One basis of a business opportunity or wealth creating opportunity is a difference in information. This is called information assymetry. Let me explain: A very successful lawyer had a trip sabotaged by the fact that his very expensive car failed to start. Being male he tried home made remedies and tinkered with a few things to make the car start but to no avail. Finally he called for a vehicle mechanic who on arrival opened the hood and touched one wire and “presto” the car started. The lawyer was informed that the bill for the repair was $300 for the 5 minute job. When he computed the effective per our rate for the mechanic from this bill the lawyer was scandalised and demanded as only lawyers can an itemised bill. The mechanic duly presented the itemised bill as follows the next day: 1. Fixing the broken wire $25. 2. Knowing what to fix $275. Total $$300.
The lawyer did not pay for the manual labour- the fixing of the wire BUT for knowledge. In other words the mechanic’s margin was based on information assymmetry. He had information (knowledge) that the lawyer did not have. Is that not the basis of most revenue margins and wealth creation? Once you lose an edge on information you lose your revenue margin.
My wife tells a story of an enterprising young man who would sell speciliased clothes hangers in Harare. He would pass by shops often and inquire whether they needed new supplies of clothes hangers. Once he established a demand he would disappear for a few minutes and return with the product to make his sale. It appeared like he had a warehouse nearby. Later while window shopping my wife happened on a shop in town which sold the hangers cheaply. She discovered that this is where her supplier bought his products. When the information assymetry disappeared his margin and his business from this client stopped.
When I was a practising dentist people paid me for information I had which they did not have. The same for any profession. When as a business you know where to source a product cheaply and you take that product to a different market where people pay more, you have a basis for revenue generation. Once your clients know where to get the product then there is no information assymetry and the basis of your revenue margin disappears.
Information assymetry explains the differences in prices whether retail or wholesale. It explains the differences between the price of buying a house that is publicly advertised and buying it before it is placed on the public market. Information assymetry explains why people who buy shares through a public listing on the Stock Exchange pay more than those who buy them in a private placement deal before the shares are offered to the public. Information assymetry explains why most people place their money in the bank savings account and get poor returns (not to mention being charged for the bank using their money) while the bank itself onward places the money on the money market and make more profits. For example you could place your money on the money market at 5% p.a rather than i the savings account at 1% p.a. Your low yield is because of information assymetry. The lack of knowledge between a public placement and private placement creates information assymetry benefits those with a knowledge advantage.
Once we all have information at the same time and in equal measure the cost differential disappears and the profit margin evaporates.
What do you know that others do not but can benefit them? Do you have information assymetry advantage that can benefit you as a profit margin? How can you invest in yourself and in new information that can create information assymetry to your advantage?