Please learn from our mistakes

No-bullshit lessons in business and careers. One mail every day. 5k+ readers love it. Join in?

Oops! Something went wrong while submitting the form.
TODAY’S STORY
19 Oct
,
2022

F**k around and find out.


Stoa Daily Challenge #5

Curious about Ideal Customer Personas in marketing? Well, today's challenge is your chance to get a taste of how brands like Ultrahuman define their ICP.

More specifically, you will be stepping into the shoes of Rajiv, VP Sales of Ultrahuman in choosing an ideal customer persona for their fitness ring. We will be discussing the model solution for this challenge in our 10 PM (IST) Youtube Live stream tomorrow with Stoa founders Raj and Aditya.

Play the challenge here.

Now, to today's issue.

____

If you look up the meaning of the subject of this newsletter on Urban Dictionary, there are many, mostly having to do with messing with people and then getting messed up.

But let me tell you how this brash-sounding approach is actually used by some of the smartest people in the world, including founders, VCs, and many stock market investors.

Here's Jeff Bezos' version of F**k around and find out as a business strategy:

"We all know that if you swing for the fences, you're going to strike out a lot, but you're also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution.

When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate, you can score one thousand runs. This long-tailed distribution of returns is why it's important to be bold. Big winners pay for so many experiments."

In fact, if you look at the entire world of venture capital, this is arguably the whole strategy.

Almost every other day you will come across someone who is complaining about a lot of our Unicorn startups not being profitable.

However, what people are missing in this entire situation is that the way these startups work and the metric they optimize for is predicated on the way venture capital works.

You see, business is a complex domain — much too complex to reliably model. There are some higher-level trends and market patterns you can predict for sure, but the day-to-day micro remains out of even the most savvy investors' magic crystal balls.

The solution they came up with:

Focus on fast-growing startups versus slow-growing and profitable ones, and focus on diversification and investing in 100 different startups versus investing in only a few.

VCs only back companies that are optimizing for fast growth, which typically correlates with giant businesses in the future. Because they’re only estimating 1 out of the 100 companies they invest in to become hugely successful and make up for the 99 other failed investments.

They’re looking for 1000x returns. Or like Jeff Bezos says, they're looking for "home runs."

Hence, even venture-funded startups focus on revenue growth, not cash flow — like a bootstrapped business would.

But these home runs come at a cost. To quote Jeff Bezos himself:

"I've made billions of dollars of failures at Amazon.com. Literally billions of dollars of failures. None of those things are fun. But they also don't matter."

Companies like Amazon and Google have a huge laundry list of products they started and shelved.

The successful ventures you see these companies running today are but a handful of the total number of products they launched. These are the survivors, the home runs. All of the rest failed miserably.

In fact, Amazon is notorious for starting projects and sometimes terminating them within the same year!

Amazon Pop-Stores, Dash Button, Amazon Web Store (a competitor to Spotify), Amazon Destinations (a travel platform), The Fire Phone... the list has many products that Amazon has proudly launched and then shelved, simply because they didn't find a way to turn them profitable.

So, what's the point?

The point is about being shameless.

Yes, and I don't think I can put it in a better way.

If you're working in a domain where the outcomes for success aren't capped, the best strategy is to not waste time predicting too much and just experiment. There's no shame in failing. And there are no penalties when the stakes are low relative to your current position with respect to time and finances.

Amazon already has its e-commerce and AWS, two extremely profitable businesses that can fund its experiments. Same with Google with its advertising business.

There's also a larger point here to be made about the nature of the domain you're working in.

There are some domains where you DON'T know enough, yet, but run a few Google searches and read a few books, and you'll probably know enough.

Purely technical domains come under this category. There's no element of uncertainty when it comes to physical laws. Things can be predicted quite reliably with a great deal of certainty and accuracy.

And then there are domains like business — where you CAN'T know enough.

Books will not help you. To know whether something will work or not and to test how the market responds to it, you will have to build it and put it out in the world.

So, don't be afraid of experimenting. The downside is limited, but the upside could be massive.

Sometimes, when you can't know enough, the wisest strategy is to f**k around and find out.

Feeling Lucky?
Subscribe to get new posts emailed to you, daily. No spam.
Oops! Something went wrong while submitting the form.
2k+ business professionals act on our advice every day. You should too.
Subscribe to get new posts emailed to you, daily. No spam.
Oops! Something went wrong while submitting the form.
2k+ business professionals act on our advice every day. You should too.