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Success is a numbers game
Friday, 16 June 2006
When I was at university, I did an assignment on direct mail advertising. Basically, this is when a company sends you an advertisement in an envelope with your name and address on it. I’m sure you’ve received hundreds of these before.
What amazed me at the time was discovering that the average response rate (that is, people expressing interest in the advertised offer) was around 2% on such campaigns. A very successful campaign would get 3%. That means for every hundred letters sent out, ninety-seven get no response whatsoever.
Companies have to pay for the envelope, the glossy paper, the computers, the list, their employees' time and the postage to undertake such a campaign. Yet 97% of this cost and effort goes straight down the drain - and the outcome is still considered a success.
Now you might hate this type of advertising, I know I do, but the thinking behind it is definitely worth understanding. And that thinking is this - even with an overwhelming level of failure, the enterprise is still worth undertaking.
You can see similar patterns in all sorts of fields. Understand this, and you'll realize how the intuitive strategy for achieving success is so often wrong.
Most people hate to fail. We have an innate fear of it. For our ancestors, failure could mean starving to death, being rejected by the tribe or being fatally injured. Such things were a daily fact of life up until very recently in human history. Our bodies and minds haven't had time to catch up with our new environment - so we share the fears of those in the past.
But in the modern world, high levels of failure are guaranteed in most enterprises. To achieve success in the fields most people really care about – money, love, business, innovation, and discovery – the chances of disappointment are so high you may well wonder why anyone bothers.
Of course, this explains why so many people approach achievement in the way they do. They have such an aversion to loss and disappointment that sure things seem like the only reward worth chasing. They invest all their time, emotions, money, and effort into pursuing one particular prize. And when that investment returns little or nothing, as the hunt for the best prizes often does, the impact can be devastating.
How many times have you heard sentiments like these expressed:
“I’ve tried start-up businesses, and I can tell you they're not worth it.”
“Nobody’s ever been attracted to me and no-one ever will be.”
“I applied for a couple of jobs in that industry and I now know it’s a closed-shop”
“I once invested in a technology company. Boy I’ll never make that mistake again!”
These are the type of comments you hear from people who’ve tried once or twice and failed. Their strategy for success is like someone running a direct mail campaign by sending out only five letters. Such people see winners as those who've tried and succeeded without much loss. But they’ve got it wrong.
“I wasted time and money on those letters and nobody bought anything,” is the thought-process.
Success in life, just as in direct mail, is often a numbers game. Even with a hit-rate of only a percentage point or two, it can often be worth your while investing your resources. The trick is to make sure you have enough attempts to get those couple of percentage points coming your way.
Reading the stories of those who’ve built thriving businesses, I’m often struck not only by the level of their triumph, but also how often they’ve failed. They understood the importance of numbers.
The people I know who have successful long-term relationships, almost always have a past filled with rejection. They learned and struggled their way through the difficult dating scene, and eventually got what they were looking for. They worked the numbers and it paid off.
One of Wall Street’s most famous investors, Peter Lynch, advises on the numbers strategy for investment. The best portfolios he builds often end up over-weighted in average stocks, but somewhere in there is a “ten-bagger” – one stock that rises so fast it lifts the entire portfolio.
Playing the numbers game is such a useful strategy, that once you become aware of it you can apply it to all sorts of ventures.
Of course, some people will read this and think “Wouldn’t it be better to eliminate the 97% of failures and just concentrate all your resources on the 3% of successes?”
To which my answer would be “Absolutely!”. Just tell me exactly where those 3% future successes are to be found and I’ll gladly cut out the rest of my investment.
Unfortunately we live on Planet Earth, not Planet Utopia. The reason the numbers strategy works is because nobody really knows what’s going to be effective. If there’s an obvious and sure thing to be had, you can be sure that a thousand other people will have got there before you. The idea behind the numbers strategy is to find the non-obvious, but extremely valuable thing nobody has been able to specifically identify or capture.
Direct mail campaigners build lists of potential customers that have all the right attributes for their products. But even with that advantage, they expect only a small percentage of real customers to emerge.
They don’t know who those real customers are until they’ve tried to sell to them. And it’s the same in most other areas – from politics to business to love. Even the experts usually have little idea about what will work and what won't. Often, they're surprised at how differently things turned out from how they expected them to.
They only way to find out what’s going to work is to get out there and give it a go, knowing full well that the vast majority of time, money and effort you put in will be wasted.
But don't worry too much about the waste. In so many parts of life, a hundred little misses are bargain price to pay for one big hit.
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