12 Nov Tails – You Win
“I’ve owned 400 to 500 stocks in my lifetime and made most of my money on 10 of them.” – Warren Buffett
It’s a well-known fact in the investing world that the lion’s share of results will come from a small percentage of investments. In statistics, these are known as “tails.” But this phenomenon isn’t limited to investing – it also applies to business. A large share of your profits will come from a small percentage of your products or services, or from a small percentage of your customers.
Consider Alphabet, Google’s holding company. It’s involved in autonomous vehicles, online video, smartphone operating systems, email and dozens of other businesses. Yet, two decades after its founding, Alphabet still makes more than 80% of its revenue from advertising – mostly search related.
The takeaway here is that no matter what you’re doing, you should be comfortable with a lot of stuff not working. It’s normal. The key is to manage this reality in a way that maximizes your return and minimizes your risk. Here’s how to discover your Tails.
Identify your “10 of them.” Analyze your current products and services, your current customers, your current marketing efforts and more. Which 10 things are contributing the most to your top and bottom lines?
Try. Fail Fast. Try Again. After you know what makes the most money now, look for new opportunities and conduct experiments. Start out with small efforts – cut the ideas that don’t show promise and conduct larger experiments with the ones that do.
Be Ready to Take Advantage. When you have something that proves itself after two or three trial runs, be prepared to put resources into it in a big way.
By conducting small experiments with new ideas, you limit your risk. If something fails, it hasn’t cost you too much in time or resources. When something does work, you can now invest in those resources with confidence.
This week: Where is your money is made? What experiments will you run to be sure?
It’s no coin toss – tails takes the gamble out of your business.