My son, Joel, is unusually (for a 16 year old) interested in self development and entrepreneurship. He has read extensively on these topics and may have even been influenced by me. He is currently choosing his year 11 subjects for next year and told me he is considering Economics as an option.
I suggested to him that whist it is useful to have an understanding of how the market forces of supply and demand interact and impact the economy, industries, business and individuals, it is more useful for an entrepreneur to understand how to create their own economy.
What do I mean by that?
Well, you see, you could wait for supply to exceed demand for your product or service and then ride the wave together with all your competitors. The problem with this strategy is that it isn’t really a strategy, sometimes you will have to wait for a long time and sometimes the boom doesn’t last very long.
But the reality is that you can’t service the entire market and you can design your business to be isolated from the overall market. All you need is for the demand for your product or service to consistently exceed supply. This is about transitioning away from providing a commodity and it leads to waiting lists and price premiums. Think of the restaurant that is booked out and how this makes you more determined to book a table next week or next month. Creating your own economy is about understanding that people don’t buy what others want to sell, they buy what others want to buy. It is also about understanding the power of saying “no” to customers that aren’t a good fit or that you can’t provide an exceptional outcome for.
It only takes two eager buyers at an auction to drive the price of a house up.
Ferrari maintains supply and demand tension by only producing 8,400 cars each year.
Economics works for the economy but you should create your own economy for your business.
In any event, I expect Joel will ignore my advice and make his own decision about what to study next year.