Should you choose a business based on demand?
If you’re in the exploration stage of starting a business, demand will be something you factor into the business you start. Some entrepreneurs don’t need to factor in demand because they’re starting a business based on their expertise or a unique opportunity. If that’s not the case for you, due diligence will play more of a factor in what business you start.
Demand is the economic concept relating to a consumer’s willingness to purchase goods and services.
In this article, we’ll discuss demand and starting a business. First, let’s dive into demand and when it should matter. At the end of the day, it always matters, but to what degree varies. We’ll wrap things up with our thoughts on the high-demand industries.
What makes this business in demand?
To answer the question posed by the title of this article, you should always consider demand when choosing a business. It should be on your mind while searching for the right type of business. And once you make a choice, demand should be at the forefront of every decision. At the end of the day, if you’re not giving your market what they want, why even do business?
That begs the question, “What and who makes this business in demand?” In other words, who is my ideal customer? Who is screaming for my product?
Here are a few factors to consider:
- The income level of your ideal customer
- The seasonality of your business
- Where your ideal customer lives
- Why they need what you offer
- What their life would look like with and without it
- What would make them choose a competitor over you
How to distinguish from your competitors
Zeroing in on that last point, you are bound to have competition if you choose an in-demand niche. Once you’ve selected a business, you must determine how you’ll distinguish your business from the competition. You can be better, you can be faster, or you can be cheaper.
- Better: Instead of offering the same product or service, look for holes in your competition's product. For example, in 1994, Sony released the PlayStation despite steep competition from Nintendo and Sega. They released a console capable of delivering 3D visuals, CD capability, and more data storage.
- Faster: Can you offer the same product but in less time? Some niches like food, entertainment, and hospitality rely on this. Faster delivery, quicker loading times, and more availability are potential reasons consumers choose one business over another.
- Cheaper: If you manufacture the same product for less, you can pass those savings to the customer.
Bonus: If you can figure out how to offer your service to a market your competitors can’t reach, you can get away with providing the same product/service.
Can you influence demand?
All successful businesses adapt to market demand. Market-leading businesses influence it by shaping customer demand when it didn’t exist before. This is where clever marketing, like that done by Steve Jobs during the release of the iPhone, comes in. Before Apple, consumers didn’t know they wanted a phone to make calls, browse the internet, play music, and even read books. Now, that is the bare minimum they expect from their smartphones.
What does demand look like for the next 25 years?
If you’re still in the due diligence stage of starting your business, consider what demand will look like down the road. If demand is the first and final factor when looking for a business to start, you should target two things.
- People’s basic needs
- People’s deepest wants/desires
Certain businesses will do well regardless of the year or economic situation. Cars will always need oil, people will always need food, and families will still need housing. Barring societal collapse, these industries will still chug along. These are called “recession-proof” businesses and are almost always a good investment.
There’s another side to this coin.
Sometimes, the most profitable business ideas are flash-in-the-pan ideas. Fads like pop sockets and fidget spinners come to mind. You can’t argue that either of these products represents basic needs like food or water or a deep desire. However, you can make an easy argument for their profitability. It would have been silly to pass on that idea solely because you don’t see long-term viability.
If you can strike while the irons are hot, you can enter an industry and quickly profit. During Covid, demand for masks and sanitation services/products went through the roof.
Demand will influence how you run your business
If factors other than demand matter more when considering a business, know this. Eventually, demand will jump in the driver's seat and grab the steering wheel of your business. At the end of the day, we’re in business to satisfy the needs of our customers.
Here are a few ways demand will influence your business:
- Demand will determine what price you can sell your goods or services
- Demand will determine how much supply you should carry and when
- Understanding demand will lead to better sales forecasting, meaning better financial management
- Demand will help guide your hiring decisions so you don’t do so too soon or too late
Understanding demand means understanding your business
Understanding how demand works is another step toward business success. Too many business owners get caught up in their desires and how they want their market to react. Ironically, this headstrong attitude is what makes a successful entrepreneur.
If you’re in the beginning stages of your business journey, ask what factors will impact the demand in your business. Do this, and you’ll better understand the landscape ahead of you. If you want to understand better how your business is doing, you must take control of your finances. One tool that can help you do this is ComplYant.