Turning complexity into clarity.

When looking for your “First $10,000” idea, you’re looking for $10,000 of profit. I can make $10,000 today if I went out and sold $20,000 of cash at half price. That’s the trap of the online marketers: when they say they’ve made $5,000 in 8 hours, I do not doubt them. They may have spent $20,000 or $30,000 to get that $5,000. Yes, the ratios can be that bad. For a micro-example, run a Facebook or Google ad when you get a coupon next time (they’re all over the place offering you $50 or $100 in credit). I tried both of these and pointed them to affiliate programs I ran. From $50 in ads, I made $0 in revenue. That wasn’t too tragic: I did spend freebie coupons after all.

To make money-- profit-- you need a wide profit margin. Retailers usually work with a 45% mark-up from what they bring into their store from wholesalers vs. what they retail. That mark-up usually leaves them with a thin margin of profit. Other industries have much wider profit margins. Oil costs about $1 per barrel to extract from the ground. One barrel of oil has the energy equivalent to 25,000 hours of human labour. Even when oil hit $100 a barrel, that was still cheap for the amount of labour the money performs.

Imagine if you could find something with cost to profit to labour curves like oil? It’s possible. Zuckerberg’s dorm room hatchling, Facebook, climbed to being worth a disputed $50 billion in just seven years. It entered a crowded marketplace (vs. Friendster, MySpace and others). Why do people like Facebook? It’s because of what their friends post on Facebook. Facebook is a medium that shaves ubiquity from its users in the form of links and discussions; then it feeds it back to those users. The bigger Facebook gets, the more content it will have to perpetuate the cycle of growth.

Ubiquity can be fantastic. I love having enough air to breathe; and enough gravity to keep me tied to the surface of the Earth. When something is ubiquitous, you can only profit from it, if you can head off the supply chain and pipe it through what you do. If you can make false scarcity, even a ubiquitous supply of a resource can become valuable. We pay our utility to get water. They haven’t clamped off the supply; nor are they raking in the dough. But they are in between myself and clean drinking water-- a resource that falls from the sky in my region in massive amounts.

In your quest for the First $10,000, you need to collect the rain. Find something that exists in huge amounts but not yet converted into money you can tap into. Some examples:

  • A discussion forum website where confused people post questions and smart people post answers. The world has a huge supply of confused people, people who think they’re smart and people who will kibitz.
  • A webcam aimed out a window capturing images. Maybe you have an interesting vantage point and people will want to check in.
  • A feed of news filtered or cooked in some interesting way: for example, stock prices. Maybe the stock prices are locked up, but maybe there’s another source of information people want to know about: traffic, grocery prices, TV appearances, etc..
  • Find a really cheap raw material and convert it: water into ice sculptures; or, recycled plastic into art.

There are a few ways to do a conversion:
  • Alchemy. You have to take something that has no value and imbue it with value (like the water > ice sculpture process).
  • Gamer. Take cheap advertising and turn into higher valued revenue. This is called arbitrage and it’s largely frowned upon. Many sites will guard against it or shut down bad operators. I’m only bringing it up, in case you mistake alchemy for arbitrage and end up gaming the systerm.
  • Treasure Hunter. Find something rare and bring it out to the world. Like finding old glassware in a thrift store that could sell big on eBay.
  • Pharoah. Get throngs of people to build something great for you (eg. Facebook).
  • Huckster. Take something common or kind of interesting and push it out there for the world to adore (eg. BoingBoing).

If you try to retail goods-- or try the retail experience (modest mark-up tied to an inventory), you’re likely to find online success to the scale of a mom-and-pop shop. If you spend massive amounts to bring in traffic, you may get stung: the advertising will certainly cost you cash, but the reward may be small to non-existent.

Find your source of rain and put out a catch bucket.