The Point of Increasing Returns

when I got on the web one of the first mistakes I made was trying to go after the cheap traffic on the second and third tier networks. I arbitraged one of them and was pulling a 300% ROI selling them back their own traffic - but the wankers never paid me a cent.

It can be appealing to think of how to do things cheaper...and sure in the short term it might make sense to do something half-way to get it up and going and then to keep making incremental improvements. But people like Philip M. Parker have created automated technologies to write books. Cheaper is a hard way to compete in the content business.

If you are just fishing for nickels and do not intend to take the market head on then any of the following can take you out:

• algorithm updates
• remote quality rater or spam report
• self-sabotage through doing something a little too clever
• more established niche competitors accidentally or intentionally copying you
• large general competitors accidentally or intentionally copying you

With search many early successes will be longtail keywords, but eventually you want to go after the biggest and best that you can achieve. Why? Once you have status you enjoy cumulative advantage in everything else you do. Things that are somewhat remarkable become quite remarkable just because who is doing them.

It can take a long time to work yourself to the top of a hierarchy. Most people who succeed ignore the hierarchy and look for a way to dominate a related niche

Ideally, a new player wants to come in with a fresh approach that doesn’t necessarily threaten the existing hierarchy. This allows you to develop an audience by sharing with existing players, not necessarily competing with them.

What you’re looking to do is intensify the niche by doing something more, or differently (or maybe even better) than the existing players. You do this by first evaluating and understanding where the niche is currently, and position your content in a way that pushes the envelope.

Unless you are really well established there is a lot of uncertainty in what you do online. Each additional investment can seem like you are getting closer to the point of diminishing returns, wasting your time. But then surprisingly one day things go way better than expected, and things are received much better than expected. You get a dopamine rush and the sun shines a bit brighter. Network effects kick in and you have reached the point of increasing returns - where each $ invested returns 10s or 100s of dollars back. I think Seth refers to this concept as The Dip - its what separates market winners from people who wasted their time.

But you usually have to lose $50,000 to $100,000 in sweat equity to get to that point, at least on your first successful project. The good news is that once you have already done that work nobody (except for you) can really take it away from you. Even if Google or some other market maker does not like you then you still have other social leverage and exposure which can be used to help generate revenue, launch new websites and projects, or (God forbid) get a real job.

I posted the cartoon version of this post about a month ago.