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Comment by jokoon | Hacker News Reader

One thing I learned during a 6 month class of entrepreneurship, is that a company and product have much higher odds of success if it targets people with higher income.

* Those people have more money to spend so they are more likely to buy since it doesn't hurt their wallet

* There are fewer of them so it's easier to advertise and communicate to them

* You don't have to make a lot of product, you just have to increase quality, so you don't even have to scale production or think about economies of scale

I thought business did not involve income inequality, but it absolutely does.

That means it's utterly impossible to make a product for lower income people unless it's really really good.

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This is one of those things that really mystifies me. We always hear about startups, killer apps, etc. that generally target a fat margin, even the cloud providers with economies of scale are doing everything they can to avoid becoming a "dumb pipe", but at the same time in the background there are a bunch of companies which somehow make e.g. manufacturing matchsticks profitable. What is their secret?

Their secret is volume

Volume

Their secret is not having delusions of grandeur. VC convinces us that a business is not a success unless it eats the world within ten years. In actual fact, many businesses make a very modest profit and took decades to get big enough you might consider them a success story. That’s fine. Shareholder value is not the only kind of value.

Not starting out with $500 million VC debt?

And not needing to somehow show 50% growth year after year.

"Profitable" is just a calculation of inputs and outputs, what it actually looks like varies wildly. Manufacturing and tech/service industry and infrastructure are totally different types of business, often with radically different types of startup costs, cashflow, growth patterns, ownership models and employee compensation expectations.

Sadly true.

Looking at it from the other end:

- Wealthy people have plenty of extra money. Their biggest worry is finding new shiny trendy luxuries and bling, to show that wealth off. It's relatively easy for entrepreneurs to dream up and make such stuff.

- Poor people don't have extra money. Their biggest worry is having enough to afford food, clothing, housing, transportation, and medical care. It's extremely hard for entrepreneurs to out-compete existing providers of those (to the poor).

I don't think they are concerned with finding new ways of spending money to show the wealth off. It's kinda stupid and anyone who stumbled on some cash gets over it in a year or two tops, or otherwise they are so stupid their cash will the siphoned off by someone smarter in another few years anyway. Biggest problem of selling things to rich people is that they hear so much bullshit all their lives, including bullshit from fake friends, fake lovers etc., that it's really hard to bullshit them with anything anymore, and you have to do it to sell them the next "amazing" gadget.

>That means it's utterly impossible to make a product for lower income people unless it's really really good.

Rather really really cheap. There is definitely a demand for servicing lower income people. It's just not a great place to be for people with middle class sensitivities.

These are the same reasons why developers first create an app for iOS. This is quite well known

Wouldn't a more narrow specific audience you need to target and market be more expensive than a broad campaign?

If you use a broad campaign that's targeting more people overall due to a larger pool of potential users...you should see more customers. And a more generic less targeted ad should be cheaper per click or whatever KPI.

Low-margin, high volume products for low income people don't sell on advertisement, they sell on price. You need the economies of scale, and that requires tons of upfront capital investment.

> you just have to increase quality

Today’s day and age you don’t even have to increase quality. You simply repackage stuff in a new social media friendly way.

I mean, just look at the success of Goop and the general “wellness” industry which keeps criticizing Big Pharma (which deserve a lot of legitimate criticism that need to be solved with better, not necessarily more, regulation) when all the criticisms apply to wellness with the added concern that they’re completely unregulated and have no testing requirements.

> That means it's utterly impossible to make a product for lower income people unless it's really really good.

The flip side is that products targeted at poor people are actually amazing. Something like a cheap grocery chain involves logistic and technological capabilities that were unachievable through most of human history. And the price points society hits for things that are effectively magical are absurdly low.

The default expectation for someone who can lift heavy objects or maybe do some cleaning would be that they can scrape together just enough food to survive. But the modern economy is so optimised at the low end that most people can actually achieve a pretty reasonable standard of living on very questionable levels of productivity, skill and ability. Although not luxurious by modern standards, obviously.

> products targeted at poor people are actually amazing.

> pretty reasonable standard of living

This is a deep misunderstanding of what constitutes progress and a reasonable standard of living.

Modern TVs and phones are great, sure, but they're an order of magnitude smaller than big-ticket costs like housing and education. Combined with real wages being stagnant since the 70's, most Americans have seen their standard of living decline.

That's also a much more crowded market and your rivals are probably more ready to outspend you. For instance if you're selling vitamins, are your odds of succeeding in the luxury market that much higher ?

> really really good

Not really the way I’d put it: it has to be really, really cheap or really, really indispensable (why is a smartphone a must have for a homeless person…?)

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