Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.
– Warren Buffet
What matters most in your business?
That your product delivers more results than it cost.
Your market must get much more out of your product than what they’ve paid for. Warren Buffet and his fellow value investors call this spread between a purchase price and intrinsic value delivered a “margin of safety”.
For them, an investment is worthwhile with a margin of safety above 90%.
Consider 37signals, and Basecamp. For the price of $24 a month, business owners are getting access to tools to impress and land more clients. This means purchasing Basecamp pays for itself quickly, and becomes an asset in the hands of its users.
But Basecamp improves its “margin of safety” for potential clients by letting them try their product free. If the end user ends up getting more value than $24 out of their month’s usage, they continue paying.
Look at any successful company and you’ll see the same few formulas for business success. Capitalists invest an initial sum of money in product creation, and then minimize the costs for delivering the value to as many people as possible.
Example: The iPhone has millions of dollars of research and development built into it, and we all get a piece of that pie for the steal of $200.
Smart Investing Means Searching for Informational Imbalances
For Warren Buffet, his initial investment criteria was a “margin of safety” of 66%. This type of investing meant he’d look for companies trading at a market value of a third of their actual liquidation price.
To find such steals, he leveraged informational analysis harder than anyone else. He looked at the markets, searching for pieces of information other people has glossed over. Such steals are rare, and so most of his investment time was spent searching.
Later, he came to change his mind, as he acquired vast resources of capital. Instead, his motto became:
It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
In other words, as you get bigger, you can focus on value delivered for investments over haggling for price.
Maximize Investments in Your Business
This is where your informational leverage comes into play. In what areas, realistically, are you weakest? A true investment means getting big results at a fraction of the price.
Throwing money at a PPC campaign sending visitors to your purchase page is not an investment.
Creating goodwill within a community (your target market) is.
We’re past the point now where we can call people prospects. Things are shifting quickly, and people’s BS meters have become very attuned to marketer’s tricks.
Investing in solving your customer’s problems first and build beneficial relationships daily. By investing in positive results for your market, you’re minimizing capital risk, and maximizing potential for geometric growth. A PPC campaign only scales as much as your budget and expenses allow. An active campaign to deliver results freely has the potential for a geometric growth curve (due to social media, etc.) like we’d love to see instead.
As a bonus, we don’t have to act like our customers are morons. No more psychological manipulation or cheesy sales letters.
Beneficial Relationships are what make businesses work.
Instead of focusing on psychological tricks to get people to buy, focus on serving your prospect’s every need. This is the model that will build success.
Invest in delivering more value for cheaper to your customers.