Increase Probabilities of Outcome and Assessing Them Later

Level 2 - Value Investor

Welcome Avatar! This post is going to be a bit high level related to using probabilities to assess success. Every single business has a failure rate. Doesn’t matter if it is e-com or brick and mortar. The best you can do is backward track all of the information and make an assessment on the success rate. From what we’ve seen, most people just try to jump on whatever is hot. This is an extremely high failure rate since it means you’re entering when search volumes are at peak. It is better to predict/project out 5-10 years and ask if the total sales will be higher or lower.

Before Beginning

A ton of questions keep popping up that have been answered already in an extremely organized manner. If someone asks us “what idea to start” we know with certainty that they have not read anything and are not serious about starting anything. Here is the organized post set up for anyone interested in e-com from the paid stack

• Ecom Intro - Source

• Using AI to Improve Your E-Com Life (Source)

• Building a Supplement Brand from Zero - Source critique and costs Source

• Zero to Hero Newbies - Source

• Build Audience from Zero - Source

• Choosing a niche - Source

• Ad Breakdown - Source

  • How to Rip Ads - Source

• How to Scale - Source

• Uncommon Marketing Strategies - Source

• Traffic Avenues - Source and in a Downturn (source)

  • Ecom Skus - Source

  • Supply Chain Explained - Source

  • Online vs. Instore trends - Source

  • AMZN Update - Source

  • Selling your WiFi Biz - Source

  • Valuation Update June 2023 - Source

  • Evaluating an Ecom Biz - Source

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Before moving on please spare us “it’s expensive at 1 coffee a month”. We pay Crypto Mouse for every single post as a contributor, it takes time and effort to create/organize with steps and anyone who can’t “risk” $10 is never going to survive the inevitable 1-2 years of no growth/stagnation that every business faces from time to time.

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Onto the High Level

If you pick up a golf club, you will unlikely swing it particularly well the first time. After trying a million times and simply watching YouTube videos (and recording your own swing) we’d wager that your average drive distance (and accuracy) will be massively higher when compared to day one. This is the exact same concept as it relates to making money.

Improving chances of scoring a goal in soccer

Source

We all hear the same argument “90% of businesses fail”. The problem with this statement is that a ton of people simply give up. They start some sort of LLC/S-corp/C-corp, it doesn’t work and they never try again.

If you really peer into the data, you’ll notice that the *vast* majority do not succeed with their first attempt. They have several attempts and people only ask about the successful one! This is how life works. No one cares about your “silly idea” but after 5-7 tries when one of the silly ideas hits… “can i get a $100,000/year job bro, i know it’s nothing to you man”

Avoiding Hype Trains

Unless you’re an affiliate chasing offers (which is how the game is played), if you want to build something long-term the industry needs to exist for the next 5-10 years. While you might see a ton of ads converting and a ton of people searching for the term today… it’s a good idea to stop and ask “is this going to be the case in 5 years?”

If you can easily figure out that the answer is no, there is no reason to get into the industry. The lifetime value of the customer is nearly zero and you’ll be forced to spin up yet another product once the hype dies.

Example of a terrible one to chase

While we’re sure that there is “someone” who got rich during this craze, it is most likely the person who was ready to *manufacture* this product. They simply turned on the production for this and shipped it out as fast as possible. No different than what we saw during COVID. Whoever made all this stuff made a killing (n95 masks, the sterilization swabs etc.).

Notice. The person who makes the hype products was *already* in business and profitable. These hype fads just give them fast money with essentially near zero risk.

Start with Massive Markets - If New

If you’re just trying to make money online, it’s best to start with a market that is massive. As an example, there are hundreds of thousands of fitness related products: coaching, trainers, equipment, etc. The reason for this is simple: high demand

While it is harder to get wealthy from being this broad, it is pretty difficult to lose money. While

BowTiedOx

is the resident fitness writer, there is too much demand and we’re certain he can’t create customized training products for the entire US population of over 330 million.

Other massive markets include: cosmetics, fat loss and womens clothing. While the paid posts give you step by steps to figuring out which ones have good margins, this should at least give you a starting point: selling to women is the likely starting point for 90% of you.

Source

If you needed more proof that this is the right direction, you can see 85% of consumer purchase choices are made by women. In the USA, if a dual earning household makes $200,000 (each making $100,000), it is common for the entire $100,000 salary made by the woman to go to pure consumer products! (yes we’re aware this isn’t always the case and there are various “boss girls” in the room, but the stats above simply don’t lie. Ask a real estate agent who makes the home choice and you know what the real answer is - typically the wife)

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Now Assessing the Chances

If you’ve done the basic stuff here and you’ve actually followed all the demand testing and research from the paid posts, we’d say your chances of success are not 10% like the average. If we were to guess it is probably 30%. If you’ve started a successful business before and already succeeded, then the probability sky rockets to 50-60%.

The tricky part is defining “success”. One of the obvious signs that someone will not make it is asking a person “how long did it take you to make it”. This means the person believes in equal talent. Since everyone on this side of the web knows that is nonsense, the right question to ask is “will this be profitable”. If you are profitable within 6-12 months, that is a success.

Really don’t care what anyone says. $1K a month is success if you’ve never started anything before. The vast majority just read about this stuff and go back to work asking for a 5% raise at year end.

Compare the Margins

We don’t know what market you are entering into. That said, one of your jobs is to find the industry margins for a company/product. Lets say that the typical profit margins for successful biz (that uses ads) is 20% (making it up).

Then your initial $10,000 in revenue need to be *well above* 20%. If you’re not making 35-40% on the margin, we’d reduce the chances of a highly successful venture.

Note: we’re well aware that upstart costs reduce margins. When we refer to margins we’re deleting out the cost of starting up. Since those are all one time costs it shouldn’t be included. If you sell $100 of a product and the profit is $20, that would be 20%.

If all steps were followed and margins are not there, probability it is worth your time likely declines from 30% to 20% or lower (probably 15%).

Growing Industry/Repeat Biz

People who chase trends are unlikely going to be good business owners. This is because all the value is in the Life Time Value of the customer (LTV). If you have 1M people to sell to, then 900K, then 700K… that’s not great. Much better to have 1M potential customers then 1.2M then 1.5M.

To many this might not seem “sexy” because it isn’t moving up and down like a meme coin or recently launched tech or bio-tech IPO. In the real world, this is great for you. When you have a bad year: 1) change manufacturing, 2) issues with shipping, 3) employee/contractor issues, 4) some sort of website issue and 5) payment processing issues… You’ll be glad you’re in a growing market.

If you typically grow 10% in a year, the down year will be similar to the prior year. This is not going to send you into bankruptcy.

If all steps are taken and you’re correct in your 5-year forecast/expectation, then your chances of success likely goes from 30% to say 40-45%. It’s pretty massive since you do not need to gain market share to grow. That alone should set of alarm bells. It’s a growing pie instead of stagnant one. Less effort needed on your part.

Did Your Ads Succeed?

If you hit conversion metrics on your ads that are profitable *and* above industry average, we’d sky rocket your chances of success to 80-90%. The problem? Most get stuck here because this is the hardest skill to learn.

If you can make profitable ads, the chances of losing are near zero since you will make money for at least a period of time. If you find out the market is not as big as you thought then you simply turn it all off and walk away.

If you end up having industry average margins, success is probably in the 60% range since you’ll eat into them quickly if you try to scale.

If you’re running unprofitable traffic/ads… Then your chances are slim to none. Probably under 10% (standard success/failure rate of someone starting blind).

General Talent Hints/Clues

This is more of an observational phenomenon. No way to put probabilities on this. Would just say up or down based on the following:

• You are a good employee and well liked at work? Decrease chances of success

• You are doing good enough at work but everyone knows you don’t really care, are not trying or are weird in some way? Increase chances of success

• Have a habit of jumping from project to project, job hopping and juggling a lot of things? Significantly decrease chances of success

• Have an extreme personality - good/bad is irrelevant - that polarizes people? Significantly increase chances of success

• Have a history of earning money in short term items - trading, blackhat, trend chasing etc.? Significantly decrease chances of success. Note if you were doing greyhat significantly *increase* chances of success since it means you didn’t rely on full on rule breaking to make money.

• Have high self-awareness and can tell where you are talented and not talented? Massively increase chances of success.

• Able to spot talented people in a wide variety of fields - sports/sales etc? Massively increase chances of success.

• Expect a step by step guide that guarantees success for all products like graduating with a “degree in business”? Decrease chances of success

• Under age 35? Increase chances of success

• Over 50? Decrease chances of success. (between 35-50 largely no change)

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The Other “Probability of Success”

Since everyone is just focused on the money part, there are a few other costs associated with trying to get rich. While the biz working or not is of course important you also have to ask a group of other questions.

If you don’t try will you regret it? How much is that feeling of regret worth to you? Nothing more disappointing than the 40 year old dude who blames his own family for not being able to “get rich”. The type that says “if i didn’t have you guys i would be rich!”. If you end up losing $10-30K trying a ton of times is that really going to change your life for 30+ years? Probability of it mattering that far out is near zero percent.

Whats the Upside vs. Time Spent? Define what the success metric is. $1K a month, $10K a month, etc. This is going to massively change the chances of success. Elon Musk said he gave Space X a 10% chance of success but did it anyway since the upside was enormous (paraphrasing).

Part of the reason you want to start earlier (like today would be good) is because the definition of success is going to change for you in a bad way in 5-years. If you make $100K now and forecast $200K in 5-10 years… You’re not going to be all that excited about $1K a month. 22 year old you would be jumping for joy since he could pay for his cell phone, and blow $500 partying on a weekend.

Note: people assume that probability of success is directly tied to upside. This really isn’t true in a lot of cases. If you’re trying to do something completely new and innovative like Space X then it is likely true. If you’re going into something like dog treats, going into cat treats later isn’t exactly a leap of faith despite potential to increase revenue and profit by 100%.

Trade Off Probabilities: The last reason to start as early as possible relates to trade offs. We’ll never give up on E-com/online businesses because they are much cheaper to start, higher margin and you can reach the globe with the internet. Built in traffic can be bought for much cheaper relative to leasing a brick and mortar in a heavy foot traffic region.

The probability of losing your quality years *does* increase. Who wants to grind 50-60 hour weeks at age 40-60? Hopefully you care about other things beyond money at that point.

If you run the numbers and figure out the product has a 70% chance of success make sure you *want* to be doing that in 5 years. Otherwise, you’re going to be forced to sell it at whatever valuation you can get (to avoid mental illness).

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On that note, this should give you enough to get rough metrics for if your chances are better/worse. If you’re flying blind then your chances are always 10%. If you follow all the rules and still fail? Guess what, your chance the next one succeeds is going ot be 30%+ because you will never make rookie mistakes again.

Talent isn’t equal. Life isn’t fair. But make sure you don’t regret anything when the grim reaper shows up.

Maybe it doesn’t work and maybe you end up like a green cartoon gator.

Speaking of which we doxxed him btw. Just trolled us with his huge delivery and costco hot dog dinner. Live footage below.

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Disclaimer: None of this is to be deemed legal or financial advice of any kind. These are *opinions* written by an anonymous group of Ex-Wall Street Tech Bankers and software engineers who moved into affiliate marketing and e-commerce.

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