Punchinello’s Chronicles

October 20, 2008

The Forgotten Relative to Capitalism: Markets

Filed under: Butterfly Wings — Punchinello @ 11:00 pm
Tags: , , ,

Whomever ends up in the White House this November, one thing is becoming increasingly clear: We’re about to enter a fundamentally different economic environment. It’s not new, we’ve seen the same cycles throughout modern history. Following wars, there’s a period of abundance and growth. Then comes a plateau, after which comes scarcity and contraction.

Historical progress, in this context, tracks in accordance with widening social interacation. We have small towns interacting with a central county government, then counties connecting with states. We have states forming into a country, and the current next step is countries interacting on a global basis.

The transition between each type of social organization almost always includes upheaval, cultural polarization, angst, upsets, anger, and fear. Existing political alliances strain relationships between cultures, leading so often to wars. When the dust settles and the smoke clears, the new (and usually improved) structure emerges.

In our own historical time, we’re moving through the transition from national economies into a global economy. Humanity is coming together as a species, with many cultural differences losing importance relative to a developing planetary culture. We’re becoming the People of Earth, rather than the nation of this, that, or the other.

And along the way, national economies are in upheaval. Many people wish that things would just get back to “normal,” meaning the way they used to be in the past 80 years. More likely than not, things never will return to that kind of normal. It’s an obsolete model, useful according to our overall development but no longer applicable.

Capitalism is the emerging social and economic model. Rarely tried in history, capitalism is based on individual freedom and the legal principles of private ownership. Humanity as a whole is growing up. In the same way we go from children under the totalitarian management of parents, humanity is in the process of developing individual responsibilities. Whole counries are moving out from under central authority.

Many people are losing their jobs, finding their paychecks don’t go as far as they used to. Their parents earned money enough to buy houses and take vacations, but we don’t seem to do that as easily these days. Job stability and security is almost entirely a thing of the past, and many people are looking around for a way to maybe start their own business.

The entrepreneur and inventor are the backbone of the American way of life. The cottage industry, also known as the mom-and-pop store or family business used to be a major factor in the country. Then it sort of declined or hid behind the bigger excitement of corporations. Now it’s all coming back.

Everyone dreams of inventing something, selling it to lots of people, and making millions. But let’s take a moment to remember there’s another aspect of capitalism. It isn’t all about the inventor. It isn’t all about the entrepreneur coming up with an idea. It isn’t all about mom and pop selling vegetables at a roadside farm stand.

Capitalism not only requires a product, it must include a market!

You can invent whatever you’d like, but unless a lot of people want to buy it, who cares? The market is that loose aggregate of people who not only want to buy something, they also have the means to exchange a value for that something.

How obvious, right? People want to buy something that you have to sell.

Way too many people are forgetting this entirely obvious principle. They rush out and invest their life savings as startup capital. They invent something or buy already made cheap products, and just assume they’ll sell millions and make millions of dollars. What if nobody wants what they have to sell? Is that a failure of capitalism?

Before you jump into a new business, do some market research. Check your premises. Ask around. Talk to people. Show them a model or prototype of your thing (proof of concept). See how many people get excited and want your thing for themselves. Find out how much they’d be willing to pay for it.

You can get all involved in building a product, and it’ll cost you money to do that building. In order to make more things, you’re going to have to sell that item for a profit (more than it costs to make or buy). What if nobody wants to pay that price? Suppose they don’t think (or feel) it’s valuable enough for that price?

Nine out of ten businesses go broke in the first year. The three big reasons are either that they don’t understand business processes, they didn’t have enough startup money to finance the venture, or they tried to sell something nobody wants. Capitalism is an interactive process: It takes both a seller and a buyer.

Before you invest everything in developing a product, don’t forget the buyer!

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