Carrying Capacity

Wikipedia explains carrying capacity this way:

The supportable population of an organism, given the food, habitat, water and other necessities available within an environment is known as the environment's carrying capacity for that organism. For the human population more complex variables such as sanitation and medical care are sometimes considered as part of the necessary infrastructure.

If you're intrigued by the carrying capacity article, go to Wikipedia and read the whole article and follow the links.

In an entrepreneurial context, carrying capacity traditionally meant the ability of markets to support incumbents. Let's assume a market can support 3 incumbents. For new entrants to thrive, they will have to steal market share away from the incumbents. This happened when Japanese auto manufacturers ented the US auto market after WWII. But if the market is touted as "hot", a bubble will be created and the market will attract many new entrants. The National Association of Realtors@ went from 750,000 members in 1998 to 1.3 million or so in the early 2000s. I think, too, of the personal computer market of the 1980s. In the space of just a few years, we had I don't know how many different personal computers. I remember IBM, of course, and the Apple. Then we had the Osborne, and the Compac, and a bunch of other ones now residing in the Smithsonian, probably. Anyway, all the new entrants will exceed the carrrying capacity of that market. The newly expanded market will not support all the entrants it attracted, and a shakeout will occur. Some entrants will merge with incumbents; others will go belly up; others will simply leave the market; and two or three will remain.

Entrepreneurs need to think about what the carrying capacity of a market is before they try to enter it, or can they change the market so as to create a whole new ballgame.

As I write this, I wonder if this will hold in the new economy? After all, markets have changes significantly, we are told in the literature on Web 2.0. Or is that literature itself creating a bubble?

If you're struck by any of this, post a comment here.

All my activities are entrepreneurial. For my views on real estate 2.0, go to www.yourstopforrealestate.com/blog. For writing 2.0, go to www.kearneymusicschoolmurders.blogspot.com