Read on Twitter
1/ A lesson is non-ergodic marketing. Fancy words but when the future does not (or may not) resemble the past, you need to assume it does not. We discovered when we did infomercials that all the profit were in tail events...meaning "the hits". And a "hit" was NOT PREDICTABLE.
2/ We nearly went bust after we "caught" a hit campaign on TV (Riverdance over 20 years ago) because we chased the next hit and did not clip our tail risk. The cost of failure was overwhelming.
3/ But this lesson CAUSED us to figure a way to limit risk in between "hits". We now test 400 new products a year and maybe 1 in 20 are hits. The only way to make money is to cut the cost of failure on the 19 products that are not hits.
4/ Simplifying because it is not binary...there are shades of gray between a hit and a failure. But for this thread, assume it is binary. We NEVER know which products will pop and stopped trying to predict. We know that IT IS IS A HIT, we have the margins to be convex
5/ So the REAL WORK is not the right tail but managing the cost cost of failure, which is actually predictable. Every business needs to calculate the cost of failure and devise ways to lower that cost. For PulseTV, we lowered thru owning our own media.
6/ 20 years ago, it cost a lot to create commercials. Today, we have an in-house studio and shoot with a $1000 camera and edit on a computer. We have 6.8 million email subscribers broken into 70 segments. We own our own email deployment software.
7/ We have our own warehouse. We write our own copy. We have a factory like mentality to testing new products. We do NOT naval gaze and deliberate too long on product selection. We have a few selection heuristics and have 4 buyers, but our entire company suggests products
8/ When my elderly mother was alive, a few years ago she suggested a product, we tested & voila, it was the hit of the year. Distrust ANYONE who thinks they have product selection prowess. Nobody knows sh*t... and the sooner you realize this, the sooner you can make your fortune.
9/ Each business has its own components or process. Once you understand what success could look like, spend 75% protecting your downside. Remember, you have to first survive to thrive.
