Planet Money’s Adam Davidson: ‘passion economy’ business is the future
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- In this new book “The Passion Economy,” podcast Planet Money host Adam Davidson explains the shifting terrain of the business world.
- Thanks to automation and new technology, entrepreneurs need to employ a specific strategy if they want to succeed in a marketplace dominated by titanic corporations.
- The passion economy rests on two pillars: create intimacy at scale and don’t be a commodity. Davidson’s book offers nearly a dozen real-world examples of his theory.
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According to Planet Money cofounder Adam Davidson, American business is undergoing a fundamental shift toward what he calls the “passion economy.” This new landscape is the result of two diffuse factors acting in concert: automation eliminating jobs and technology creating new opportunities.
The result: a rising class of entrepreneurs who thrive by solving the hyper-specific needs of a niche, often disparate customer base. To Davidson, this new system is the synthesis of the last two centuries of economic and technological progress.
“The passion economy combines the best of the nineteenth century with the best of the twentieth century to create something entirely new,” said Davidson.
From the 19th century, the passion economy borrows artisanry and specialization; from the 20th century, it takes economies of scale and commoditization. By themselves, neither approach could succeed in today’s market. But combined, and aided by the technological breakthroughs of the 21st century, the passion economy offers entrepreneurs a way forward in an unstable business ecosystem.
By targeting an unserved audience, creating an irreplicable product, and finding customers online, passion-economy creators can find success in an economy dominated by megalithic corporations. Davidson calls it finding a “Goldilocks market”: one big enough to make your business successful, but small enough that you can dominate.
Intimacy at scale
There are two essential tenets of the passion economy: create intimacy at scale, and don’t be a commodity. Intimacy at scale refers to the ability of creators to have meaningful relationships with their customers, even if that customer base is just a few thousand people, spread across the world.
In his book, “The Passion Economy,” Davidson illustrates this phenomenon through a number of stories. In one, he chronicles the success of a farm-machinery company, Pioneer, that caters to Amish clientele.
There are fewer than half a million Amish in the world, and less than 10% of them are farmers, according to Pioneer. The company’s target audience, then, is some 25,000 people spread, thinly, throughout the country, who don’t use smartphones or websites.
Their needs are also incredibly unique. Amish farmers use horses and beasts of burden to pull their plows, meaning their agricultural tools are a hybrid of 17th-century mechanics and 21st-century materials.
For most manufacturers, a market of several thousand farmers, using antiquated techniques, scattered throughout the country is impossible to justify pursuing.
Yet when their buying power is pooled, the Amish represent a $12 billion market, far more than enough to sustain an entire ecosystem of providers.
When Pioneer realized that the market was small enough and difficult enough to discourage corporations from getting involved, the company discovered that it had a Goldilocks opportunity on its hands. The manufacturer decided to work with the Amish farmers to solve a problem that had been vexing the community for years: underground rocks, or “hard potatoes” as they call them, breaking their plows.
Pioneer listened to the farmers’ specific needs and began working with a Norwegian company to design a new style of plow. Soon, the company found itself the recipient of millions of dollars of reliable business.
The story offers a perfect example of how a business can pursue intimacy (farming implements for the Amish) at scale (a $12 billion market, scattered throughout the country) and find success.
Don’t be a commodity
Davidson’s book abounds with examples of 20th-century titans of American industry crumbling under pressure from international competitors, especially products coming from Mexico, China, and Vietnam.
Davidson compresses this decades-long process of obsolescence into a quick timeline: 20th-century American business benefits from economies of scale; cheaper international products achieve similar quality for lower price; automation further eliminates jobs; American company either innovates or folds.
To avoid such a fate, companies must produce such a highly specialized product that it can’t be replicated.
Davidson offers the example of a new-age accountant, a family winemaker, and a marketing guru to illustrate this lesson. The story follows the paths of the three intersecting people, all of whom find themselves involved in the enterprise of launching a flagship wine out of Sonoma.
The saturated, nebulous world of wine marketing exemplifies Davidson’s argument against commodification. There are untold cases of wine being produced daily, ranging in price from a handful of dollars to a car payment. There is a bottle for every price point, which means that neither selling low nor selling high will gain a product any attention.
Instead, in the passion economy, you need to sell a story, ideally one that is completely singular. No competitor can mimic your story, whether you’re a winegrower, a podcaster, an accountant, or a venture capitalist. To stand out from the crowd, creating a distinct identity that resonates with a small group of consumers will yield greater success than trying to under-price or out-supply your competition.
If the example of wine-marketing feels subjective, that’s because it is. While the passion economy does require intelligent business strategy and relevant technology, its success is rooted in emotion and storytelling. At its heart, the concept is about connecting identities: a passionate creator finding their passionate consumers.
The modern economy is barbell-shaped, says Davidson, with massive corporations dominating one side of the market through scale, volume, and commoditization.
For modern entrepreneurs, success lies on the other end of that barbell: bespoke products targeting micro-audiences. With the right product, audience, and marketing, any small business owner can find success.