What makes certain markets more profitable than others? How can you create a product that will actually sell?
In The Boron Letters, Gary and Bond Halbert suggest focusing first on finding profitable markets rather than developing product ideas. Their unconventional approach provides a practical framework for aspiring entrepreneurs.
Keep reading for the Halberts’s advice on how to choose a product to sell.
How to Choose a Product to Sell
In the sales classic The Boron Letters, the Halberts provide unusual guidance on how to choose a product to sell. They contend that, in order to decide what to sell, you need to figure out whom to sell it to. In other words, you should identify a demographic or list of specific people that you intend to market to directly.
Many entrepreneurs make the mistake of first coming up with a “genius” idea for a product and then doing research to figure out what its target audience should be. The authors maintain that this is a mistake since it’s much easier to invent a profitable product than to find a profitable market.
(Shortform note: In Purple Cow, Seth Godin disagrees, arguing that, if you have a truly original and exceptional product idea, you’ll have no problem finding it a profitable market. He contends that every market contains a certain number of innovators and early adopters: Consumers who are always on the lookout for new and better products. If you come up with a product that’s markedly better than what already exists in a new and exciting way, these innovators and early adopters will desperately want it, ensuring that whatever market your product falls into will be profitable. How? Innovators and early adopters spend more money than the average consumer, and they’re most likely to turn into advocates of your product, helping it reach more customers.)
How to Choose a Profitable Market
If the right market is more important than the right product, how do you choose a market? The authors contend that you’ll make the most money by tapping into markets that are already profitable. Come up with products similar to something that customers are already buying, and they’ll buy your products, too.
| Objective Indicators of Market Profitability While the Halberts offer a helpful rule of thumb, Michael Porter in Competitive Strategy offers a more detailed set of criteria for determining the profit potential of a given market. Understanding these factors may help you find a profitable market that other competitors haven’t yet tapped into. A market will be more profitable if: • Suppliers have less influence on the supply chain. For instance, if you own a fast food restaurant and can choose to source your beef from several different suppliers, each of them has to compete to offer you better prices and service. Because of this, the fast food market is more profitable than it would be if you had to rely on a single supplier. • Consumers have less bargaining power because they need your product and have few choices. If you’re the only grocery store on an isolated island, that island will be a profitable market for you. • There are difficult barriers to entry for new competitors, such as expensive overhead costs. • There are few or no other markets that can fill the same consumer needs. For instance, the hotel market would be more profitable in a big city where Airbnb was banned. • There’s less aggressive competition from other firms—for instance, if competitors aren’t spending very much on advertising or developing new products to give themselves a competitive advantage. |
Trust Sales Data, Not Customers
When gauging how profitable a particular market is, don’t base your judgments on the information you get from surveys or direct conversations with potential customers. The authors warn that, when you ask people about what products they buy and want to buy, they often lie—knowingly or unknowingly—to make themselves look better. For example, if you interviewed people about their beverage choices and they claimed to buy more health drinks and less soda than they really do, you may falsely conclude that selling kombucha would be very profitable.
Instead, trust sales data. If sales reports say that people buy a lot of soda, another soda will be more likely to sell well, even if most people won’t readily admit that they want one.
(Shortform note: In The Mom Test, Rob Fitzpatrick agrees that surveys and customer conversations can be misleading—unless you’re conducting them the right way. If you exclusively seek out objective facts about the past, he says, you can get information from casual conversations that’s just as good as sales data. Additionally, in-person conversations are potentially more useful than sales data because you can turn research conversations into sales. If the customer doesn’t want to buy your product at the end of the conversation, it gives you valuable information: You either need to improve your product further or pick a different target market.)
To learn which markets are available for you to work in, the authors recommend browsing the SRDS Direct Mail List Book: a book created by the company Standard Rate and Data Services that compiles lists of direct sales leads for a wide range of products. This will not only give you specific names and contact information for potential customers, but it’ll also let you know which kinds of products generate the most sales. Gary Halbert bought a physical copy of this book, while Bond Halbert refers the reader to SRDS’s online resources.
(Shortform note: If they already know what market they’re competing in, many marketers looking for direct sales leads nowadays use lead magnets rather than specific catalogs like SRDS. Lead magnets are free (often digital) products that sellers give out in exchange for contact information. For instance, someone selling make-your-own-kombucha kits may offer a free eBook that explains how to ferment kombucha in exchange for a customer’s email address. Make sure to offer something relevant to the product you’re selling so that both appeal to the same target audience. This way, anyone who claims your freebie will also be interested in further marketing messages about your product.)
How to Develop a Winning Product
Once you’ve identified a profitable market of potential customers, the next step is to decide what to sell them. Although the authors make it clear that their other marketing advice applies to entrepreneurs looking to sell any kind of product, they particularly recommend developing and selling a knowledge product: valuable information. Gary Halbert wrote and sold how-to “reports” through the mail, and Bond Halbert explains that the modern equivalent would be developing and self-publishing an eBook. Such a product has low overhead costs and is relatively straightforward to produce.
The key to developing a winning knowledge product is research. The authors recommend reading a series of books about a topic relevant to your chosen market. Then, study all the advertising materials you can get your hands on that sell the same kind of knowledge product that you want to sell. Take notes on everything you read and compile them into a comprehensive file for review. By condensing and rewriting the best ideas from everything you read and adding ideas of your own that occur to you, you can create a unique, valuable knowledge product.
