If markets are perfect, there would not be a single company in the world. Yes, if a buyer can find a seller and a seller can discover a buyer seamlessly, we would not have companies. But because of huge frictions that exist between buyers (demand) and sellers (supply), we need to have a force to overcome them. That force is what we call companies. Yes, companies exist because of one reason: markets are inherently imperfect in nature.
To make markets tend toward being “perfect”, companies offer services in markets. For offering those services, people pay them, and companies earn the revenue. Revenue is the compensation earned by companies for creating forces (products and services) which are used to overcome frictions in markets. There are different levels which companies operate in pursuing this mission.
(If I have $1,000 which I do not need for a year, and open to lend it to somebody at 10% interest rate, I will need to find that person for that deal to go through. Also, the person that would receive that money from me needs to know someone who is open to lend $1,000 at 10% for a year. Unfortunately, there is a huge information asymmetry as I cannot easily find that person and the person cannot easily find me. What happens is that to ensure that money does not stay idle, I will take it to a bank which will pay me 10% interest rate. Also, the person that needs $1,000 will go to a bank to ask for a loan, and the bank will lend that my $1,000 to him for say 17%. That extra 7% is the cost of fixing the friction and by overcoming the friction, a new equilibrium point is set, bringing a largely imperfect market into a more perfect one. This is what happens in all market systems, across sectors and industries.)
For one to wake up one morning and conceive to launch a company, the person must have noticed a friction which has not been fixed. In other words, in that specific domain, there is an imperfect market system between demand and supply. So, there is an opportunity.
To pursue the opportunity, the next phase is this: do I have the capability to deliver that force necessary to earn revenue with the cost of generating the force lesser than what people would pay for the frictions I am fixing in their lives? For that business to be sustainable, the cost of creating the force must be lower than what people pay for it (yes, if this is the case, you can make a profit).
Acquiring capabilities can come in many ways – education, training, apprenticeship, hiring labour, etc. Indeed, that process is a continuum as you never finish the process of accumulating capabilities.
In Nigeria and indeed continental Africa, there are frictions everywhere. Those frictions are waiting for great forces to overcome them. As we sojourn into 2020, take this from me: the future is one of abundance, unlockable by those with compounding capabilities. To elevate your career, acquire a special capability which you can use for a better job or to run something yourself. Yes, unlock your abundance in 2020 by acquiring a unique capability.
Go for it – and Happy New Year ahead.
Register for next edition of Tekedia Mini-MBA (June 22 - Oct 22, 2020) here. Four months, online, and costs $140 or N50,000 naira .