Market friction is at the heart of all entrepreneurial opportunity
Market friction is at the heart of all entrepreneurial opportunity.
When you’re looking for a business idea, consider the things that keep people from doing what they want to do. The current product or service might be too time consuming, too expensive, or too confusing to use. Often, there’s a technology solution.
You can find friction in markets with lots of uncertainty and ones that require specific knowledge. Internal deadlines — like an upcoming wedding — can be a strong motivational currents that lead to market friction.
To identify market friction, examine consumer motivation.
I use the “be, do, have” framework: People are motivated to be something, do something, or have something.
Apply this framework to your customers to figure out what motivates them and what keeps them from achieving their goals.
Strong vs weak currents
The best entrepreneurial opportunities have strong motivational currents.
Something that a customer needs — not just wants — by a certain time is the recipe for a strong current.
It could be a customer’s need to get taxes filed by Tax Day, or fit into a dress in time for a wedding. When you identify the internal deadline, you can now focus your marketing on it.
Once you’ve found market friction with a strong motivational current, ask yourself: “Why me?”
Why are you the person to solve this particular problem? Do you have any expertise? Do you understand the complexities of the market?
Will it grow your identity capital?
Next, consider whether the opportunity will grow your “identity capital,” a concept coined by Dr. Meg Jay in The Defining Decade. This is the accumulation of knowledge and skills you need to be successful over the long-term.
Your calculation depends on where you are on your entrepreneurial journey. When you’re early in your career, gaining identity capital matters more than anything else you can do. Under a big mountain of hard work is the only place where you’ll find your passion.
Is it worth it?
The next question to ask: “Is it worth it?”
Is this worth devoting the next decade of your life to? Because that’s how long many businesses take to become successful.
With Royalty Exchange, we saw that, in the U.S. alone, artists were collecting $3 billion a year. If you put a 5x multiple on it, that’s a $15 billion market, large enough to spend many years pursuing.
Do you understand the constraints?
Just as importantly, you must understand the natural constraints in the market: What are the limiting factors to success?
The market opportunity may be gigantic, but if there are major hurdles to being successful — government regulation, for example — then it may not be worth it.
Do you have a plan to attack it?
Next, do you have a plan to attack the opportunity?
When I get most excited about a business opportunity, it’s usually because I can see how I’d attack the market in a new way. Often, it’s a unique approach to distribution. It could be a sales or marketing advantage.
What’s the first step?
For many people, this next step is the hardest: What’s the first thing you’ll do to drive customers to your door?
A lot of entrepreneurs get excited about solving problems — especially when the market is significant — but fail to see their vision through. You have to be able to define your plan of attack. Be specific. Write down the first thing you’ll do.
Ideally, start small and grow.