Matter can neither be created nor destroyed
I talked about some basic rules in my earlier post.
Here’s one of those, one that is the law of conservation of mass. Now, we have all learnt this in Physics. Why am I bringing it up here? Such a basic law is applicable not just in the physical world, but also in macroeconomics. Here a similar concept applies to production and consumption.
In business, it is pretty much the same. At a macro level, consumption income does not vary significantly. There is generally only so much spendable income and there are only so many people to spend.
I recall the boom in the 2000’s. In Europe, where I was then living, 3G licences were being auctioned by governments. Companies paid enormous money for them – existing mobile operators and a host a new ones. And in our company, we were literally drooling at the business to be obtained from this large number of licensees. Not surprisingly, things changed dramatically in a year or so. The issue was simple. Take, for example, in a small country such as Denmark, which awarded 5 licences. All of the winners started out with ambitions to build their own network. But as they progressed, it became obvious that the potential income from the subscribers would not provide the return on investment for five separate 3G mobile networks. Obviously, the number of subscribers was only so much, their disposable income was limited. And needless to say, that is what happened. Mobile operators decided to share the infrastructure investment, suddenly reducing our potential market by 40-50%.
So, if you are looking at a new business opportunity, it is important to understand where that business is going to come from. Your gain generally has to be someone’s loss. And it is often not an obvious one. As the mobile prepaid payments caught on in some of the emerging countries, people gave up other expenditure to pay for their airtime. So, the tobacco industry had an impact, the movie industry was impacted – all as a result of more people now being able to talk more over distances.