by Mike Masnick

Filed Under:
bottom up, sales, top down

There Are Numbers Less Than 1%

from the reasons-to-buy... dept

I've pointed out in the past, that any time you hear a company talk about their business model in terms of "if we only get 1% of that market... we'll still be huge," you should run away (and, it's even more ridiculous when you hear some talk about 10% or 15% of a market). This is top down thinking, but it's not how businesses work. There's no guarantee of any percent. Instead, any business needs to focus on bottom up reasoning -- explaining why the very first person will buy. Then the second. Then the third, and so on. Taking the top down approach is wishful thinking. It's making a huge assumption that people will just buy. Taking the bottom up approach is actually building a business. It's recognizing who the customer is, what they want and how to best get it to them. It's tempting to do the top down approach, because it looks so tantalizing and easy. But business isn't easy. It's hard work.

I'm reminded of this, with a submission from JohnForDummies about a Derek Sivers blog post, discussing a musician friend who took out an ad in a magazine with 1 million subscribers, repeatedly saying:
"If only one percent of the people reading this magazine buy my CD... that'll be 10,000 copies! And that's only one percent!"
But, as the musician learned there are numbers much smaller than 1%, as he ended up selling just 4 copies of the CD.

This is, in some ways, similar to the give it away and pray business models that we sometimes see people trying. Giving stuff away for free is a good part of a business model, but it's not an entire business model by a longshot. Anyone looking to use free as a part of a business model also needs to go further and do the hard part, the bottom up part, where they figure out how they're going to get anyone (not a percentage, but specific people) to actually find something worth paying for on its own. Because $0 from a million people is still $0. But, reaching 1,000 people with something of value that they want and can't get any other way... that's the start of a business model.

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  1. identicon
    Anonymous Coward, 29 Sep 2009 @ 10:17am

    Did this musician sleep through math classes? Even my kids know that 0.000004

    reply to this | link to this | view in thread ]

  2. identicon
    Anonymous Coward, 29 Sep 2009 @ 10:18am

    Let's try this again...

    Did this musician sleep through math classes? Even my kids know that 0.000004 < 0.01

    reply to this | link to this | view in thread ]

  3. identicon
    Argon Vesher, 29 Sep 2009 @ 10:26am

    Along those lines...

    I have owned an independent game company for several years now with 2 other partners. We've been pushing to make games in our spare time that have value and give people a reason to buy. At least that's been my goal as I do the music and sound design. One of my partners has been saying much the same thing: "If we only get this many people, we can make X amount of money..." and I've always disagreed with this approach. Lately though, we've decided to change what we are offering for free and allow innovation from ourselves and others in the near future to drive what we already have further. And what we will be offering I think is very unique in any part of the video game industry. Stay tuned!

    reply to this | link to this | view in thread ]

  4. icon
    Designerfx (profile), 29 Sep 2009 @ 11:02am

    Re: Along those lines...

    your games look stupid. You couldn't even pay me to play them as you have them for free. Quit trying to use techdirt and spamming the web as advertising.

    Go make an interesting game, and do it for fun. When you have fun, so we will we, and money will flow accordingly.

    When you make an advertisement for a game company, and it's a bunch of bullshit, we will ignore you, and wish that you find a better venture for you to add music and sound to, this coming from someone who does music and sound design themselves.

    reply to this | link to this | view in thread ]

  5. icon
    Chuck Norris' Enemy (deceased) (profile), 29 Sep 2009 @ 11:13am

    Re: Re: Along those lines...

    You obviously went to the site. I went because you said the games were stupid. In my opinion, they look as good and pointless as all the other internet games out there. I wonder how many more will check it out because you rose such a stink about it. In fact, the link to the site is only in his name. He makes no other link in his post nor even throws out the name of the company. A lot better than some other comment makers with four or five links to each of their little project websites.

    reply to this | link to this | view in thread ]

  6. identicon
    TheStupidOne, 29 Sep 2009 @ 11:19am

    But don't dismiss thinking in percentages of a whole completely. It can be a very useful way to makes estimates of future revenue, sales, attendance, etc. Just make sure it is based on something real like previous trends, industry averages, and so forth.

    The top down X% of market thinking can be useful for as a starting point. I imagine lots of business started out as just wanting some some part of an industry and then deciding the potential 1% is worth the risks in getting started and figuring out a real reason people will pay.

    Of course that said I completely agree with the article. If you think that even .0004% will pay you for no good reason then you need to pull your head out of your @$$.

    reply to this | link to this | view in thread ]

  7. identicon
    Arrogantfx, 29 Sep 2009 @ 11:19am

    Re: Re: Along those lines...

    That's a bit harsh Dfx. There was no direct link in his message and he was just sharing some insight (although it was a little self promoting). Why not post your creds for others to make fun of. Probably because you don't have anything. Prove me wrong.

    reply to this | link to this | view in thread ]

  8. identicon
    Anonymous Coward, 29 Sep 2009 @ 11:22am

    Re: Re: Along those lines...

    Wow, lighten up. It was hardly spamming; the guy didn't even leave a link (other than his name). If he was trying to spam Techdirt as free advertising, then he did a pretty poor job of it.

    The games are actually not bad. My kid is still playing plunge and enjoying it. Perhaps they don't have the polish of the really big game companies, but they don't seem to install the crapware that comes with those, either. If they are fun for the intended audience, then they are doing what they are supposed to do.

    Still, you do make some valid points. I don't think the games in their current forms are going to make anyone rich. But who knows, perhaps someone from the big companies hires them. Perhaps they hook up with someone who knows how to market what they have. It could work out. And if they are having fun making them, then anything beyond that is pure profit.

    reply to this | link to this | view in thread ]

  9. identicon
    Freedom, 29 Sep 2009 @ 11:22am

    Great Article...

    One of the great things about a world economy and the Internet is the increased access you have to a huge customer base. This leads to this thinking of if I can just get x% to buy, I'll be a huge success.

    I know for any idea that I come up with in my business. I just start "pitching" it around and see the reaction. When the reaction is good, I push and mold a bit more and so on. When the reaction isn't, I just drop it. I take the old - throw enough cr*p on the wall and some of it will stick. What I don't do though is spend major money pushing the idea until I already know the results.

    What is interesting is that even in big companies that have the money for multi-million eye ball advertising, they ignore the base question a lot of times before jumping into the water - why would someone buy this.

    One of the biggest mistakes I've seen successful business owners do is assuming that just because they think something is a great idea, product, whatever, that everyone else will as well. Once you've been successful at a business venture you tend to have some spare cash and you typically push forward using cash instead of seeing if the product is actually something that people want. They in essence use cash as a crutch and assume that since they were successful before they'll be again and with cash they can ignore the obvious market issues until it runs out.


    reply to this | link to this | view in thread ]

  10. icon
    Dark Helmet (profile), 29 Sep 2009 @ 11:26am

    Re: Re: Re: Along those lines...

    Yeah, that was a little vitriolic...and that's coming from ME, the harbinger of ill will upon the most insignificant annoyances.

    The games looked like the common arcade platform wannabe stuff you find across the net: N64 graphics with platform style gameplay (though I only looked at screenshots, so I could be wrong).

    But if you want to sell scarcities and CwF along with a free game, how about paid access to graphics developers to make you a custom avatar based on your image (you'd have to send in a picture)? I would think that would be especially attractive in an MMORPG or sports type game.

    Or if the game is primarily an action game, you could subsequently release small updates/changes to the game (namely music, maybe a weapon, alternate endings).

    Or you could sell the ability to slightly customize the game in a way that was interesting but not terribly time-consuming (maybe slight story adjustments for place names or character names) that could be used for buyers to give as gifts (Here geeky girlfriend, I got a copy of FFVII altered so that my name replaces Clouds and yours replaces Tifa's, and all the locations are names of the places we first went on dates).

    I don't know how scarce those are, maybe most people can crack the program and alter this stuff themselves, but I'd pay for that last one, because I think it'd make a cool gift.

    reply to this | link to this | view in thread ]

  11. icon
    Chris Maresca (profile), 29 Sep 2009 @ 3:58pm

    Mike, I disagree....

    ... the top down approach is useful, but one needs to understand HOW it's useful. In fact, I sometimes give a whole presentation about why the top down approach is useful because not understanding it is one reason startups don't get funding.

    The simplest way to understand why a top down approach is useful is to put yourself in the shoes of a VC (yes, I know, not necessarily pretty...). If you are evaluating companies to invest in, then the total available market (TAM) is very important. Why? Because if you want 10x return on your investment, then the investment size will be dictated by the TAM. Say the TAM is $100 million. Then, in order to get $10 million out of it (as an investor) then you would expect the company to acquire 10% of the TAM, dictating a max investment of $1 million.

    Not understanding this dynamic is why a lot of startups don't get funding. They ask for $10 million with a TAM of $100 million, for example. Or, they fail to convincingly explain how they will gain, say, 10% of the market.

    Conversely, tactics (and it is just a tactic) like giving stuff away for free (or using open source licenses) can be a good way to get x% of the market, although you still have to work on the monetization model that will equal some % of the TAM.

    I should mention that, in practice, investors will only give you a very small percent of these theoreticals as they know you will likely need more money down the line and your chances of not meeting your goals are quite high... And these are just crude examples.

    reply to this | link to this | view in thread ]

  12. identicon
    Pax, 29 Sep 2009 @ 4:36pm

    Less than 1%

    There are even *integers* less than 1, which is probably what a vast majority of the crapware out there manages to shift.

    reply to this | link to this | view in thread ]

  13. identicon
    Argon Vesher, 1 Oct 2009 @ 9:59am

    Re: Re: Re: Along those lines...

    Thanks for your comments Anon Coward. Actually the polish of the games is mainly due to the limitations of the bigger innovation we are trying to do. Specifically, anyone that might read anything on the site itself, we are working on a completely self-sufficient and independent web game engine that relies on nothing else to be used. In other words, can be played in any browser, with or without sound, on any operating system, anywhere. You're not going to get the best graphics or response time some times on a fully web-based engine, but that's being worked on to find the best possible optimization to make it work for as many people as possible. Glad your kid enjoys plunge, it's actually my favorite of the 3 myself.

    reply to this | link to this | view in thread ]

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