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How to Make Big Money Without Taking Big Risks
You have to spend money to make money, but you don’t have to spend it all at once
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Maybe you should have tried that in your backyard first — Midjourney
My friend Vicki asked me after a yoga lesson if I could write an article on how to make money. Before I could say anything, she added, “I know you take risks, and I know I’ll have to take a risk if I want to expand my business. How do I get over my fear of risk?”
“Well…” I started, and she interrupted again.
“And don’t give me advice that requires a lot of money. I don’t have $500,000 lying around to invest in my business. In fact, nobody who reads an article on how to make money has any money. Ok, go ahead.”
I took a breath and waited. She looked at me expectantly.
I finally said, “OK, I’ll give you a preview. The trick is not taking big risks at all. Most of the things you’re going to try will fail. Make lots of little mistakes and when something works out, then you spend a lot of money on it, when it’s already de-risked.”
Then I told her this story.
I founded a company called Simply Audiobooks, which was an ok name, but what I really wanted was Audiobooks.com, the number one result that came up when you typed ‘audiobooks’ into a search window. The problem was that the guy who owned it, Tommy, wanted a million dollars for the domain, so he could buy a boat and sail around the world.
I wanted to help Tommy get his boat, but damn, that was a lot of money for 13 letters and a dot. I could feel it in my bones that buying the domain was worth it, but my bones had been wrong before.
Most of our customers came from ads that we placed on Google. If you typed ‘audiobooks’ into a search, our ad would show up.
It was an expensive ad to run, and Google varied the price based on the quality of the result — how appropriate the advertised site was to the product being advertised. You can’t get any better than an ad for audiobooks going to a site called audiobooks.com.
So my marketing department ran an unusual experiment. We set up an ad campaign that would advertise audiobooks and send them to our competitor’s site, audiobooks.com. Since we didn’t control the site, we wouldn’t have access to any data on how many people bought anything, but we would get data on how expensive the ads were relative to our own ads, which were sending people to the less desirable simplyaudiobooks.com.
Tommy didn’t know why we were sending customers to his site, but he was a suspicious guy and he figured we were up to no good, maybe trying to crash his site with too much traffic.
He tried to get Google to shut down our experiment, but Google’s response was, “Sir, they’re not doing anything illegal, they’re helping you.”
Yes, Tommy, I’m helping you get your damn boat. Back off.
We ran the experiment for a few days, and the results were clear. Advertising was 50% cheaper for the premium site. Our ad budget was over a million dollars a year. That meant we would save $500,000 a year by becoming the masters of Tommy’s domain.
We bought audiobooks.com for $1 million, Tommy got an 80 ft catamaran, and my company was sold a few years later for north of $50 million. The cost of the experiment was $1,000.
Don’t worry about Tommy, he’s doing just fine — Midjourney
When you’re contemplating a big decision, think about what the smallest, cheapest experiment is that you can run that will give you information on the larger decision.
Another test we ran at audiobooks was shortly after we launched. We weren’t getting any customers in Canada and we thought maybe opening a US service would be profitable. But it would cost a lot of time and energy, and success was uncertain. We were on the verge of bankruptcy, what could we do?
I came up with an experiment. Our operations manager objected to my plan, saying it was somewhere between deceit and outright fraud.
“Welcome to entrepreneurship,” I said, and I created a fake web page offering our service in the US. On the first day, we got eight customers. The next day we got nine customers. The day after that we shut down the fake page, I apologized to 17 people, and we raised $500,000 to enable us to stay in business and open a US office.
The cost of the experiment was $150.
There are many ways to run cheap experiments. A fake webpage. A Google survey. Split testing price plans. Reference checks. A smaller dose. Be creative. Be cheap.
Go on a coffee date before dinner and a movie. Go on a trip together before moving in.
My parents used to tell me to be wary when a new friend became too close, too fast. Their phrase was “Friends you make quickly, you’ll lose quickly.” And this is just one more representation of the principle that you should take small risks before you take big ones.
I haven’t always followed their advice, because I’m dumb like that.
As a result, I’ve been betrayed at times. Always because I trusted someone I had met only recently, instead of allowing the relationship to deepen first.
Whether it’s a relationship, a business opportunity, or an ice cream flavour, don’t be in a hurry to make a decision. Taste first. Run an experiment.
Taking small steps before big steps is something I know, but it’s hard to remember sometimes. My biggest loss ever was buying a stock just before it went public because I thought I was getting a (legal) insider deal. I had never bought a pre-public offering stock before, and I didn’t know everything I should have known about lock-up periods and price patterns. I lost $5 million on a single trade because I got excited and I couldn’t bear the thought of experimenting first.
Later when I got enthusiastic about the prospect of using AI to invest in the stock market, I set aside $100,000 to test the hypothesis. I quickly lost $13,000, and now all my investing is in index funds. I could have learned the same lesson for a much smaller amount, but stupid is as stupid does.
My current experiment is determining whether I should embark on a new career as a writer. But before creating a new company, hiring staff, and emotionally investing in a new career path, I decided to spend six months writing on Medium to see if I even liked writing.
Turned out I love writing, so now I’m in the middle of another six-month experiment — running a newsletter and seeing if I can grow the subscriber base at a decent rate. So far so great, I’m at nearly 10,000 subscribers after only a few months. Thank you for reading!
After I gave her my thoughts, Vicki said, “Let’s grab a coffee soon, and we can brainstorm some experiments for my business. My treat.”
Free coffee. Maybe I’m not as dumb as I look.
Only $12 for a latté? I’ll have two! — Midjourney
Details of my $5 million IPO investment loss.
Details of my AI stock investing experience.
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