Efficiency and change

Like the biological environment, the economic environment is generally efficient. Incumbents tend to be well-adapted and difficult to compete with head-to-head. When do new organisms and businesses emerge? Changes in the environment unlock opportunities for new entrants.

When something in the environment changes, incumbents may no longer be well-adapted, allowing better-adapted (or at least nimbler, more adaptable) new players to gain a foothold.

When exploring startup ideas, ask: why now? What political, social, technical, or economic changes make this business newly possible in a way that wasn’t 10 years ago? 5 years ago? If there’s no good answer, then it’s likely either the opportunity is bad, or a competitive market already exists.

Common sources of change include technological innovation, policy shifts, demographic changes, and natural disasters. Smartphones created opportunity for new startups like Uber, Instagram, Snapchat, and Robinhood. Cryptocurrency created opportunities for FX, OpenSea, and Coinbase. Conflict with Russia and China creates opportunities for cybersecurity and supply chain companies. And climate change creates opportunity for carbon measurement, offsetting, and insurance companies.