Self Investment 101: Are You Measuring OPPORTUNITY Cost?

Jan 24th

When you evaluate the actual opportunity cost of business opportunities, most client relationships, equity stake deals, and other partnership opportunities fall short of what you could do on your own. The only ways it works out is if their is a symbiotic relationship through different approaches that balance out each other's shortcomings, or if you can learn something from working with them.

Problems With Many Opportunities

  • Unwilling Clients: Many clients are unwilling to change their sites to add unique content or value to them.
  • Employee / Slave Wage: Work for equity stake partnerships where the partner provides the domain name and you do everything else are both lopsided and useless.
    • At any time the partner with lots of domains can decide to screw up the project you are working on together, and has 0 time investment and limited capital risk by only putting one or a few domains into the partnership.
    • 6 months or a year after working with you they can take all the knowledge you spent years learning and apply it to their more valuable names while giving you nothing for teaching them everything you know. They were not teaching you how to buy domains why they were accumulating them for years. Why give all that knowledge up for a slice of a slice of a slice?
    • Buy an alternative average quality domain and keep all the equity. Build it up with sweat equity and learn your market. Buy great domain names when you can afford them.
  • Follow the Crowd: Many marketers try to saturate a field with affiliates marketing their products and teach affiliates how to market that same product as a piece of the product that is sold. The margins on those opportunities get compressed with each additional competitor you sell that product to.
    • Many marketers show stats out of context, use meaningless sample sizes, and/or lie about the hows and whys.
    • People hype opportunities long after they no longer exist because they are addicted to the easy profits still rolling in from old work building out an affiliate network.

Are You Moving Up the Value Chain?

I am not against any of the above models as a starting point, as everyone has to start from somewhere. But if you....

  • love business
  • love what you are doing
  • want to create a sustainable business
  • can afford short term risk for long term stability

...you need to build equity from your work, and have a controlling stake in the outcome. If it sounds to risky to change then at least start building a site for yourself in your spare time.

What If? ...

Sure it would have been nice to have been an early programmer at Google, but for every Google there are thousands of market losers. Investing in yourself is the best investment you can ever make, and you one have to be right once.

What happened if you invested in Google a month ago? It seems those who just bought into that market hype just lost a couple dollars. Will Google go back up? Most likely. Will they increase in value at a rate as quickly as you can? Not likely.

Published: January 24, 2008

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Comments

January 24, 2008 - 2:53pm

I agree! Many people want to build a business and actually they have great knowledge but one thing scares them: Fear! They feel fear because they need to pay the bills and put food on the table everyday. So, they cling to their employment and forget their dreams.

Starting a business in spare time is always a good option!

January 24, 2008 - 3:14pm

Aaron - your wisdom is beyond your years. Over the years, I have received a lot of offers for the "potential" of what might happen.

More often than not, those deals leave you on the short end. Now days, I will do them for friends just because I want to, or because there is a bigger opportunity on the horizon that I see, not that they are trying to sell me on.

Applying what you learn through work or outside projects to your own work is a great strategy and one that I use today. It allows you to get paid to learn, and if you work at it, will someday pay even more.

January 24, 2008 - 3:30pm

One of the most influential backers of this notion for me has been Steve Pavlina, particularly in a post called 10 Reasons You Should Never Get a Job:

Does putting yourself in a position where someone else can turn off all your income just by saying two words ("You’re fired") sound like a safe and secure situation to you? Does having only one income stream honestly sound more secure than having 10?

January 24, 2008 - 3:38pm

I've been thinking a lot about this the last week or so, the problem is just working out what product or service to sell!

January 24, 2008 - 3:43pm

I think some of the pitfalls of "slave wagering" can be avoided with real contracts and shares being assigned. If the project is incorporated and the person who owns the domain actually gives shares, there's not that can take that away. If the other person isn't willing to do that, or draft an official contract that states the conditions upon which this will be done at a future time - then indeed you probably want to look elsewhere.

Of course the majority stake holder can still turn the thing off I suppose, thereby wasting the time you might have put into it.

But ultimately shouldn't it be assumed that if one does go that route to partner up, that you don't just do it blindly. The idea is to seek out partners who bring on more than just a domain, but some other resource, experience, or even additional capital for auxillary support (web developers, etc). It is possible to have more than one partner like this, and in some cases it works just fine if you can get by well on a personal level and everything clicks.

January 24, 2008 - 4:29pm

Thanks for bringing up this topic, it's been ages since I've been in a class room.

"Opportunity Cost - The cost of a decision based on what must be forgone as a result of the decision."

This sounds like "benefits and draw backs" in micro-economics language to me. I can see that it's an important concept, but am struggling to find pratical ways of applciation beyond just the general "pros and cons list" I might make when considering business decisions.

Using Your Example: If I take Joe Smith on as a client, I won't be able to do what I need to do to achieve high results since Joe Smith wont allow it. The opportunity cost of taking Joes Smith's business is therefor "high results," and, who would take business at *that* cost? So I think many people DO consider opportunity cost when making choices, though they may not identify what they're doing by name. Aaron, do you think it's important to consider OC beyond this simplified way? Formulas, etc? I'd guess it depends on what's at stake?

January 24, 2008 - 8:41pm

Hi Megan
In business the opportunity cost contains one or more of the following

  • time (you can't use to be with friends and family, to play, to exercise, to work on other stuff)
  • loss of other opportunity (to do other projects)
  • loss of other potential income (since you can't see it, it is hard to measure this opportunity
  • loss of self-esteem (if you take on the wrong projects and can't provide results this can happen, and you can even lose your will to work and/or have your creativity beaten out of you)
January 24, 2008 - 4:50pm

Nice post. Sometimes you have to also weigh short term vs long term goals not just risk reward. This is another factor that chains people to wage slavery. With the recession looming it is very hard to leave a growing company to try and make it on your own.

For anyone who is not quite clear about the idea of wage slavery check out http://www.onmoneymaking.com/slave-pays-1517433-for-freedom-in-2007.html
Great blog about a young man who decided he did not want to be a wage slave his life.

January 24, 2008 - 5:03pm

How this post rings true... I decided several months ago to no longer work to make someone else rich and started to move towards doing things that I enjoy and eventually be able to work for myself. At the moment I'm still a wage slave, but if all goes well this will the year.

January 25, 2008 - 12:47am

I almost the mistake of expecting too early(results) sowing and reaping.

I thought I was already investing in myself and i was ready to give out.

But like a fruit I wasn't tree-riped. I was forcing the issue.

I realize it takes time just like what aaron said in the book. It's a marathon not s sprint. Most especially if remarkability is our ultimate goal

February 11, 2008 - 12:14am

(Late...)Right, thanks.

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