The Future of Business is Decided by the Poor

Stereotypes pervade marketing like the common cold in a preschool. The greatest false stereotype which ruins marketing strategies is the image of the desired American upper-middle class shopper. So many companies picture this stereotype as the "target market" for their products. However, the reality is that the Costco-shopping, college saving, equity building, middle-class shopper is becoming a fairy tale. There are two harsh realities business strategists need to understand: 1) Most people in the world are poor by "American middle-class" standards and 2) Change comes from the poor, not the wealthy.

Most People in the World are Poor

I am not talking about extreme poverty here, let’s just make that clear. I am talking about the fact that many of us in business tend to think only of the middle or upper-class when making products and services. However, most of the people in the world are what we consider to be poor. Even those in the lower-to-middle class often feel like they are barely “above water.” It is not the way things should be, but it is the reality. When a product sells "millions" of something, it is almost always because they found a way to sell it to people who don't have abundant resources.

Software snobs, such as myself, hate seeing crappy free-to-play games constantly outsell and outperform well-made, graphically rich games. I have learn that this snobbish reaction is rather blind to the real truth of those sales: the crappy games run on WAY MORE smartphones than the awesome ones. Most of the people in the world don’t have the iPhone 6 or the Samsung Galaxy s5, instead they are more likely to have a resold or refurbished Android phone or iPhone 4. If a game can work on smartphones two to five years old, then they obviously have MORE customers.

The Poor are More Open to Change

Wealthy people have NO incentives to change their behaviors. Therefore, new products and innovative ideas are usually lost on the rich. Most of the time, the rich just want what they already have, but with more gold on it. (It's called "Classy,” See: Trump) However, people still struggling to make ends meet are more interested in new ways to do things which might help them save money, have more time, or enjoy life more with the resources they have. Low cost alternatives and creative solutions are going to find apathy among the wealthy, but curiosity amidst the striving.

The Rise of the "Sharing Economy"

The growth of Uber and Airbnb can be directly tied to growing economic inequality. More and more people have less and less resources. This means that we are more open to new ideas and creative ways to stretch our resources. Even the rapid growth of Hulu and Netflix can be credited to our economic issues. Most wealthy people are still sticking with their traditional cable packages, because they are familiar with it and can afford it. The poor and the young (who are usually poor) are loving the idea of paying less for our entertainment.

There is More Opportunity with the Poor than the Wealthy

There is a reason Wal-Mart (as much as we may hate it) took over the world of retail so quickly, they focused on the market other people didn’t want to think about. So many companies get their start by trying to make products and services accessible to people who couldn’t afford them before. Heck, the reason we have cars everywhere today is because Henry Ford wanted to make a car for the average family, the Model T. Before that, only rich people drove “motorized carriages.” This is also why Target struggles to compete: They overestimate the health of the middle-class.

Everyone’s first instinct is to chase money. In reality, the most opportunity in this world comes from creating new wealth rather than drawing from old money. After all, rich people are the LEAST likely to change habits because they can afford not to try new things. It is in the tension of poverty and upward mobility that leads greater change in civilization. Businesses that spend more time thinking how to make things affordable for more people do better than those who try to figure out how to get more money from the rich.

Wealth Inequality's Impact on the Carrier Wars

Verizon is losing so many customers to T-Mobile and Sprint’s budget plans and buyout options, they have ACTUALLY represented their customers as a flock of geese migrating away in a recent commercial. Verizon held out its high-horse as the premium product worth the money, but they are learning that “premium” means you don’t have the most customers. Now they have to decide if they are happy with the smaller premium market or if they want the masses back.

Side Note/Clarification: There is a Tipping Point on Wealth Inequality

In general, change in business will always come from the lower-class for the reasons I have stated. Those at the bottom have to be resourceful and clever to get to the top. However, investors should be wary that there is a breaking point. Business models which alleviate the burdens of poverty are great, but business which leverage and exploit it are in danger of tanking once a recovery comes around.

For example, Amazon's current growth of cheap and fast shipping is based on the abundance of desperate people willing to work for very little to make ends meet. However, even an increase in minimum wage will make the whole idea completely insolvent. Uber and Airbnb won't go away, but as soon as people have more money again, they are going to want to buy their own cars and stay in nice hotels again. This means they will shrink a bit to serve a more proportionate gap of income in the population.

In conclusion, invest in the poor but don't bet against them. Here's some math and facts to sum it all up: