A Shortage of Scarcity

Seth Godin has a nice piece on scarcity in this past Fast Company. He points out that scarcity is what drives the economy.

Scarcity, after all, is the cornerstone of our economy. The only way to make a profit is by trading in something that's scarce. This is why the music and movie industries are so terrified by the millions of people who download entertainment from the Internet every day.

He also makes a point that sometimes, in this ultra competitive world, if your product or service isn't scarce then it may be better to close up shop.

Last week, a woman who came to a seminar in my office was desperately searching for a way to improve her mortgage-brokerage business. I ruined her day when I suggested that she shut her company down and try something else. Twenty years ago, most mortgages were written by the local bank. Those banks planted the seeds of their obsolescence when they eliminated judgment from the writing of mortgages. Once they could automate a mortgage application, so could everyone else. So mortgage brokers used their low overhead and quick wits as an advantage and stole the business. Today, there are an infinite number of brokers to choose from, all offering essentially the same service. The result is that there is no scarcity, and no profit.

No one wants to hear that, but sometimes it is the best course of action. So what is scare today? What can companies offer that isn't common? What do customers want, but can't find?

So what's scarce now? Respect. Honesty. Good judgment. Long-term relationships that lead to trust. None of these things guarantee loyalty in the face of cut-rate competition, though. So to that list I'll add this: an insanely low-cost structure based on outsourcing everything except your company's insight into what your customers really want to buy. If the work is boring, let someone else do it, faster and cheaper than you ever could. If your products are boring, kill them before your competition does.

Ultimately, what's scarce is that kind of courage–which is exactly what you can bring to the market.

Wow. I think Seth is scaring me out of starting a business. He's right though, and this is something I have thought about. If a company does well in a new niche, profits will be high and people will come in to compete until profits fall. To be really successful, you need a sustainable competitive advantage.

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Thanks to Mark Fusco, who posted his own experience with scarcity, and reminded me I meant to link to Seth's article.