And if only 1% of those people...

by sivers • 17 years ago

210 43 17 years ago

dcurtis• 17 years ago

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• 17 years ago

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

radu_floricica• 17 years ago

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.

rglullis• 17 years ago

Yet-another-post-about-chinese-math: http://www.businesspundit.com/please-stop-with-your-chinese-...

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

DarkShikari• 17 years ago

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

joez• 17 years ago

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• 17 years ago

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.

jacquesm5• 17 years ago

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.

algorias• 17 years ago

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.

anigbrowl2• 17 years ago

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.

mahmud2• 17 years ago

The free CD is a promotional tool. Fans who come to the concert, specially small under-advertised shows, are some of the most hardcore fans, and for that the most influential among their circle of friends.

Even factoring the cost of the media into the ticket sale can encourage people to come see your show.

andymism• 17 years ago

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).

anigbrowl2• 17 years ago

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.

mediaman• 17 years ago

Mr. Sivers makes two statements:

* A marketing mechanism can have very poor, even zero, results.

* There exists a marketing mechanism for bands (giving away product) which is effective in promoting the brand.

It's not clear how stating that a particular marketing mechanism works, but that marketing mechanisms in general can have low to zero returns, are contradictory concepts.

randomwalker• 17 years ago

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• 17 years ago

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..

vaksel• 17 years ago

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.

jacquesm5• 17 years ago

> 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.

jjs• 17 years ago

> 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.

See the recent article on survivor bias:

http://news.ycombinator.com/item?id=768297

mhartl• 17 years ago

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)

jgamman• 17 years ago

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• 17 years ago

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• 17 years ago

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.

jbm• 17 years ago

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.

actionjackson• 17 years ago

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

auston• 17 years ago

you didn't take into account the downvoters.

lurkinggrue• 17 years ago

Remember, There is always somebody at your heels trying to get a piece of the action.

isamuel• 17 years ago

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.

natemartin• 17 years ago

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• 17 years ago

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!

callmeed• 17 years ago

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.

jacquesm5• 17 years ago

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

arithmetic• 17 years ago

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..)

teeja• 17 years ago

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

mahmud2• 17 years ago

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.

chrischen2• 17 years ago

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

chrischen2• 17 years ago

Hey it's A crude but valid analogy right?

rythie• 17 years ago

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%

dan_sim• 17 years ago

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...

And if only 1% of those people...

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