

And if only 1% of those people... - sivers
http://sivers.org/1pct

======
vaksel
the problem is that the media only reports on successes, so people have much
higher expectations built up in their heads.

You read techcrunch, and you'd think that all you need is to throw out there a
crappy iPhone app, and you'll make 2 million overnight.

The dirty little secret, is that success is rare as hell. And people tend to
be very selective in what they remember. For every successful startup, there
are dozens of stories of ones that failed. But even those failures have
managed to achieve quite a lot, simply by being featured, for every one of
those, there are THOUSANDS of startups that you haven't even heard about.

~~~
jacquesm
> The dirty little secret, is that success is rare as hell.

That's why I have serious respect for anybody that makes it work more than
once, those are the real entrepreneurs. For the rest it really is mostly luck.

I've scored pretty good with my first 'real venture' and I can testify to how
unbelievably hard it is to do it again. So far no success :) But that won't
stop me from trying very hard.

One thing definitely has changed in the last 10 years, back in '95-'99 most
things you put out on the web were operating in an almost competition free
arena, some of the stuff we got away with back then we certainly wouldn't be
able to do today. Users expectations are a lot higher than they used to be and
there are a lot of parties on the lookout for good ideas so if you 'launch
early' with an incomplete product you just might give someone the last bit of
the puzzle they were still missing.

It's a tricky situation and there are no easy solutions to any of this.

~~~
mhartl
_That's why I have serious respect for anybody that makes it work more than
once, those are the real entrepreneurs. For the rest it really is mostly
luck._

I agree with your suspicion that luck is often involved. But twice- or even
thrice-successful entrepreneurs might also be lucky as well as good. I think
an anecdote about the great physicist Enrico Fermi is in order:

 _My [Carl Sagan's] favorite example [of the non sequitur fallacy] is this
story, told about the Italian physicist Enrico Fermi, newly arrived on
American shores, enlisted in the Manhattan nuclear weapons Project, and
brought face-to-face in the middle of World War II with U.S. flag officers:
So-and-so is a great general, he was told. What is the definition of a great
general? Fermi characteristically asked. I guess it's a general who's won many
consecutive battles. How many? After some back and forth, they settled on
five. What fraction of American generals are great? After some more back and
forth, they settled on a few percent. But imagine, Fermi rejoined, that there
is no such thing as a great general, that all armies are equally matched, and
that winning battles is purely a matter of chance. Then the chance of winning
one battle of one out of two, or 1/2; two battles 1/4, three, 1/8, four 1/16,
and five consecutive battles 1/32 -- which is about 3 percent. You would
expect a few percent of American generals to win five consecutive battles ---
purely by chance. Now, has any of them won ten consecutive battles...?_

(From _The Demon-Haunted World_ by Carl Sagan; <http://tinyurl.com/yeprpx4>)

~~~
jacquesm
The problem here is not that you can measure 'success' by looking at
consecutive endeavours, you can.

The trouble is that it may not be an indicator of future success, in other
words it may not be a good 'predictor'.

But it also doesn't mean that there is no qualitative difference between
entrepreneurs. It's just very hard to put your finger on what makes the
difference, to explain that difference in terms of things to do or not to do.

------
jacquesm
The reverse of this is vapourware, marketing without a product behind it.

Kudos to the guy for trying, but sometimes it is better to anticipate a less
than stellar showing and to plan accordingly.

What will strike consumers fancy is a very difficult and sometimes impossible
to answer question. Some stuff that you see and think can't possibly sell will
make someone a millionaire, another has a great and well thought out product
but nobody needs it.

Most products end somewhere in the middle. Even the largest companies still
struggle with this, occasionally their 'focus groups' get it so wrong it isn't
even funny.

If you're in the 'brick & mortar' side of things then you will have learned
the hard way that too little inventory is just as lethal as too much, to hit
that sweet spot is quite hard.

A buddy of mine trades goods that he buys in bulk at bankruptcy auctions, the
diversity of the goods is huge, as is the pricing. Every time he bids on a lot
he has to make a gut call on how fast he'll be able to turn that stuff over,
if he misjudges several times in a row it can seriously hurt his business. He
has one golden rule that came out of doing this for a while: It's better to
have money in your pocket than stuff you bought that you can't sell.

So he errs well on the side of caution, is prepared to let others get away
with 'great deals' simply because he builds in a level of cushioning that he
needs to maintain his balance. If he can't get it at the right price, he's
better off without it.

It's hard, even with hindsight to tell the musician from the example how he
could have done better, I've had some contact with a 'name' artist that
produces his own CDs, his method is to go for the long term relationship with
his customers, including samples, mailing lists and so on.

By the time his CDs are pressed he knows exactly how many he will sell short
term and how many will take up space for some time to come.

Selling music of an unknown artist through a newspaper ad seems to be a
mismatch of medium, chances are that through a better medium he'd have been
able to move much more of his inventory.

------
anigbrowl
That didn't stop you when you were suggesting bands make sure everyone at a
live show get a CD, even if that means giving some of them away.
<http://sivers.org/livecd>

You were confident there that telling the audience how much the CD mattered to
the band would increase sales and future popularity, to the point that in the
comment section you repeatedly waved aside people's worries about the short-
term financial risk for the band. Now here's a blog post less than a week
later saying 'investing money in putting yourself out there and planning for
success? what a maroon.'

I can believe that maybe the guy's ad sucked, and he'd have been far better
off booking more gigs and passing the hat around, but c'mon Mr Sivers, you
promote optimistic marketing strategies as much as anybody out there.

~~~
andymism
I don't think this story and the post you're referencing contradict each
other. The difference between the magazine's audience and a band's audience at
a show is _relevance_. At a live show, you're selling to a group of potential
buyers (whether they will pay or not) who have qualified themselves just by
being there. As an obscure musician advertising in a magazine, you're just
trying to scream as loud as you can in a crowded channel where there's no
reason for anyone to pay attention to you (you definitely don't want to
prematurely optimize for this case).

~~~
anigbrowl
I entirely agree with that. It was just that the concert-CD idea also caries
the implication '...and if just 1% of those people play the CD to a friend or
come to the next gig...'. As someone else pointed out, we really don't know
anything about the ad or the magazine it was published in, which might have
seemed very well targeted to the artist (eg the ad was near a positive
review/feature of the new album). It's very hard to judge the situation
without more context, which is the problem with FOAF stories in general.

~~~
swombat
The huge difference, though, is in how those people are approached.

If you've got a good product and you go and talk to the right people about it,
some percentage (hopefully much larger than 1%) will end up buying it. If you
just send spam to a billion people, however, chances are hardly anyone will
buy it.

Advertising is spam. Sales is not spam. Giving out CDs as a promotion at an
event where you're present, where people can see you, is not a faceless
marketing attempt to get that "1%" effect.

Finally, the advice in the previous article was intended to make an immediate
difference to the band's receipts and, iirc, it did. The fact that some
percentage of those who bought the donationware CDs also brought more friends
along the next time the band visited was only a nice side-effect.

------
randomwalker
There's a lot of information that's missing here. There are many steps
involved in making a sale, and we are only presented with numbers for the
first and last ones.

How many hits did the website get? Did he have free samples of his music? Was
there an annoying login process to get through? Did the user have to enter
their credit card information into a sketchy-looking form? What was the CD
priced at? There are so many places where he could have screwed up and failed
to make a conversion. It is entirely possible that 1% of the audience did
_intend_ to buy his CD, but he made it not worth their effort. Based on the
post, we have no way to tell.

Similar concerns were raised by commenters on previous posts by Sivers, and I
believe his response was that he heard it from a friend who heard it from a
friend and so he didn't have the details. Sivers: since you're probably
reading this, your posts are certainly thought-provoking as they are, but they
would be a _lot_ more useful if you included the details.

~~~
kristiandupont
But the point was not to give details about a specific case and analyze it, it
was to show the fallacy that some people seem to consider 1% to be
"conservative estimate" no matter what. Guy Kawasaki says something similar
and I think it is because he has heard that a lot, being a VC..

------
dcurtis
This reminds me of how venture capitalists will sometimes ask founders about
their TAM, or "total addressable market". The TAM is basically the amount of
money you would make if every single eligible human being on Earth
purchased/consumed your product.

I will never forget one night I was with a friend and he calculated his TAM to
be something like 940 billion dollars. For his web startup.

After calculating this number, he said "Wow, if only 1%..."

~~~
sachinag
A VC (or anyone else) who cares more about the number than how you calculated
it is a moron.

~~~
radu_floricica
You calculate it to make sure it's not a small number. Anything above "small"
doesn't matter, but you want to make sure you don't work a year to sell a
$19.99 app to a maximum of 500 companies.

Happened to me once... after half a year of development we realized the total
grand market for the app, in the form we built it, was 5 (five) companies.
Wasn't as stupid as you't think, we found over 100 companies listed when we
first did research. Only when we started actually selling we realized how many
were big enough, still in business and close enough to actually make use of
what we offered. We got 60% of the market, btw.

~~~
ryanwaggoner
_We got 60% of the market, btw._

That's how you represent this accomplishment on a resume :)

------
isamuel
This story is about a guy who was too optimistic about his business prospects.
Fair enough; it's not good to be unrealistically optimistic.

But it's (often) far worse to underestimate your chances of success than to
overestimate them. The worst thing that happens if you overestimate your
chances of success are that you blow some money unnecessarily chasing an
opportunity that won't work. That's bad; wasting money isn't smart. But the
worst thing that happens if you underestimate your chances of success are that
you never seize an opportunity that could have changed your life. That's much
worse.

In fact, we often have a very imprecise understanding of our chances for
success in a venture. Buying tens of thousands of envelopes with no
understanding of how many copies of your CD you might sell is, of course,
pretty dumb. But how about depleting your savings trying to get a startup off
the ground? That's a more measured risk, sure, and one that might or might not
pay off. For a lot of people, it changed their lives. Did some of them get
through the hard days by relying on the at-best-misleading "if only 1%"
doctrine? I bet so.

To the extent this article is a wry observation about the innumeracy of a lot
of people (treating 1% as the smallest possible chance of success), then of
course, it's well taken. But people use "if only 1%" type thinking to convince
themselves to take worthwhile risks, too. If you think, as I do, that we have
fewer entrepreneurs than our economy might support, then query whether the
real problem is too much risk-taking or too little.

------
rglullis
Yet-another-post-about-chinese-math: [http://www.businesspundit.com/please-
stop-with-your-chinese-...](http://www.businesspundit.com/please-stop-with-
your-chinese-math/)

Sigh. If only 1% of bloggers stopped re-hashing old ideas, then we'd have
something actually good to read on HN.

~~~
DarkShikari
Considering how much people are still falling into this trap, it definitely
needs to be rehashed more.

------
natemartin
Obviously the 1% argument is completely invalid. However, knowing the size of
your market is always important, and looking at the percentage of that market
you need for success, can be a good checkpoint.

For example, imagine that you need to bring in 100K to break even with your
product. Say you look at the market you're trying to enter, and find that
selling 100K worth of your product means that you need to sell to 5%, 10%, or
say 20% of the market, then maybe you should reevaluate the product.

On the other hand, if your break even point is selling to "only" 1%, or .5%,
or .1%, then at least you're aiming for a realistic market.

By no means is anything guaranteed, but it can give you an idea if you've got
a shot.

~~~
ashleytowers
I completely agree with this. It then leads to what you charge for your
product - if 1% at $10 per month breaks even you'd need $20 at .5% and so on.

But it's not even that simple - because demand and supply kicks in - if you
charge more you'll be reducing the size of the market willing to pay the
higher price - so you'd need >.5% of the original market to get your original
break even point!

------
algorias
It's often hard to predict just how much a niche of a niche of a niche you are
in. It's easy to think of one million. But where there's a million, there can
be a millionth.

------
jbm
Fantastic article.

Back in the day when I was working for a search engine company (not a big
one), my superiors would use this sort of reasoning ALL THE TIME.

At one point they were trying to buy out 10 different bittorrent sites and the
reasoning used was pretty much the same ("If only 1% of the people were to
convert to legitimate paying customers, they will be worth $12 each!", etc..)

Suffice to say, that company isn't around anymore.

------
teeja
He'd have gotten better results by paying someone to give him a good review.
Marketing an audio product with a print ad? Who'd fall for that approach
nowadays?

The number of people trying to sell music these days is incomprehensible. It's
probably the toughest market that's ever existed - it almost has to be _very
personal_

------
rythie
1% is very high for a lot of things.

I've seen links go out on twitter where the click through rate is around 1%.
If you get 1% click on an ad on a webpage that's good.

Then if you are talking about actually selling something your really talking
about 1% of that 1% i.e. 0.01%

The guy in the article made got to 0.04%

------
callmeed
It's not really the point of this article but magazine advertising is by far
the least effective type of marketing we've ever tried.

The prices are high and the circulation numbers you're quoted are rarely the
actual number of people who will see your ad.

~~~
jacquesm
Circulation numbers without returns are meaningless anyway, especially if the
item is sold exclusively through news stands.

------
joez
Reminds me of Steve Blank's sayings on the customer and product development
cycle. His mistake was he ramped up before properly understanding his
customers (and how to best sell to them).

~~~
gcheong
I was thinking the same thing. He could have saved himself a lot of trouble by
seeing how effective or not the ad was in getting orders before printing up a
bunch of CDs then he could have adjusted his marketing approach.

------
dan_sim
For an "unknown" artist, the hardest thing is to sell a CD. Nobody cares until
they are emotionally attached to your music. And even if they are attached to
it, they won't buy it in a store... they will buy it at your show! But even
then, don't expect to respect the 1% rule...

------
arithmetic
Orthogonally, if he really wanted people to buy the CD, why place an ad in
some magazine and expect people to place orders? Aren't there other ways to
advertise?

(yes, I get that the point of this post is about success, and how the 1%
argument is flawed, but still..)

------
mahmud
Users are not there just for their single-unit purchases; on the net, users
are also part of your marketing team. Sivers' friend would have been better
off mailing 500 CDs for free to influential bloggers, online socialites, media
critics and other influential people.

------
jgamman
ask yourself: 99 people in a row have just said 'no thanks' to my foobar thing
- who's taking the bet the next random person is saying yes?

~~~
aamar
If you believe that 1% of people want your foobar, odds are good that you'd
have a sale within your first 70 offers (0.99 __70 = approx. 0.495) .

A Bayesian would say that if your prior expectation of sale was 1%, 99
consecutive nos would suggest you update your future expectation of sale to
around 0.36%.

~~~
waldrews
Might need a better specifed prior for that Bayesian calculation - prior
expectation of 1% gets you the mean of the prior distribution of the success
probability of each Bernoulli trial, but you also need a variance or other
measure of the uncertainty of your belief.

Otherwise, if you have a degenerate prior based on a belief that the prob of
sale is 1% - you just stay at that probability no matter how many successes
and failures you observe.

Presumably you'd want a Beta distribution prior for the computational
convenience of the conjugate property - unless you have reason to prefer
something else. Then you take the mean and variance of the prior for p, or two
ends of a confidence interval for p, and use them to find the alpha and beta
parameters for the Beta distribution. Then you update those parameters for the
99 failure events, and read off the new expectation - that's the probability
of the 100'th sale being a success.

------
actionjackson
If only 1% of all the HN users will upvote this comment.

~~~
auston
you didn't take into account the downvoters.

------
chrischen
Yea you could put a pile of shit on the road and 1 million people will pass it
before someone eats it.

~~~
chrischen
Hey it's A crude but valid analogy right?

