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“Why do markets go up?”

I was sitting in the home office of one of Australia's most successful stock market traders – a man who had traded billions of dollars and who'd been consistently trading markets for 20+ years. He was a man for whom people travelled internationally to hear him speak about markets for an hour or two. He was sharing with me core ideas that formed the basis of his trading strategy.

I was 22 years old at the time, and I answered his question with my best guess: “Positive news, a good economy, monetary policy, a good CEO; probably they all have an impact, I think.”

“Nice try – but no,” he said with a smile, “Markets go up because there are more buyers than sellers – and that's it!”

I had forgotten the fundamental truth of economics: the basics of “demand and supply” that you learn on day one of any economics class. A strong market, a good business plan or a compelling story all help, but ultimately your price is set by the balance of supply and demand.

Businesses like Uber can float on the stock market for over $80 billion in valuation despite having never made a profit, receiving ample negative press and having had all sorts of issues with the executive team. Despite everything that might happen, when there are more buyers than sellers the stock price goes up and it falls down when there are more sellers than buyers. After Uber floated, the price dropped by more than 10% in the following few days, not because anything had fundamentally changed about the company; it was simply that there were more sellers than buyers.

It was also Uber that discovered that the same rules can apply to the cost of a taxi fare. Rather than offering fixed fares based on the time of the day, like most cab companies do, Uber was first to “float” the price based on demand and supply. When hundreds of people want a ride and only a few drivers are in the area the algorithms trigger surge pricing and start charging people higher prices. Ordering an Uber home after a concert can cost you 300% more than what it cost you to get an Uber to the venue.

At a basic level, the same principles translate down to how much profit a business makes. The market abhors a profit; a profit is only tolerated if demand is higher than supply. A coffee shop with a line out the door can charge a price that covers all costs as well as a profit margin. An empty coffee shop will start discounting to customers in an effort to minimise the losses it's taking on rent, staff and utilities.

No one wants your business to be highly profitable other than its stakeholders. If you tell consumers they can have a cheaper price but the company will lose money and might go out of business, they probably won't even think twice about buying at the lower price. They aren't worried about your profit margins; they are concerned about their own budgets.

Uber is also a great example of how these principles affect profit; despite billions of revenue it is yet to make a profit because it muscled its way into a highly saturated and mature market offering cheaper prices. Their system allows for more and more people to become drivers so any time the prices rise more drivers take to the streets. By creating such a pure market, there's little chance of making profit.

Contrast this to the previous taxi cab system that limited supply through licensing and qualifications. Prior to Uber, most cab drivers made a respectable living from the profession and felt safe in the knowledge that demand would always slightly outpace supply by design.

You'll only make a profit if you are oversubscribed on your capacity to deliver; demand for your stuff must always be greater than your ability to supply it. It's the tension of high demand and limited supply that creates the opportunity for profit.

Consider the dynamics of a salesperson speaking on the phone to a prospect for the first time. It's a one‐to‐one interaction – one seller talking to one buyer. By design this method of generating business creates no imbalance or tension and will only ever generate wages.

Alternatively, imagine a speaker on a stage pitching an opportunity to an audience of thousands. There's one of her, surrounded by more than a thousand prospects. There's tension in the air because of the potential imbalance that has been created. If there's a legitimate limitation to supply, the price will stay firmly high, there will be an avalanche of interest upon her all at once and profit will be tolerated.

People forget the basics. They get caught up in tactics for marketing and lead generation, and they fuss over management styles and team‐building techniques, forgetting that all of these activities don't mean much if the business isn't oversubscribed.

Being oversubscribed requires nothing more than a situation whereby some people who really want something have to miss out on having it. Of course, it's a difficult situation because you and your company don't want people to miss out. Naturally, you want to sell to everyone who's willing to buy, yet that very mindset prevents you from becoming oversubscribed.

Lots of people who want a Ferrari can't get one – but the people at Ferrari aren't losing sleep over it. They know that the fact that some people have to miss out is what makes their automobile so coveted. Every product that is oversubscribed has people who didn't get it, even though they were willing to buy.

In 2014, Facebook purchased mobile messaging app WhatsApp for $19.3 billion; the figure seemed ridiculously high to almost everyone on Earth at the time – except one other bidder. Google was the other company who wanted to buy WhatsApp and the two rival companies bid the price of the relatively small startup into the stratosphere. At the time, WhatsApp was just five years old, had a team of less than 100 people and had recently raised funding at a valuation of $1.5 billion. Fortunately for the founders of WhatsApp it only takes two tenacious bidders for an astronomical valuation to materialise.

If you can get the balance right and keep yourself oversubscribed – disappointing those people who missed out without them losing interest in you entirely, while still delivering remarkable value to those who got through – you'll have no problem being profitable. If supply is too great and everyone who wants what you have can get what you have, the prices will fall and so will the margins. Eventually your business will make losses.

The principles for becoming oversubscribed can be useful across many aspects of your business. For example, if you want to hire top talent, you need to be oversubscribed for top talent. That means that some talented people who would love the job will miss out. If you want impactful publicity, you need to be oversubscribed for people who want the story you have to share, so some news outlets won't get the story. If you want investors, you need to be oversubscribed for funding – more people are ready to put in the money than you require and some of them ultimately miss out.

If you want to be oversubscribed, you'll need to get comfortable with some people missing out on what you have to offer. That's how markets work – and that's how the market determines your rewards.