The other day I was talking to a friend of mine about how grey markets can often be signs of entrepreneurial opportunities.
Probably one of the most famous examples is digital music. In the early 2000s, college kids were sharing “illegal” music downloads, and record labels were suing college kids and bankrupting Napster. Steve Jobs saw an opportunity, created iTunes, and got all the major labels to sign him for $1/download, turning an underground market into a billion-dollar business. iTunes begat Pandora, which begat Spotify. And now here we are.
Gray markets flourish when consumer demand outstrips the law. Many people rented rooms against local laws; Airbnb came along and turned it into a $4 billion business. Many private car companies flouted oppressive taxi regulations; Uber came along and normalized it for $12 billion.
Gray markets have always existed in the securities business, especially when it comes to tech company employees who have private stock options and want to sell some. New startups like EquityZen are working to shed light on this opportunity.
There was a huge informal market of people running errands for you all over Latin America. Three guys from Colombia founded Rappi to formalize this market. They raised $1 billion from SoftBank and are now one of the fastest growing companies in all of Latin America.
In my work with the Miller Center for Social Entrepreneurship, we have graduated several successful microfinance companies, replacing predatory loan sharks in the developing world with mainstream financial services.
So when looking for a business opportunity, think about grey markets. Those that are flourishing are often indicators that consumer demand is outpacing regulators and incumbents. There is gold in those hills.
