The smallest market is about to become the largest market

Food, water, and shelter. Without them, you’re dead. If you don’t have them, you’ll spend all your time, energy, and resources trying to get them. Because you need them to survive.

If you’re in survival mode, and your friend calls, wondering if you can hang out, you’ll probably ask for help, and barring that, say “no, thank you”. Perhaps you’ll explain that you’ve got more urgent things to take care of before getting together to watch the Oscars.

Some needs trump others, as even this simple example shows.

In 1943, a psychologist named Abraham Maslow published a model of human needs that established a three-part hierarchy, which he represented with a pyramid: a set of “basic needs” at the bottom, “social needs” in the middle, and “self actualization” needs at the top.

It pays to understand what people need, as any good entrepreneur or investor will tell you. If you have an insight into a need that hasn’t been met, and you can think of a scalable way to meet that need with a product or service that costs less than what you can charge for it, you’re in business.

So let’s take a moment to review his model - and look for hidden insight.

The pyramid begins with “basic needs”. Taken literally, that means things like food, water, shelter and other immediate survival needs. A broader but more useful interpretation might be expanded to include things like access to education, transportation, communication and information, given how important these things are to making a living in the modern economy.

Basic needs come first, so they are at the base of the pyramid. The implication being, of course, that until these needs are met, people will be preoccupied with them, and won’t move on to address their other needs. Also, the base of the pyramid is the widest portion by area, which signifies that it occupies more, time, energy and resources than the rest.

In other words, it’s the biggest market. The vast majority of the economy exists to cater to our basic human needs. Historically, this has always been the case.

Over the last ten years, however, a new market has emerged. A host of companies have exploded onto the scene that address our “social needs”, and the clear winner, the creative monopoly, if you will, is Facebook, but there are many others, both building on top of that platform, like Zynga, or creating communities of their own, like Path.

Maslow placed social needs at the middle of the pyramid. They include things like connectedness, love, respect, intimacy, attention, and ego. This is the second biggest market. It used to be smaller, but it has gotten a lot bigger very quickly. It’s a sign.

At the top of the pyramid, Maslow placed a set of needs he classified as “self-actualization”. These include our drive to make an impact, experience new things, live up to our full potential as human beings, find meaning, be happy and fulfilled, etc. Like basic and social needs, self-actualization needs are universal - everyone has them - but they come “last”, in that you don’t worry about them until your other needs are met. It’s not that they aren’t important to you, quite the opposite, but they are less urgent, or you can’t afford them, or you don’t have time - yet. Someday, maybe when you retire, you’ll get to them, at last.

It’s at the top of the pyramid because it’s the smallest market. Or, used to be.

That’s about to change.

It began a long time ago.

Since the industrial revolution began, roughly 150 years ago, technological progress has brought about huge gains in the standard of living in the developed world, and despite our present economic headwinds, the pace of that progress is accelerating.

Peter Diamandis makes the case for informed optimism in Abundance, which describes a bright future where basic human needs are met because exponential technologies drive down the cost of things like food, cell phones, health care, education, water purification, and energy.

Here’s the point. There’s a well-informed case to be made that in the near future, “nearer than we think”, we’ll live in a global economy that is conquering poverty, providing access and opportunity to billions of people who’ve never had it, and rapidly addressing the “basic needs” of humanity.

Imagine a world where the basic needs of all people are met. Woah.

Which begs a question. What will they do with their time?

Well, no doubt, they’ll still have to work. But now, an ever smaller share of their time will provide not just the same, but better, quality of life.

(In theory, if this trend continues, they’ll barely have to work at all. Machines will do all the work. Robots will build houses for us. Harvest food for us. Do our laundry for us. We’ll all be unemployed. And rich. But that’s so far into the future that it’s not relevant to this essay.)

Once they’re done with work for the day, they’ll have some free time left before bed time. What will they do with that?

To oversimplify, they’ll go on Facebook. They’ll say hello to their friends. Spend time catching up. Share what’s going on. Score a date. Etc. Or do the real-world offline versions of these activities. They’ll busily go about fulfilling their social needs.

That gets old after a while, as you probably know. Getting and giving likes and comments is great, but it’s no way to spend a sunny afternoon. What happens when they get bored? What will they want to do?

According to Maslow, when you have lots of well-fed, well-slept, well-sexed, hydrated people with secure jobs providing sufficient income and lots of love and attention in their lives from a steady support network, what do you get?

A lot of people who are in the market for self-actualization, whether they know it or not.

That’s a huge opportunity that’s about to get huger.

“The future is already here, it’s just not evenly distributed yet.” There is already a much larger percentage of the population in the market for self actualization than there ever was in all of history, and that percentage has steadily grown, with the economy, in the rising technological tide that has lifted most boats post-1850.

Maslow’s pyramid is about to be turned upside down. Time, energy, and resources are about to make a migration from the bottom to the top. As people’s basic and social needs are met, they are going to self-actualizing full-time.

The smallest market is about to become the largest market.

As an investor or entrepreneur, the implications of this are massive, and I’ll discuss them in my next post.