Ability, Demand, and Innovation: Businesses Hire when they are Swamped with Demand

Jesse Livermore had a great tweet:

I think this tweet was a response to Henry Blodget’s post on job creators:

 “Now, again, entrepreneurs are an important part of the company-creation process. And so are investors, who risk capital in the hope of earning returns. But, ultimately, whether a new company continues growing and creates self-sustaining jobs is a function of the company’s customers’ ability and willingness to pay for the company’s products, not the entrepreneur or the investor capital. Suggesting that “rich entrepreneurs and investors” create the jobs, therefore, Hanauer observes, is like suggesting that squirrels create evolution.”

I have been saying this for years – businesses hire when they are swamped with demand, not when they have high profits. I’ve been tweeting this for the last few weeks to attempt to get more traction for it, and blogged extensively about this for such a long time. It’s great to see people start to take this idea and run with it.

Businesses do not hire in large quantities for any other reason other than high demand for their products/services.

Recognizing demand drives employment does not diminish the importance of business owners or entrepreneurs. Business owners respond to demand because they have good judgement. They innovate products and services due to their smarts and high motivation.

The smart thing to do is to respond to demand – Steve Jobs found this out with the failure of the Newton vs. the success of iPod*. Good business owners try to make money in a stable and repeatable fashion, and then make as much money as they can while doing this. Maximizing profits does not mean hiring people, although it might.

The economy needs people and companies who can make stuff, and provide services. **

Recognizing the importance of demand does not diminish the importance of making stuff. Innovation is easier when you’re already making something. You can then see the good and bad of the design and make incremental improvements to the design or the process.

Update: Steve Roth clarifies some ambiguous thinking and language I had on how business people responding to demand. Turns out many business people respond to quantity signals more than price signals – and there is a long history on responding to quantity more than price.

 

(Update: here is the chart which shows how high profits and hiring people aren’t strongly related. 

 

(*Steve Jobs and the ipod -> iPhone -> handheld computer which is the iPhone 4 was genius. He rode demand until he was able to show people what they wanted.

**But when has this ever been an actual problem? When have companies refused to fill a demand gap which exists in the market they are able to fill? As far as I can see in the data, this has never happened. Not many people think this is a real problem. )

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Expert in business development, product development, and direct marketing. Developed strategic sales plans, product innovations, and business plans for multiple companies. Conceived the patent pending Spot Equivalent Futures (SEF) mechanism, which allows true replication of spot and swap like products in the futures space.

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25 Comments on "Ability, Demand, and Innovation: Businesses Hire when they are Swamped with Demand"

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Guest
3 years 9 months ago

“The smart thing to do is to respond to demand”

This is a smart statement but kind of vague. How about instead:

Producers respond to quantity signals, not price signals.

For most products and services, it’s impossible to test price. You just have to make a best guess and set a price that you think will make you the most money. Then you respond based on quantity sold.

This is contrary to orthodoxy, of course, which suggests that price signals are the essential information delivered by the market. This is only true in markets for financial assets — markets where demand does not consume the supply, merely recirculates it.

In real-goods/services markets, the key information that the market provides is the quantity signal.

Guest
3 years 9 months ago

“When have companies refused to fill a demand gap which exists in the market they are able to fill?”

Have you tried buying a high-MPG turbo diesel in the US that’s not a VW or Mercedes? Toyota, Honda, Subaru, Ford, GM?

Try buying a used VW TDI. I’d pretty much have to drive to California from Seattle to find one. The demand is there. The supply isn’t.

Been trying to figure out an explanation for this for years. Never heard one. I can only assume groupthink: “Americans don’t want them.” Even though the demand for used models proves otherwise.

Guest
Kaleberg
3 years 9 months ago

Another good example was digital music until fairly recently. There was a huge demand, but the record companies refused to sell.

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