Entrepreneurs Underestimate Market Size Due to Skill Deficits

Deep Dive

The discussion begins by addressing the concept of "mindset," which the speaker expresses a strong dislike for, finding it overly mythological and lacking concrete definition. He proposes viewing language as behavior, explaining that words are used because of how others respond to them, leading to learned behaviors and potentially vicious cycles. An example is given of how the speaker's past reactions to his wife's crying inadvertently reinforced his own anger, causing her to stop crying, which he then learned to elicit. This illustrates how people adopt certain language, like "manifestation" or "frequency," not from definition but from the positive reinforcement received from a community. The speaker emphasizes the importance of defining words, stating that his first step in problem-solving is to understand what something means, how one knows it, and why it matters, representing logic, evidence, and utility.

The conversation then shifts to the common entrepreneurial excuse that a business has not grown because its market is saturated or too small. The speaker asserts that 99% of people who claim this are incorrect, and unless one is selling to a very small, specific population (like 140 people in a rural town), their market is likely much larger than perceived. He explains that entrepreneurs often tap into less than 1% of their actual market and that this belief about market size is a limiting one that protects their ego, rather than a reflection of reality. Instead of admitting a lack of skill in advertising or scaling, entrepreneurs blame the market size. The speaker clarifies that while extremely small, isolated local markets can exist, most businesses, even in urban areas with hundreds of thousands of people, have ample customer potential.

The speaker recounts a story about discovering a gym software company doing $10 million a month solely through outbound sales, a method he had not previously considered capable of generating such demand. This experience broke his belief that his own business, Jim Launch, was constrained by its market. He then illustrates the concept of market perception versus reality by depicting the entire market as a pie. When competitors emerge, people often perceive their share of the pie shrinking, leading to sadness. However, the speaker argues this is a false belief. He breaks down the "slice of pie" to reveal it represents only one way of advertising on one platform, and that the total market is vastly larger, encompassing numerous platforms (Instagram, Facebook, TikTok, YouTube, X, radio, TV, Google Search, direct mail, email, schools) and multiple advertising methods within each platform, as well as outreach methods like direct mail, DMs, and phone calls.

The discussion then addresses the "red ocean" concept, where fierce competition exists. The speaker argues that this indicates a large market with significant potential rewards, rather than a reason to avoid it. He reconciles this with the idea of "niching down" by explaining that initially, businesses should artificially constrain their market to a "puddle" or "pond" to gain experience and become the "biggest fish" in a smaller body of water. As skill and experience grow, they can then move to larger markets like a "lake" or the "ocean." The "riches are in the niches" because it allows for fewer competitors, capped upside (though often higher than perceived), and greater pricing power. This evolution from niche to broader markets is directly correlated with increasing skill and experience.

The speaker outlines five directions a business can expand its market: upmarket (e.g., from single gym owners to franchisers), downmarket (e.g., to individual trainers), adjacent markets (e.g., from gyms to chiropractors), broader markets (e.g., from gyms to general health and wellness), and narrower markets (e.g., from gyms to only spin studios). He notes that many small business owners have not defined their market position and simply accept any customer with a credit card, which can lead to customer confusion.

He then provides tactics for those struggling to get leads, emphasizing the belief that there are more ways to acquire customers than currently used. This involves creating more content in more places, improving content quality, and eventually incorporating ads and outreach for omnipresence. He states that most people have not capped their market but have been too unskilled to capture a larger percentage and that this is normal; as one gets better, they can expand their market.

For local businesses, the speaker offers specific strategies to expand revenue with a single location. These include expanding the physical space and efficiency within existing walls (e.g., shortening class times, reducing breaks), adding more channels for customer acquisition (e.g., posting on Instagram, X, YouTube, Facebook, TikTok), and opening additional locations. He notes that while the rule of "one avatar, one product, one channel" applies until $1 million in revenue, local businesses in smaller markets (C or D markets, with fewer than 50,000 people in a 10-mile radius) may need more channels to saturate their limited customer base.

The speaker then discusses the concept of business growth over time, illustrating that starting a new venture, even with a potentially faster growth rate, often leaves one behind compared to sticking with an existing opportunity for a longer period. He argues that growth becomes easier as a business scales, and the head start gained by persistence is crucial. He identifies "features, not bugs" as elements that make a business difficult but are inherent to its nature and the reason for compensation. For example, the cleaning business struggles with talent attraction and retention, while the fitness business faces customer acquisition and retention challenges.

He further categorizes business models by their growth shapes: e-commerce (fast scaling, cash flow and supply chain issues), SaaS (slow start, fast scaling), service businesses (slow but steady, talent and customer retention challenges depending on the specific service), and info-education-media (fast initial revenue, difficult to scale due to lack of revenue retention). He points out that people often quit when they hit the difficult part of their chosen business model, mistaking it for a fundamental flaw rather than an inherent characteristic.

The speaker also examines demand and supply constraints at both the business and industry levels. He uses the cleaning business as an example: if a business has demand constraints (can take many more customers than it currently has), it might be doing something exceptionally well or be in its very early stages. Conversely, if it has supply constraints (difficulty finding enough cleaners), it mirrors the industry. He suggests that inexperience leads people to believe there is something wrong with their business when it is merely the nature of the industry, causing them to not fully commit and become upset about slow growth.

He uses the analogy of a marriage with a wandering eye to describe how people look for new opportunities rather than investing in their current one. He posits that doubling down on an existing venture often yields better results faster than starting anew due to the established loyalty, trust, and track record.

The speaker concludes by reiterating that many people are limited by their minds, not their markets, and lack the skill to advertise effectively across various channels. He poses a powerful question for self-reflection: instead of blaming external factors like market saturation or lack of good salespeople, reframe the issue as a personal skill deficit (e.g., "I don't have the skill to get more leads," "I don't have the skill to attract and