And if only 1% of those people...
sivers.org
sivers.org
You read techcrunch, and you'd think that all you need is to throw out there a crappy iPhone app, and you'll make 2 million overnight.
The dirty little secret, is that success is rare as hell. And people tend to be very selective in what they remember. For every successful startup, there are dozens of stories of ones that failed. But even those failures have managed to achieve quite a lot, simply by being featured, for every one of those, there are THOUSANDS of startups that you haven't even heard about.
That's why I have serious respect for anybody that makes it work more than once, those are the real entrepreneurs. For the rest it really is mostly luck.
I've scored pretty good with my first 'real venture' and I can testify to how unbelievably hard it is to do it again. So far no success :) But that won't stop me from trying very hard.
One thing definitely has changed in the last 10 years, back in '95-'99 most things you put out on the web were operating in an almost competition free arena, some of the stuff we got away with back then we certainly wouldn't be able to do today. Users expectations are a lot higher than they used to be and there are a lot of parties on the lookout for good ideas so if you 'launch early' with an incomplete product you just might give someone the last bit of the puzzle they were still missing.
It's a tricky situation and there are no easy solutions to any of this.
See the recent article on survivor bias:
Some people really have an uncanny way of perceiving which business opportunities are good ones and which to stay away from.
I think a big part of the 'mystique' that hangs around successful people directly relates to that.
People hope that by adopting strategies or even mannerisms that worked before that they will somehow be able to 'copy success'.
This is analogous to an alien analyzing planet earth coming to the conclusion that people get rich here by sending their clothes to the dry cleaners, hiring maids and driving fancy cars.
Having a realistic goal for your business and a good plan on how to make money are not the way to 'score big', they're a way to create a business and slowly grow it to a success, this may take a decade or more, with added luck you can maybe do it faster.
But the bigger portion of the 'fast company' crowd isn't looking to building a business, they're looking at the 'exit' before they've gone through the door at the entrance.
This is - in my belief - also the reason why the scoring chances of people with high profile advisors are not significantly better than those without, and it is possibly why successful entrepreneurs would rather become investors than to prove themselves by starting another company and build it from the ground up.
Much easier to improve your chances by spreading the money that you would put into a single corporation (all your eggs in one basket) into many smaller ones and hope you pick up a winner.
I agree with your suspicion that luck is often involved. But twice- or even thrice-successful entrepreneurs might also be lucky as well as good. I think an anecdote about the great physicist Enrico Fermi is in order:
My [Carl Sagan's] favorite example [of the non sequitur fallacy] is this story, told about the Italian physicist Enrico Fermi, newly arrived on American shores, enlisted in the Manhattan nuclear weapons Project, and brought face-to-face in the middle of World War II with U.S. flag officers: So-and-so is a great general, he was told. What is the definition of a great general? Fermi characteristically asked. I guess it's a general who's won many consecutive battles. How many? After some back and forth, they settled on five. What fraction of American generals are great? After some more back and forth, they settled on a few percent. But imagine, Fermi rejoined, that there is no such thing as a great general, that all armies are equally matched, and that winning battles is purely a matter of chance. Then the chance of winning one battle of one out of two, or 1/2; two battles 1/4, three, 1/8, four 1/16, and five consecutive battles 1/32 -- which is about 3 percent. You would expect a few percent of American generals to win five consecutive battles --- purely by chance. Now, has any of them won ten consecutive battles...?
(From The Demon-Haunted World by Carl Sagan; http://tinyurl.com/yeprpx4)
The trouble is that it may not be an indicator of future success, in other words it may not be a good 'predictor'.
But it also doesn't mean that there is no qualitative difference between entrepreneurs. It's just very hard to put your finger on what makes the difference, to explain that difference in terms of things to do or not to do.
You were confident there that telling the audience how much the CD mattered to the band would increase sales and future popularity, to the point that in the comment section you repeatedly waved aside people's worries about the short-term financial risk for the band. Now here's a blog post less than a week later saying 'investing money in putting yourself out there and planning for success? what a maroon.'
I can believe that maybe the guy's ad sucked, and he'd have been far better off booking more gigs and passing the hat around, but c'mon Mr Sivers, you promote optimistic marketing strategies as much as anybody out there.
Even factoring the cost of the media into the ticket sale can encourage people to come see your show.
If you've got a good product and you go and talk to the right people about it, some percentage (hopefully much larger than 1%) will end up buying it. If you just send spam to a billion people, however, chances are hardly anyone will buy it.
Advertising is spam. Sales is not spam. Giving out CDs as a promotion at an event where you're present, where people can see you, is not a faceless marketing attempt to get that "1%" effect.
Finally, the advice in the previous article was intended to make an immediate difference to the band's receipts and, iirc, it did. The fact that some percentage of those who bought the donationware CDs also brought more friends along the next time the band visited was only a nice side-effect.
* A marketing mechanism can have very poor, even zero, results.
* There exists a marketing mechanism for bands (giving away product) which is effective in promoting the brand.
It's not clear how stating that a particular marketing mechanism works, but that marketing mechanisms in general can have low to zero returns, are contradictory concepts.
How many hits did the website get? Did he have free samples of his music? Was there an annoying login process to get through? Did the user have to enter their credit card information into a sketchy-looking form? What was the CD priced at? There are so many places where he could have screwed up and failed to make a conversion. It is entirely possible that 1% of the audience did intend to buy his CD, but he made it not worth their effort. Based on the post, we have no way to tell.
Similar concerns were raised by commenters on previous posts by Sivers, and I believe his response was that he heard it from a friend who heard it from a friend and so he didn't have the details. Sivers: since you're probably reading this, your posts are certainly thought-provoking as they are, but they would be a lot more useful if you included the details.
I will never forget one night I was with a friend and he calculated his TAM to be something like 940 billion dollars. For his web startup.
After calculating this number, he said "Wow, if only 1%..."
Happened to me once... after half a year of development we realized the total grand market for the app, in the form we built it, was 5 (five) companies. Wasn't as stupid as you't think, we found over 100 companies listed when we first did research. Only when we started actually selling we realized how many were big enough, still in business and close enough to actually make use of what we offered. We got 60% of the market, btw.
That's how you represent this accomplishment on a resume :)
Kudos to the guy for trying, but sometimes it is better to anticipate a less than stellar showing and to plan accordingly.
What will strike consumers fancy is a very difficult and sometimes impossible to answer question. Some stuff that you see and think can't possibly sell will make someone a millionaire, another has a great and well thought out product but nobody needs it.
Most products end somewhere in the middle. Even the largest companies still struggle with this, occasionally their 'focus groups' get it so wrong it isn't even funny.
If you're in the 'brick & mortar' side of things then you will have learned the hard way that too little inventory is just as lethal as too much, to hit that sweet spot is quite hard.
A buddy of mine trades goods that he buys in bulk at bankruptcy auctions, the diversity of the goods is huge, as is the pricing. Every time he bids on a lot he has to make a gut call on how fast he'll be able to turn that stuff over, if he misjudges several times in a row it can seriously hurt his business. He has one golden rule that came out of doing this for a while: It's better to have money in your pocket than stuff you bought that you can't sell.
So he errs well on the side of caution, is prepared to let others get away with 'great deals' simply because he builds in a level of cushioning that he needs to maintain his balance. If he can't get it at the right price, he's better off without it.
It's hard, even with hindsight to tell the musician from the example how he could have done better, I've had some contact with a 'name' artist that produces his own CDs, his method is to go for the long term relationship with his customers, including samples, mailing lists and so on.
By the time his CDs are pressed he knows exactly how many he will sell short term and how many will take up space for some time to come.
Selling music of an unknown artist through a newspaper ad seems to be a mismatch of medium, chances are that through a better medium he'd have been able to move much more of his inventory.
But it's (often) far worse to underestimate your chances of success than to overestimate them. The worst thing that happens if you overestimate your chances of success are that you blow some money unnecessarily chasing an opportunity that won't work. That's bad; wasting money isn't smart. But the worst thing that happens if you underestimate your chances of success are that you never seize an opportunity that could have changed your life. That's much worse.
In fact, we often have a very imprecise understanding of our chances for success in a venture. Buying tens of thousands of envelopes with no understanding of how many copies of your CD you might sell is, of course, pretty dumb. But how about depleting your savings trying to get a startup off the ground? That's a more measured risk, sure, and one that might or might not pay off. For a lot of people, it changed their lives. Did some of them get through the hard days by relying on the at-best-misleading "if only 1%" doctrine? I bet so.
To the extent this article is a wry observation about the innumeracy of a lot of people (treating 1% as the smallest possible chance of success), then of course, it's well taken. But people use "if only 1%" type thinking to convince themselves to take worthwhile risks, too. If you think, as I do, that we have fewer entrepreneurs than our economy might support, then query whether the real problem is too much risk-taking or too little.
Sigh. If only 1% of bloggers stopped re-hashing old ideas, then we'd have something actually good to read on HN.
For example, imagine that you need to bring in 100K to break even with your product. Say you look at the market you're trying to enter, and find that selling 100K worth of your product means that you need to sell to 5%, 10%, or say 20% of the market, then maybe you should reevaluate the product.
On the other hand, if your break even point is selling to "only" 1%, or .5%, or .1%, then at least you're aiming for a realistic market.
By no means is anything guaranteed, but it can give you an idea if you've got a shot.
But it's not even that simple - because demand and supply kicks in - if you charge more you'll be reducing the size of the market willing to pay the higher price - so you'd need >.5% of the original market to get your original break even point!
Back in the day when I was working for a search engine company (not a big one), my superiors would use this sort of reasoning ALL THE TIME.
At one point they were trying to buy out 10 different bittorrent sites and the reasoning used was pretty much the same ("If only 1% of the people were to convert to legitimate paying customers, they will be worth $12 each!", etc..)
Suffice to say, that company isn't around anymore.
The number of people trying to sell music these days is incomprehensible. It's probably the toughest market that's ever existed - it almost has to be very personal
I've seen links go out on twitter where the click through rate is around 1%. If you get 1% click on an ad on a webpage that's good.
Then if you are talking about actually selling something your really talking about 1% of that 1% i.e. 0.01%
The guy in the article made got to 0.04%
The prices are high and the circulation numbers you're quoted are rarely the actual number of people who will see your ad.
(yes, I get that the point of this post is about success, and how the 1% argument is flawed, but still..)
A Bayesian would say that if your prior expectation of sale was 1%, 99 consecutive nos would suggest you update your future expectation of sale to around 0.36%.
Otherwise, if you have a degenerate prior based on a belief that the prob of sale is 1% - you just stay at that probability no matter how many successes and failures you observe.
Presumably you'd want a Beta distribution prior for the computational convenience of the conjugate property - unless you have reason to prefer something else. Then you take the mean and variance of the prior for p, or two ends of a confidence interval for p, and use them to find the alpha and beta parameters for the Beta distribution. Then you update those parameters for the 99 failure events, and read off the new expectation - that's the probability of the 100'th sale being a success.