossible to me that Twitter is as popular as it is even to this day. Yet there is no denying that Twitter is popular. Someone inserted the idea of micro-blogging into the economy, and people really liked this idea, and Twitter took off. This is how entrepreneurship works.
But there are also counter examples – ideas that get inserted into the economy and go nowhere. My favorite example of this is the Iridum system. This is the company that developed satellite phones, along with a constellation of 72 satellites orbiting the Earth (!), in order to provide phone coverage planet-wide. The company raised and spent billions of dollars to build and launch all of the satellites, to develop the phones, etc. It was and is an amazing idea, an incredibly powerful idea (“make phone calls from ANYWHERE on Earth!”), and yet the marketplake really did not care. Eventually the company collapsed: “The company failed to earn revenue sufficient to service the debt associated with building out the constellation and Iridium went bankrupt, the largest bankruptcy in US history at the time.” [ref] Wow. There is just no other way to say it: Wow. Remember the steps:
- The United States has an $18 trillion economy
- Anyone can create (almost) any idea and insert it into this economy
- If people like the idea, then money flows your way
People have to LIKE the idea for it to succeed. And not very many people on Earth needed the ability to communicate from Antarctica, or the middle of the Amazon rain forest. Most people live in cities, and cities have normal cell phone coverage, and this option works great for most people. So people did not buy what Iridium has to sell, and the company went down in flames despite all of the money that was invested in inserting this idea into the economy. Wow.
The facts about failure
There are millions of ideas that fail. In fact there are 10X more ideas that fail than succeed. You may have heard the statistic that 9 out of 10 new companies fail [ref]. How is this possible?
It really is impossible to believe that there are 10X more failures than successes. How can this be true? It’s because we mostly hear about successes. Look around you wherever you are sitting right now. You are surrounded by products, by brands, by companies. But these are all successful companies. The fact that you can see their product means that the company succeeded at some level. You are NOT surrounded by the 10X more products that failed, because they failed.
This phenomenon in human thinking has a name. It is called survivor bias. If you go to your uncle’s house, and he has a 50 year old refrigerator, and he wraps his arm lovingly around it and says, “They don’t make ’em like they used to, no siree!”, this is survivor bias. Your uncle is ignoring the millions of 50-year-old refrigerators that died and went to the junk yard, because he can not see them. They are completely forgotten. He only sees the one surviving refrigerator in front of him and praises it.
If you would like to understand survivor bias yourself, first hand, and in fact if you would like to give it a try, here is a challenge:
- Go to the “Mildly Interesting” part of Reddit: https://www.reddit.com/r/mildlyinteresting/
- Look at what is being posted there. It is super-simple. People post a single photo of something mildly interesting, along with a short, descriptive little title. That’s it.
- Look at what is getting a lot of upvotes. Today, when I look at it, the top post is a picture of a frog with the title “This frog that lives in my fence.” It currently has 65,000 upvotes (which is a really high number currently). Another one, with 32,100 upvotes, is a picture of a stone with the title, “This pebble I found on the beach looks like a ghost.”
- Notice, as you look at the top posts in the MildlyInteresting subreddit, that it seems incredibly, unbelievably, insanely simple to get something to the top of this page, and thus to the front page of Reddit as a whole. The MildlyInteresting subreddit has millions of subscribers.
- Now go ahead and try to get something to the front page of reddit via the MildlyInteresting subreddit. All you need is a little photo and a little title. Go ahead and try! And if you happen to get lucky (aka “beginners luck”), try to do it 2 or 3 times. (And if you are able to do it 3 times, I guess you should consider taking up a lucrative career putting things on the front page of Reddit because you have a rare talent)
Really, you should give it a whirl, because you will learn something incredibly important. Even though it looks dead simple to post something popular on the MildlyInteresting subreddit, and therefore reach the front page of Reddit, it is in fact incredibly hard. Why? Because of survivor bias. You are only seeing the small number of posts that succeed. You are ignoring the millions of posts that crashed and burned – that only receive 10 or 100 upvotes and then died.
It turns out that there are many, many things in life that look incredibly easy like this, but in fact tend to be quite difficult. Here are some examples:
- I’ll get something on the front page of Reddit!
- I’ll move to LA and become a famous actor/actress!
- I’ll practice hard and become a famous player in the NBA/NFL/etc.
- I’ll start a band and write a Top-40 hit song!
- I’ll write a best selling book!
- I’ll create a web site that gets a lot of traffic!
- I’ll create a YouTube channel like PewDiePie with 50 million subscribers!
- I’ll create a big Twitter following like Trump! (or Beiber, or Perry, or…)
- I’ll create a restaurant that doesn’t go out of business!
- I’ll create a successful product that people will buy! (and makes millions of dollars!)
All of these things really can and do happen – there really are players in the NBA. But the number of NBA players is tiny – only about 3,000 players total over the last 50 years [ref]. Therefore, while all of these things look/sound easy to the uninitiated, they are in actuality rare events. The reason they look/sound easy is survivor bias. All you see is the successes, and few or none of the 10X more failures, so it looks easy.
The Eight Rules
So today we are focused on the last line in the list above: “I’ll create a successful product that people will buy! (and makes millions of dollars!)”. Specically, how do we beat the odds and create a successful product?
Let’s start with a key fact that is incredibly important:
You may have heard people say, “the idea isn’t important, it is all about execution!” Bullshit. The idea really matters. Idea + Execution matters. And luck matters too in many cases. Two examples:
- Iridium, described above, had an idea: Satellite phones that let you make a call from ANYWHERE on Earth. That was their idea. And they executed like crazy. Spent billions of dollars and put up 72 (72!) satellites. But it did not matter that they executed at the highest level. The idea was bad, flawed, and the execution DID NOT MATTER. All the execution in the world does not matter if no one cares about the idea.
- The Ariel Atom company got incredibly lucky when Top Gear featured them in the video above. You may be thinking, “Oh, they had a cool product, Top Gear was certain to feature them!” No – this is survivor bias clouding your judgement yet again. On Top Gear you only see the products they feature, not all of the products that they ignore. So it looks like it is easy to get on Top Gear. Just like it looks easy to get to the front page of Reddit. But it is not easy. Luck matters. The thing about luck is that there is often no way to predict it. You simply need to be out on the playing field and hope that luck happens. It often does. See the Aerial Atom as proof.
Having said this, let’s look at the rules.
Rule #1 – Find an idea that resonates
Find an idea that resonates, where “resonates” is defined like this: “If your idea is shown to one person, this person has a high probability of telling someone else about your idea.” The person might send an email, or mention it to friends at dinner, or post about it on Facebook, or stick it on Reddit, or something – the person likes your idea enough to tell other people about it. The degree of resonance will determine your growth rate in many cases, and you want to have an idea that is compelling enough to resonate, because growth is important.
We can list thousands of ideas that resonated from the start: Google, YouTube, Facebook, Twitter… But here are two other examples:
Viagra came out in 1996. If you were around at that time, you know that EVERYONE was talking about viagra. It did not matter if you loved the idea, hated it, thought it was a moral abomination, thought it was a joke, whatever. EVERYONE was talking about Viagra. It was and is an incredibly resonant idea.
MrMoneyMustache.com is not quite at that level, but here is the guy’s idea: “It is possible, with a little forethought and planning, to retire at or around age 30, and let me show you how I did it.” This is a resonant idea. Wouldn’t it be great to retire at age 30? When people hear this idea, it is very appealing and there is some probability that you will tell your friends. And many journalists have spread the word too (another example of resonance): Forbes, NPR, the Washington Post, etc.
You want and need your idea to naturally resonate if possible. But if not, then the next best thing is…
Alternate Rule #1A – When people see an ad for your product, they think, “I need that”
When people see an ad for your product, they think, “I need that.” Now we are talking here about people in your target audience. The people who see the ad need to form a connection and think to themselves about buying your thing. Two examples:
Here’s the funny thing about Viagra – the ad does not necessarily even need to mention the problem anymore. A sultry woman can come on the screen and say with her sultry voice, “Hey Bob, would you like to get your mojo back? Viagra.” If Bob is having trouble with erections, he knows exactly what Mrs. Sultry Woman is talkin’ about, and he wants some of that. The ad is resonant.
Carbonite’s idea is “Backup your computer at your home or office into the cloud.” There was a period of time when Carbonite ran ads heavily on talk radio, and they got a lot of customers. People would hear the ads and think, “wow, if my computer crashes, or my house burns down, I will lose everything.” And they would sign up for Carbonite. It was only $5/month. The ads resonated with people when they heard them. You want this to happen with your idea.
The cool thing is that you can actually test for ad resonance very early in your project. Create a simple landing page, and then create some ads to see if people will click on the ads and end up on your landing page. It is said that when Cars.com got started, all they had was a landing page consisting of a form that people would fill out to order a car. There was nothing behind it: no servers, no software, no nothing. Cars.com wanted to answer a question: Can we drive people to this landing page, and when they arrive will they actually order cars? Turned out they would, so THEN cars.com built the back end. It is a very cool and inexpensive approach to seeing if an idea resonates.
Alternate Rule #1B – When person A sees that Person B has one, Person A thinks “I need that”
This is also called “envy”. Envy works. It is what powers brands like Ferrari and Lamborghini, and also many high fashion labels, and also many high-end restaurants. Lots of expensive things are powered by envy. This is outside my scope of expertise, but envy is a real thing and it works. Keeping up with the Jones and all that. I’ll have what he’s having. Etc.
Rule #2 – Have a no-brainer value proposition
Your idea needs to have a no-brainer value proposition, where a value proposition is a “promise of value to be delivered. It’s the primary reason a prospect should buy from you.” [ref (it’s a great article by the way)]. People need to see your value proposition and think, “I need that!” Here are two examples:
Think about Viagra’s value proposition. It goes something like this: “Hey Mr. Can’t Get It Up, are you having problems getting an erection? Take this pill and problem solved! Only $10.” Think about how powerful this value proposition is. For many people on this planet, sex is really important. But some people have this unfortunate condition that cuts them off from sex. But now there is a solution to this problem and it is only $10, and super easy. And millions of people have the condition. This is a great idea with a great value proposition. Wow.
Terravion is not quite at this level, but it still has a compelling value prop. To understand it, take a look at this aerial view of Kansas:
See all of those circular fields? They are all being irrigated with something called a center-pivot irrigation system. Essentially it is a big arm that walks around the field in a circle. Take a look at these images if you have never seen one before. The irrigation water comes out of these spray heads called emitters.
Let’s say one of the emitters clogs up and stops spraying water. It can cause tens of thousands of dollars of damage if not fixed – up to $100,000 in crop damage from a bad emitter. What Terravion does is charge a farmer $4/acre to fly over his/her farm and take pictures 12 times during the growing season. If there is a clogged emitter, it shows up instantly on an infrared image and the farmer can fix it, preventing tens of thousands of dollars of crop damage during the season. And any given farmer is likely to get one or two clogged emitters each season. So one of Terravion’s value propositions to a farmer with a 400-acre corn field is:
“Pay us $1,600 and we can prevent tens of thousands of dollars of crop damage from your inevitable clogged emitters.”
Wow – that is a great value proposition. If you present this value proposition to many farmers, they can instantly see the value and they buy what Terravion is selling. Fantastic ROI.
You want your product to have a no-brainer value prop like that. Something that makes it immediately obvious that by spending money on your idea, the customer will receive real value, real ROI.
Rephrased Rule #2 – Find a big, fat pain point for some group of people
Men with ED have a big, fat pain point: they cannot have sex. Farmers with center-pivot irrigation systems have a big, fat pain point: Sometimes the emitters clog up, and it can cause tens of thousands of dollars of crop damage. If you can create an idea that easily relieves the pain, and if the relief is perceived to be a value (e.g. it costs less than the problem), then you have an idea worth something.
Let me also mention that it is sometimes easier to think about “an audience” rather than “a product”. For example, let’s say your audience is farmers, and you want to make their lives better/easier/less complicated/whatever. Farmers have hundreds of problems that you could solve, hundreds of pain points that you could address. Maybe your first idea for farmers does not resonate, or does not have a strong enough value proposition. Then look for other problems farmers have and try again.
Rule #3 – People need to be willing to pay for your idea/product
You might have heard this lament before, “People will pay $5 for a cup of coffee, but $0 for an app…” Yes, this is weird, and unfair, and depressing (for app developers), but it is a fact, especially on the Android side. It can be very difficult to get people to pay for things in certain domains:
- Many people expect websites to be free (e.g. ad supported)
- Many people expect apps to be free
- Many people expect music to be free
- And so on…
So given a choice, you want to pick a product idea where people don’t expect it to be free. You also want to pick ideas where you will not have to compete with a lot of free stuff that is already out there. Competing against free can be hard unless you have something much better than the nearby free stuff and you have a rock-solid value proposition. Or…
Alternate Rule #3A – Find a creative way to let people pay for your product
Find a creative way to let people pay for your product. Dropbox is a great example, probably the best-know purveyor of the freemium model. Dropbox is free for most people, but if you need a lot of Dropbox, then you need to pay. But you are more likely to pay because you are familiar with Dropbox (because you have used it for free for awhile), and you like Dropbox.
The vast majority of Dropbox customers pay no money. Making the product available for free increased resonance dramatically. And it is a great value prop: “store your files in the cloud for free.” If you don’t have that many files, you can essentially duplicate Carbonite for free. The free version then acts as an ad, or a Trojan Horse maybe, for the paid version.
Rule #4 – Your idea needs to be able to scale up
Your idea needs to be able to scale up. There are certain cases where you can get around this, but generally speaking, in the large majority of cases, scaling up is the right way to go. There are two things that can prevent scaling:
- Not very many people have the problem you are addressing
- You can only produce so much of what you want to sell
You want your product to have a big audience, and you want to be able to satisfy the needs of a big audience.
Let’s say you are an artist, and you are producing original paintings. There are only so many original paintings you can produce, so that limits things for you. How do you get around this? You can raise your price. Maybe some of your audience would accept a print rather than an original, and prints scale nicely.
There are some companies that make a virtue out of lack of scale. Lamborghini comes to mind. They only make a few thousand Lambos a year [ref], and then charge a high price for each one.
But generally speaking, you want to focus on ideas that can scale up. There are two ways to approach it:
- Think big, start small, and scale up. Walmart is a great example of this process. Walmart started with a single store that Sam Walton created in Arkansas. Read a biography of Walton – it is an amazing story. Any chain restaurant is another example: McDonald’s, Wendy’s, Applebee’s etc. all started with one restaurant and then replicated it across the country.
- Think big, and go straight to national scale. Usually this takes a lot of money. Nest is a great example with their thermostat product. The company raised perhaps $100 million [ref] to fill nationwide inventory pipelines and run a big nationwide ad campaign. They sold 800,000 or so thermostats in the year of release, and then they got acquired by Google. Perfect execution. If you have access to $100 million, go for it.
Rule #5 – Your idea needs an easy-to-reach audience
Your idea needs an easy-to-reach audience. By that I mean, when you think about the potential customers for your idea/product, that potential audience needs to be easy to reach. Here are three examples:
- College students are easy to reach. You can walk onto campus and put up posters, you can use flyers, you can chalk sidewalks, you can put up a table somewhere to give away samples, you can advertise in the student newspaper or on a campus web site, you can schedule a lecture on campus, etc. If you can get your product selling on one campus, you know you can scale up to hundreds of other large campuses. This is exactly how Facebook started. The first campus was Harvard. Then other campuses got on board, then it was opened to the general public. A perfect example of, “Think big, start small and scale.”
- Nursing homes are easy to reach. They are located in physical buildings with known addresses and there is very likely to be a receptionist at the door. You can call or walk in.
- Hiring managers are easy to reach. Any company of any size has people in the recruiting role, and these people are usually easy to find.
Make sure that your idea has an easy-to-reach audience.
Rule #6 – Think about the magic triumvirate
Think about the magic triumvirate. I was fortunate to hear a talk by one of the partners at Andreessen Horowitz, and he made this point: You want your idea to have three attributes:
- Growth – it needs to be a naturally-resonant or ad-resonant property
- Stickiness – once exposed, people need to come back of their own volition (daily or weekly)
- Monetization – you need to be able to make money from the visitors
Viagra is a great example: 1) Super resonant, 2) customers come back every time they want to have sex, and 3) it’s $10 a pill. Yikes.
Google also has all three: 1) Google grew very quickly (very high resonance), 2) people come back to Google every day, and3) Google found ways to monetize the traffic.
Facebook is another example: 1) Facebook grew very quickly (very high resonance), 2) people come back to Facebook every day (he said that 65% of Facebook visitors return every day! Sometimes 10 times a day), and 3) Facebook found ways to monetize the traffic with ads.
Twitter is an example of something less perfect: 1) Twitter grew very quickly (very high resonance), 2) some people come back to Twitter every day (but a much lower percentage than FB, like 15%), and 3) Twitter has had trouble finding good ways to monetize the traffic.
Bottom line: If your idea can combine growth (resonance), stickiness and monetization, you are golden.
Rule #7 – Copy an existing idea
This causes some people indigestion, or they have a “moral problem” with it, but copying an existing idea is a long-standing tradition. The advantage is that you KNOW the idea works – it is already out there making sales. All you do is copy it, add some slight variations, and try to capture some of the market. Examples include:
- Every pizza idea
- Carbonite clones
- Most big box stores
See, even Viagra got copied. It is a long-standing tradition! Cialis is a different molecule that another drug company (Lilly in this case) discovered to get around Pfizer’s patent and compete against Viagra.
Pizza is popular. Everyone knows that. So come up with a new variation on the pizza idea. Look at all the different pizza restaurants out there. Go to the grocery store and look at all of the brands of frozen pizza. There is definitely room for one more.
Carbonite now has a whole flock of competitors.
Walmart’s clone is Target. Home Depot’s clone is Lowe’s. Domino’s clone is Papa Johns. CVS’s clone is Walgreen’s (or maybe vice versa?). How many major supermarkets are in your area? For me it is Food Lion, Harris Teeter, Kroger’s and Publix. They are all essentially identical.
Clone away! Copying an existing idea is a long-standing tradition, as long as you can get around any patents.
Alternate Rule #7A – Find an idea that exists, but is messed up, and make it better/easier/faster
Find an idea that exists, but is messed up, and make it better/easier/faster. A great example right now is Flexport. If you have a shipping conainer in China and you want to get it to your location in the U.S., the traditional system of phone calls and faxes is a total pain in the ass. Flexport has streamlined the whole thing and is growing like a weed. Uber is another example – it streamlined the “hail a cab” problem and made it a lot better.
Alternate Rule #7B – If someone else has proven an area of demand, think of other ways to take advantage of it
There is an event that will go down forever in history as a complete disaster – The Fyre Music Festival in the Bahamas. This article describes just how bad it got:
There is no question that this particular event was a disaster, but look what it proved: That there is demand, at a very high price point, for certains kinds of events. Also: The Fyre festival was able to get a lot of media coverage ahead of time, meaning it was a resonant idea.
Now that the demand is proven, your job as an entrepreneur is to figure out what you can do to take advantage of it.
Rule #8 – Sometimes price matters
Sometimes price matters. When price matters, it matters. But sometimes price doesn’t matter, so you have to take this rule with a grain of salt. Some things actually sell better if you raise the price. Many fashion labels work this way. Sometimes it works for consultants. It certainly works for Lamborghini.
Sometimes people will pay what seem to be irrational prices. Starbucks comes to mind. 5-hour energy too. It probably costs a dime to produce a bottle of 5-hour energy. But it often sells for $3 in a convenience store. Popcorn in a movie theater or at a fair is another example. If you can get in on a gravy train like this, more power to you. Charge what the market will bear.
But, generally speaking, if you can beat the price that people “have in their heads”, or that they are used to paying, it is often a win. A no-brainer price can be important for some products. And many a product has died because it could not be brought to market for a price that people were willing to pay. The Segway comes to mind. At the time of its first release, a Segway was something like $5,000. Few were willing to pay that much for a glorified scooter. The price was ridiculous, and it really hampered the product.
I can give you an example. My wife had a problem with her computer in a certain room of the house. It could not connect to our wifi. Solution: I need to buy her a wifi extender. In my head the price was going to be $50 or $75. But I went on Google and found a list of the five best wifi extenders. I went to Amazon to look up the first one and it was $24 and had like 6,000 ratings (4.5 average). This was a complete no-brainer price because it beat the price in my head. One-click ordering, arrived the same day (on a Sunday!), installed in 10 minutes and it has worked great. If only all of life was this easy! But that is also an example of a no-brainer price. It “beat the price in my head” by a lot, and so I bought it instantly.
This, by the way, is the whole reason why sales exist. A sale brings the price down and therefore makes the product more palatable. Price matters.
Some final thoughts
My advice to you in a nutshell: Go find an idea like Viagra! Viagra has it all: great resonance, a great value proposition, people are willing to pay for it at almost any reasonable price, it has a big potential audience and scaled up, the audience is easy to reach, and it has the magic triumvirate in spades. If you can’t match Viagra, get as close as you can. Look at Pfizer’s stock chart.
See the big uptrend around 1996? That’s when Viagra came out.
Bonus: Go look up Eatsa. It is a new restaurant idea:
It started in San Francisco and is now scaling to other cities. It is super-resonant (anyone who goes there will tell friends, guaranteed), the price is right and therefore there is a good value prop, it is very quick (perhaps the quickest fast food ever) but also healthy, it can easily scale up, and the audience is easy to reach just by opening a new restaurant in an area with foot traffic. It really is an amazing idea.
Keep in mind that you can test your ideas before you invest much into them:
- Try creating a landing page like Cars.com did. Send some traffic to it via Google or Facebook ads. See how people respond. Will they give you a credit card number? What is the ratio of visitors to sales, and therefore the cost of customer acquisition? If the cost of acquisition is unreasonable, you either have a bad idea, or a bad value proposition.
- Use surveys
- Create an MVP and put it in front of customers. Ask them to give you money and see what happens.
And finally, there are lots of articles like this one available at MarshallBrain.com. In particular see:
- How to Make a Million Dollars
- How to Raise Money from Angel Investors and Venture Capitalists
- Imagining Elon Musk’s Million-Person Mars Colony – The greatest thought experiment of all time!
Thanks for visiting today!
Million Dollar Table of Contents
- Easy ways to make a million
- Save $5 a day
- Start a business
- Three important quotes
- Understanding the quotes
- How America works
- Examples from my Life
- More examples
- Getting yourself in motion
- How to Raise Money from Angel Investors and Venture Capitalists
- How to turn your ideas into successful products