Uncertainty, Risk & Profit Potential

Feb 2nd

Given the recent economic uncertainty in the world, I find myself reading more stuff about economics...a field which I currently find far more complex and fascinating than SEO.

I came across an article pitching the idea of another potential great depression. I don't know if that will happen, but these 3 bullet points from that article are particularly appealing to the entrepreneur in me:

  • Circa 2000 – It doesn't matter that Internet stocks are trading at multiples of revenue because 'these companies are going to change the way we do business'.
  • Circa 2005 – It doesn't matter that people are borrowing 125% of the home purchase price because 'the price of homes always goes up'.
  • Circa 2009 – US government 'T-bills and T-bonds are risk free', so the federal government can borrow unlimited amounts of money. This example of bubble-mentality thinking not only ignores the defaults by countless governments, it also ignores the history of US sovereign defaults (gold in 1933 and silver in 1967) as well as the continuing debasement of the sorry US dollar from inflation.

Whenever and wherever people are looking to pay for certainty and safety, they are paying a premium for that privilege, often yielding a net negative real return. The future does not mirror the recent past, but we are inclined to operate in a herd/bubble mentality. This, and our emotions, are why it is so easy to lose money in the stock market. By the time US actors and rappers are asking to be paid in Euros, all the dumb money is on that side of that trade, and the market is about to shift the other direction.

Business opportunities are like buses, there's always another one coming. - Richard Branson

Business opportunities are like buses, but you can't just sit around waiting for them to pull up. If an opportunity has to be "proven" before you are willing to try it, then maybe there won't be much opportunity left by the time you go after it. If there is already a "make easy money using xyz" ebook on the market, then the opportunity is probably already closed for most new market participants.

Group-think is the enemy of success. You usually have to create and believe in the value system you are selling to others for it to spread. You can't create the ideas and movements that spread if you are only following someone else's lead.

How does this concept of uncertainty vs profit potential apply online?

  • Overture (and Google) built their search marketplaces on uncertainty
  • early domainers built their empires on uncertainty
  • the first bloggers built on uncertainty
  • those trying new online business models and publishing formats right now are building into uncertainty

I got on the web in 2003, way late to the party (and broke). But in my first year of observing the web I saw that search was going to become the center of the web, noticed that domain names were important (buying domains SeoBook.com WhiteHatSeo.com BlackHatSeo.com & SearchEngineHistory.com), and quickly built a blog (because I saw other bloggers getting lots of links - primarily because they published blogs).

Simply by interacting online and observing trends you can see where the web is headed in a way that most people can not. Where others see risk, you see opportunity. Your knowledge of fields like search, blogs, commerce, affiliate marketing, and adverting lower the risk of failure for any new project you start. Each additional discipline you are aware of adds value to your other skill sets.

The cost of testing things online is minimal. Even less if you already have built up a widely read distribution channel. In the coming years new trends will augment or take the place of blogging, search, and domain names. But you have to be willing to "take risks" if you want to reap big rewards.

With ads falling off a cliff, people have been ramping up other attempts at monetization, looking for ways to be better than free and find new ways to monetize their data.

Facebook is trying to study sentiment (could that be used as an investment tool)? Fred Wilson highlighted the bloat that exists at many Web 2 companies, which holds them back from profitability. Chris Anderson, who promotes the concept of free with his new book, notes that free is pushing against its limits, and entrepreneurs are going to have to start charging during a period of limited VC backing:

What about the oldest trick in the book: actually charging people for your goods and services? This is where the real innovation will flourish in a down economy. It's now time for entrepreneurs to innovate, not just with new products, but new business models.

Time to catch the bus. Are you feeling "risky"? Today is the day. No point waiting around until things seem "safe." :)

Published: February 2, 2009

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Comments

February 2, 2009 - 7:15am

I watched the economy acutely for the last two years but came to realise that I was watching deckchairs on the titanic. Unless you get a peak at a bellweather blog like Russ Winter who has been accurate 99% of the time 3 months in advance - you really are getting very little with which to make positive decisions.

It is much easier to realise that very few vested interests will survive except those in cash that find safe parking spots of which there are few. The winning will be in the positioning - not who you know.

Everybody now faces a new reality where everything they "know" about how things work stops working. We are not entering a recession/depression we are witnessing the actual end of the industrial revolution and the rising of something totally new. GM, mass media, mass stuff, mass mindsets, left brain control are dying as we watch and witness. The new successes are rising now even with the cash crunch.

Read Seth Godin, Jeff Jarvis, Clay Shirky, Chris Anderson - they are grokking it.

My own little business is scrambling where as far as I can tell my world of "knowing" died in October. I give it one year for it to be a Phoenix rising from the ashes or I am getting behind way too much.

As small business owner I am not Google but what they are doing away from the SERPs is totally relevant. As far as the rest of the world is concerned G should be broken - but results speak for themselves. They are tapping into something that most will not let themselves understand. It is very scary to let this change in as there is much to let go.

These are really exciting times - read broadly - read avidly and share often - there is much to rebuild, in ourselves, our businesses and our world.

S

February 2, 2009 - 4:00am

Thanks for the great comment and the recommendation harpsound :)

February 2, 2009 - 4:19pm

By the time US actors and rappers are asking to be paid in Euros, all the dumb money is on that side of that trade, and the market is about to shift the other direction.

and

Wwhen the shoe shine boy starts giving stock tips....

.

Like harpsound, I look at the times ahead with a certain amount of excitement. I have always been a relavtively risk embracing kind of person. The trick will be to use situations as the catalyst for your own personal change and advancement.

Then when everyone else has stoppped thinking about protectionism and propping up failing business, they might emerge from the storm to find some of us are already ashore with the the coctail bar open.

February 2, 2009 - 4:32pm

Your last comment reminds me of Seth Godin's Purple Cow where he says that now 'safe is risky' and 'risky is safe'. I know several people in salary 9-5 jobs who are currently afraid of losing the "safe" job they have had for years, with little prospects of getting another job in the current economic climate. On the other hand, entrepreneurs are excited about finding opportunity in this time of uncertainty. Risky is definitely the new safe IMO.

February 4, 2009 - 3:13am

Gday, long time reader first time commentator...

I really liked the links and angles in this article - it's something I've had to come to terms with (bigtime) over the last couple of years and this, in part, inspired me to share our experiences here:

http://wpmu.org/making-money-with-wordpress-mu-the-edublogs-story-so-far/

I think it pretty much backup up where you are coming from :)

Also, thanks for all the interesting topics that keep swinging by my reader :)

Cheers, James

February 4, 2009 - 12:28pm

Great post James. Congrats on your success with Edublogs!

February 9, 2009 - 3:19pm

Dude(s). after begging people to mirror the hubfinder application i noticed this is now a paid service but what is annoying is that people who have mirrored this app havent got any notification of this.

so theres thousands of people whove now got apps installed that just return a blank result.

pretty poor dude.

February 9, 2009 - 4:48pm

After seeing dozens of people mirror our tools, drop attribution of the source, and then wrap our tool in ads for competing services, it seemed like a poor business strategy to assume people were generally and genuinely good.

We are going to add more new tools to the site soon. :)

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