“99% of all effort is wasted (in the long-run).” – Naval Ravikant.
If you look back at your life, you’ll see a minority of your actions have led to where you are today.
Whether I’m reading a book, trying to learn a skill, building a business, or writing for this blog, this minority effect is true for me.
Most of the time, most of our actions are wasted. Meaning they don’t seem to produce any measurable outcome.
But every now and then, a lesson from a book sinks in. Or a tweak I make to the way I play the guitar sounds infinitely better.
I’ve been observing this minority effect for a while now. In both myself and others. And I’ve found a way we can exploit it by going after what they call in finance, Alpha or above expected returns.
What Is Alpha
If you’ve ever bored yourself with deep dives into google analytics or your financial accounts. You’ll notice that most of those numbers mean little.
Only a few give you meaningful information you can use to make decisions. They’re a signal amongst lots of noise.
I see seeking alpha, in a business sense the same. But instead of me looking for the few signals that are useful for making decisions, I look for actions that produce abnormal results.
Take this blog for example.
We publish a weekly newsletter. Many of our subscribers find us via content that we post on Reddit.
Before we started regularly posting on Reddit, roughly 30 people visited our blog a week. And perhaps, once a week, someone subscribed to our newsletter.
After posting on Reddit regularly for 3 months, ~400 people now visit our blog each week. And 15 or so sign up to your newsletter. That’s a giant, 13x leap in results.
Posting on Reddit is an alpha action for our blog. Signalled by the unmissable, confrontational 13x improvement in outcomes.
Like opening your cash register and seeing a stack of cash that wasn’t there yesterday. Getting complaints from your staff about being too busy or getting an ‘out of stock’ message from your warehouse.
Alpha actions produce in your face results that you can’t ignore.
Why You Should Ignore Everything Else
What’s the opposite of finding alpha? The 99% of actions that led to nothing.
Say, you try something; you see a bump in sales, and your business makes more money. It’s hard not to get excited by that progress. But if that bump is small – what you’re doing here is trading minor short-term wins for large long-term payoffs. If you keep getting distracted by the small stuff, you won’t have time to find the big stuff.
What’s worse is when you think a few minor tweaks, can improve that 5% increase in sales to a 20%,30% or 40% bump. Feel free to prove me wrong, but in my experience, 9/10 times, those tweaks make little difference. Slight improvements like to stay that way.
When making progress is difficult, any win feels like a win, no matter how small. But in most cases, they’re detrimental to our long-term cause. Those small wins hold us back.
So there’s a tradeoff we have to make here. We either decide to go big or muck around going no-where fast. The time to double down is not when you see marginal results but when you find alpha.
Google knows this trap well.
Last week, I was listening to an interview with a former Google product manager. They mentioned that google won’t touch a project unless expected revenue is above $100 million.
They’re not looking for small wins. They’re seeking alpha.
How To Purposely Find Alpha
I’ve read many business books that should have been 1,500-word blog posts. Amongst this 2-minute noodle diet of words that I’ve chewed through over the past decade. A book I’ve come across that deserves to be one, is called Traction by Gabriel Reiss.
In the book, Gabriel lays out a growth framework called the bullseye technique that is useful for us here. In particular what he calls the critical path and a traction goal.
He defines your critical path as the path of least resistance (not in the usual sense of easiest) you need to find to reach your next traction goal. And a traction goal is a mark, if achieved, that will significantly impact your company’s future.
• Getting your first website visitor
• Getting your first sale
• Reaching Breakeven
• Paying yourself wage
• Hiring your first employee
• Hitting 1k, 10k, or 100k monthly recurring revenue
Expanding on this critical path further. You can think of it as the path with the least number of steps, with lowest complexity and smallest number of resources required, to reach your traction goal.
For example. To get your first website visitor, you need to build a website. But rather than spend $10,000 with a web design agency, you could spend one hour creating a free Mailchimp landing page.
Or to get your first sale. Rather than creating a logo, registering your business, hiring an accountant and buying a work truck and all those other good things. You could simply call everyone on your contacts list until you make a sale.
To re-affirm, a critical path is the path of least resistance that nets you your biggest return on investment.
Seeking Alpha With Our Critical Path
Let’s use this blog again to explore a critical path.
Some traction goals, like getting your first website visitor. Are simple.
Others like getting to break/even (profit) or hiring your first employee are infinitely more complex.
Say we want to hire a full-time content coordinator so we can spend more time creating content and less time editing, publishing, optimising for SEO, and so on.
So our traction goal is “hiring our first employee”.
To do that, we need to generate enough revenue (~$50,000) to pay this person’s wage. And to generate that sort of revenue, my guess is we need an email list of at least 10,000 subscribers.
At the time of writing, for this article, we have 200 subscribers. At our current growth rate, it’ll take us 12.5 years to hit 10,000. But we want to hire a content coordinator this year, not this decade.
Taking small steps and that linearly increases our subscriber growth rate will not get us there in time. We need to find our critical path and take big leaps (alpha actions).
How To Increase Your Chances Of Finding Alpha
Planning to find alpha, i.e. laying out a critical path, is different to finding alpha. A plan can clarify your thoughts. But then you have to test that plan against reality, and not many plans survive that test.
Remember our 10,000 subscriber goal. We think our critical path is another content marketing channel like Reddit. So the plan is to find another content marketing channel that gets us another 13x leap in results, but we have little idea which channel will be best.
So we need to start swinging and see what hits. Gabriel (our friend from earlier) calls these swings traction tests. He defines them roughly as costing less than $1,000 and taking less than three months to test.
Whether that’s pinning on Pinterest, answering questions on Quora, or writing threads on Twitter. One of these tests will uncover our next alpha action. We’re expect to see another 2 – 20x jump in results when that happens. And we’ll ignore anything less.
Finding Alpha In Summary
Set big goals, and estimate your critical path.
Test a lot with small bets to prove your plan right or wrong.
Ignore small wins and wait till you find alpha.
Then double down on that approach and swing for the fences.
To wrap up I’ll leave you with this short story about a big win we’ve just had at my gym following the approach outlined here.
For the past two years, we’d been trying (lots of small tests) to generate more leads for our premium gym membership. And have failed miserably.
Then I thought of a left-field promotion to get more leads. We’d pay people to train at our gym. In 2 years, we hadn’t generated more than two leads a week. Then within ten days of launching that new promotion, we had 15 new leads.
Six of those leads became members, and they referred five of their friends. The campaign cost us ~$1,000, took a month to play out, and it added $21,000 in recurring revenue — a ~10x leap in results.
So we doubled down and ran the promotion again, this time it looks like we will finish with an extra 15 members, another $28,000 in recurring revenue.
You never know when these big wins are going to happen, but they will if you seek them.