There is a joke in the wine industry that one of the easiest ways to become a millionaire is to be a billionaire, to buy a vineyard, and to start a wine business.
If you intend to commit to a startup project based on your passion, it’s important to keep in mind that a lot of the most attractive industries are the hardest to succeed in.
Here are the 5 main reasons why:
1. Higher Competition
The first and most intuitive reason for this phenomenon is that sexy industries attract more entrepreneurs, which increases the competition and makes it harder to succeed.
Let’s face it – your passion is unlikely to be accounting. It’s much more likely to be connected with e.g. music or something else in the entertainment industry. However, this is true for a lot of people, which makes the music industry much more competitive than most other industries. Consequently, being profitable or even just surviving is hard for a lot of the businesses involved in music (or any other sexy highly competitive entertainment industry).
2. People Willing To Pay For Status
The reason a lot of wine businesses are running on thin profit margins is that a lot of super-rich entrepreneurs are running them as a status symbol rather than with intentions to make them profitable.
This makes life for other wine businesses very hard, as they need to compete with people who have a lot of resources, who chase high product quality, and who are not overly concerned with profits.
A similar phenomenon is happening with the soccer industry in Europe, where a lot of oil billionaires are buying and running football clubs as a hobby without chasing profitability, which makes survival hard for other soccer clubs who are aiming to compete and stay profitable as they need to deal with hyper-inflated player prices among other problems.
3. People Willing To Do Work For Lower-Than-Average Compensation
A large percentage of software developers went into the industry because they were passionate about video games. Because of this, the video games industry is one of the industries in the tech sector with the least favorable condition for developers. According to Glassdoor, a software engineer (in all industries) earns on average 25% to 50% more than a game programmer. Moreover, game developers are notorious for overtime work during crunch times.
And yet, a lot of the developers are willing to put up with the sub-par conditions in order to work on their passion.
4. Winner Takes All Markets
A lot of the most attractive industries are disproportionately dominated by market leaders. This is especially true in scalable industries with low barriers to entry. For example, in the creator economy, it’s standard that the top percentile of the creators dominate most of the market, while the bottom makes almost no money at all. E.g. the handful of famous musicians makes millions, while the vast majority struggle to turn their passion into a real profession.
While this is certainly true for individual creators, it’s also true for a lot of industries in which the businesses themselves are scalable but the industry has low barriers to entry. For example, the vast majority of websites on the internet struggle to attract enough traffic to be profitable.
5. Technological Difficulty
Last but not least, some industries are sexy exactly because they present extremely difficult problems but with astounding world-changing upside if a business manages to solve them.
Robotics, artificial intelligence, genomics, etc. are some of the toughest nuts in the world to crack, and undoubtedly the vast majority of startup projects in these fields are doomed to fail. Nonetheless, this doesn’t mean it’s not worthwhile trying.
In summary, when you are choosing the right startup market for your new project, it’s important to keep in mind that the sexier the industry, the harder it is to succeed in it.
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