Beth Plutchak Consulting LLC

Grow Your Business/Grow Your Community

Market Clearance Failures and Entrepreneurship

I’ve recently been following a number of online conversations on what makes a growth-oriented entrepreneur different. The consensus seems to be that the serial entrepreneur who rapidly grows one business after another just is a different kind of an animal. S/he appears to have a drive that is difficult to consciously duplicate. In my mind, s/he also has a way of seeing the world in terms of connections. In quantum physics it is more and more understood that it is not aggregations of the smallest bits of matter that count, it is how they interact.  It’s not the things themselves that matter, it is the relationships between the things. Growth-oriented entrepreneurs are relational thinkers.

I recently attended a presentation by Brian Wiegand cofounder of Alice.com. This is his fourth internet business. The other three were successfully sold and are still operating in one form or another. His new business identifies a market failure in the delivery of certain commodity priced, consumer staples. He identified an opportunity in that many of the brand name items were being forced off store shelves by store brands. He looked at the reasons online groceries continue to fail and came up with a different model to monetize his idea. He used a combination of “long-tail” theory and conventional business model theory to figure out where the weaknesses were in existing models. What he didn’t do was decide to go into the online grocery store business and begin his research with the end model in mind.

Although the site may look like a typical online shopping site the business model is quite different. One of the things that stood out for me in listening to him was that he thought in the big picture arena of how the particular goods that he was interested in are produced, distributed, and delivered to consumers. What he did not do was focus on the specifics of the current models surrounding brick and mortar and online shopping. It was this big picture thinking that allowed him to identify the market clearance failure he hopes to exploit.

I don’t know whether you can train yourself to think that way or not. I tend to think on the macro level and it is the macro questions that fascinate me. Here are a couple of examples of big picture ways to think about some familiar businesses. I hang out with a lot of people in the publishing industry. Writers in particular seem to believe that a “knowledge-based” economy will be an economy that is post-the production of stuff. However, the biggest example of a successful knowledge based business is Wal-Mart. They were early adopters of specialized supply chain and point-of-sale software, which is one  the main things that led to their success. Amazon is not just a company with an internet front-end; they warehouse and distribute books and other goods.

 There are steps common across industries that get goods from production to consumers. Producers-> Processors        ->Distributors->Sales Outlets. Some of these four might be collapsed, but this chain follows across industry. Examples – the pork industry – Producers (hog farmers)-> Processors/Distributors (meat processing plants) -> Sales Outlets (grocery store).  The publishing industry  -> Producers (writers) -> Processors (publishing houses) -> Distributors (book distributors) -> Sales Outlets (book stores).  In the recent past pork processors have created shortages and controlled the prices farmers are paid and grocery stores can charge by exercising the advantage of their position in this chain. Amazon’s biggest success has been in collapsing distribution and the sales outlet to the consumer and controlling both. What market clearance failures and opportunities can be identified by taking the big picture view of your industry?

3 comments on “Market Clearance Failures and Entrepreneurship

  1. Sam Lee
    2010/08/07

    Whoops! Meant to say that publishers are a meta-processor, not necessarily a distributor (they are both in ebooks, as well as being sales outlets on their own in addition to using other sales outlets [Smashwords, Fictionwise, Amazon/Kindle, etc.]. Of course, with ebooks, writers can contract out editing and cover design, be their own distributor, and be their own, main sales outlets for fans checking in to their websites as well as if not just placing works at ebook sales outlets for a smaller percentage.

    • bethplutchak
      2010/08/07

      Sam – I think that the distribution problem is the key problem that needs to be solved. I’ve heard from both small press owners and writers about distribution problems. Both Amazon and ebooks have tried to bypass traditional distribution with varying degrees of success. Ingram has been a troubled company for a long time, but still have a near monopoly. I’d like to be able to figure that one out. Agents I suppose, perform the role of broker who may or may not be needed to get a deal done. In my former career – banking – a lot of lenders were let go after the dot com bubble, because they didn’t understand underwriting or could not make a deal except on price. Many, many of these people became mortgage brokers and sold the deals that broke the whole economy. I am very leary of ex-editor agents.

  2. Sam Lee
    2010/08/07

    Writers, I think, are seeing the contraction of the Processor, Distributor, and Sales Outlets categories with ebooks; with ebooks, authors themselves can become the rest of the chain, or farm out the work to others, in whatever combinations they please or that they are able to choose from.

    The agent discussion over at Dean’s blog is interesting all by itself in that srictly speaking, the *editors* and the cover artists, production department, etc. are necessary processors 9who are currently employed by the publishing house (one type of distributor)], but the agent is not, so then it becomes a question of cost-benefit analysis, and one that quite a few writers are finding comes up short on the benefits column.

    Great reminder to remember that embezzlement is a crime of opportunity, btw (and thus the lesson being: don’t give people the opportunity to be dishonest/criminal if at all possible).

What do you think?

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Information

This entry was posted on 2010/04/19 by in Economic Analysis, Economic Development and tagged , , .
%d bloggers like this: