LITMIR.BIZ

      Why shop around for tennis gear when I know what racket Roger Federer uses? Why try all the restaurants in London when I could just go to the one that was rated five stars by a famed food critic? Why try to understand financial markets when my trusted financial planner has all the answers?

      Relationships can eventually be formalised through contracts. When shopping around for phone plans, people waste hours of their life trying to understand the difference between “Go Time,” “Stop the Clock” and “Mega Minutes.” When a person finally signs a contract with a carrier, something strange happens the very next day – they don't see any more ads because the carrier owns the relationship through a contractual agreement. The more contracts a carrier can sign, the more valuable and profitable it will be.

Owning the relationship is a powerful way to become oversubscribed – and there are three ways to do this:

DRIVER NUMBER THREE – CONVENIENCE

      Market “friction” refers to the time, energy, effort and know‐how required to buy something. If it's difficult to buy something because it's far away, poorly understood or time‐consuming, the market is slowing down due to friction.

      If you can reduce that friction, you'll attract a lot of customers who will call it a convenience.

      When you find ways to simplify and speed up the process of buying from you, it creates a market imbalance. People buy from you because it's much easier than going elsewhere. Since the dot.com era really kicked off in 1999, we've seen many successful businesses build up because they took a traditional business into the digital world. They reduced friction or, put another way, increased convenience.

Amazon almost dealt a death blow to traditional bookstores because it made it a lot easier to buy a book. Each book is exactly the same if you buy it in a store or online but the ease and simplicity of Amazon makes it the default option. Netflix obliterated video rental stores with their approach to getting movies into your home with less hassle.

      Convenience or less friction occurs in three ways:

DRIVER NUMBER FOUR – PRICE

      The final way to create more buyers than sellers is to bring down the cost of production so that you can offer something cheaper than everyone else but still make a profit.

Many small services businesses compete on price because they don't have the high overheads that large companies do. They can run their business from the spare room, piggyback on market trends, use cheap software, keep costs low – and still earn a better income than if they were sat at an expensive desk in the city with an expensive brand behind them.

      Big businesses used to be able to dominate low prices because they could afford to invest in plant and equipment that would create a barrier to entry. But thanks to today's “collaborative economy,” most of the plant and other equipment is available to smaller businesses when they need it and it's not their problem when they don't.

      There are many smart strategies or investments businesses can make to allow prices to stay low. A small business can buy a projector rather than hiring one from a venue each month. A bigger business might find an innovative way to run its warehouse from outside the expensive real estate of the city. A service provider might find ways to strip out a time‐consuming component of their process that doesn't impact on the value a client receives.

      When Andrew Lloyd Webber came up with several hit stage shows he made a lot of money, which he then used to buy up the major theatres in London. Because he owns the property, he doesn't have to write shows nowadays; if you want to get your play to run in London you will have to use his property. He can also afford to run his own plays at a lower cost because he owns the venues.

      There are three ways you can reduce costs and still keep your margins:

      When establishing your business long term with a group of people, make sure they understand which of these four market positions you are strongest in. Ultimately people want to keep coming back to you because you offer them something fresh and new, you're their most trusted ally, you're super easy to deal with or you're relatively cheaper than everyone else.