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When Starting A Business Consider The Law Of Supply And Demand

Aug 29, 2008
The law of supply states that the quantity of supply is related to price. So of course the smaller the supply the higher the price. When we deal with the law of demand we have the opposite effect, the larger the supply the lower the price. This is a simple enough rule but often one that is ignored. When you first start looking into what type of business you would like to start you need to consider this rule. Otherwise you could find yourself in a business that has too much competition for too few customers. Or maybe it is going the way of the horse and buggy and becoming extinct.

When considering a business to start you need to determine what the existing demand is for that product or service and also whether the demand is growing, beginning to level off or in fact already declining. One way to tell is by how many new businesses have entered the field within the last few years. You will also want to avoid seemingly hot businesses where you might find yourself entering the field late. When a market is new and growing it is easier to get in on it but if the field has already become saturated with new businesses then you'll probably be squeezed out.

A good example of supply overcoming demand is the microbrewery beer business. While this is still a strong business for existing companies it has been much harder in recent years for new businesses to enter the field. But at one time it was a lot easier as the trend was just catching fire in the United States. Many entrepreneurs opened pubs and launched beer labels during the 1990's with great success. But eventually the market reached that saturation point and new businesses began to fail.

Supply and demand also covers many other aspects of business that you need to consider. The space you lease for example. Hot shopping centers will be more in demand and will cost you more to get in as a result. Wages in a particular industry are subject to change based on the market.

When you consider introducing a new product to market you have to consider the possibility of there being a demand shortfall. This situation would occur if the demand that you projected there would be isn't realized when your product of service is introduced. All of these factors related to supply and demand will have an impact on your business whether now or in the future.

The law of supply and demand can be seen as the great equalizer in business. If you enter into a business with not enough demand you are likely to fail. Whether you are starting a new business or launching a new product or service. Finding out exactly what the demand is as well as the current supply for the venture you are considering is critical to your ability to succeed. If you do not you may find yourself a victim of the law of supply and demand.
About the Author
Cash Miller is an experienced entrepreneur and speaker who has spent over a decade as a small business owner. His years of experience in small business cover a variety of topics. If you are looking for more small business help please check out http://www.smallbusinessdelivered.com
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