Are you finding arbitrage or building arbitrage?
When I first started building my career in earnest, Gary Vee was using the term “attention arbitrage” to explain what people needed to be concerned with in the then-nascent creator economy.
Hi,
When I first started building my career in earnest, Gary Vee was using the term “attention arbitrage” to explain what people needed to be concerned with in the then-nascent creator economy. In short, arbitrage results from a gap between demand and supply. If there is more demand than supply, the delta, or difference, between the two is arbitrage.
I’ll be honest: every time I heard that term for years, my teeth started gnashing together.
That said…he was right, and I hate that he was right. Since sucking it up and accepting he was right, though, I’ve identified two ways businesses can use arbitrage in their own business. It’s completely revolutionized how I think about my efforts.
Let’s step back for a minute and talk about the way I define arbitrage. I define arbitrage as the difference, or delta, between supply and demand. When there is more demand than supply, then there is an arbitrage opportunity. Here are some examples of arbitrage as I would define it:
A classic example in fintech is when you buy a stock at $.90 and flip around to sell it for $1.00. That $.10 difference is arbitrage.
Similarly, often people buy products from a company like Costco or Trader Joe’s for a 25-50% markup. That markup is arbitrage.
Both of those are classic arbitrage examples, but do you see the similarity between them? They all deal with finding existing arbitrage.
Each case above requires somebody to study data and find the gaps in the market where arbitrage exists. This is how a certain subset of entrepreneurs operate naturally. They can identify an area where customers are almost frothing at the mouth, design something for that market quickly to satisfy their needs, drop it into that frenzied market, and use that excitement to profit.
Simply by existing, their stuff succeed. They don’t need an audience. They don’t need popularity. They just need the audience to know about them, and they’ll gobble it up.
That’s great in the short term, but there is a huge problem with it, too. Namely, if you find that arbitrage, somebody else will as well. The minute you discover that opportunity, the clock is ticking before everyone else starts exploiting it, too, and that arbitrage dries up.
If you’ve ever been around entrepreneurs who talk about how their products are not performing as well, their ads are not profitable anymore, or they need to hopyto something else because it’s too crowded, in 99 out of 100 cases, they are feeling the squeeze of arbitrage drying up.
That’s when you get more expensive ads, fewer customers clamoring to buy your stuff, longer waits for customers, and a whole slew of headaches that revolve around that arbitrage drying up. Once that happens, your only choice is to find another arbitrage opportunity and rinse and repeat forever, right?
That sounds exhausting, frankly. What if there was another way, though? This whole time, we’ve been talking about finding arbitrage, but we can also create arbitrage for ourselves, and it provides a huge opportunity.
Stephen King, Tim Ferris, Joyce Carol Oats, Nora Roberts, Elizabeth Gilbert…these are writers who never have to find arbitrage because they spend an inordinate amount of time building their names, creating their categories, and separating themselves from the pack.
Yes, you could define each one within a primary genre, but they are so much more than that as well. Tim Ferris wrote a book on outsourcing, cooking, and healthy living, as well as a coffee table book with advice from industry leaders. Sure, he’s in the personal development category, but he’s really in the Tim Ferris category.
Stephen King mostly writes horror, but he also wrote The Green Mile and Fairy Tale. Again, he’s a category of one.
Building your own arbitrage is the best opportunity for sustainability because the supply of you is one, and if demand for your work grows over time, more people will spend more money on it.
I’ve had to completely revamp my business in the past year to become more “flywheel” than “pump” because the way I’ve been doing things for years became exhausting and unsustainable.
In business, the “pump” and “flywheel” models represent two distinct approaches to growth and operations. The pump model requires continuous and often significant input or effort to produce results, similar to a manual pump needing constant operation to move water. It’s characterized by direct actions like aggressive sales, and the outcomes cease as soon as the effort stops. For instance, a business relying heavily on continuous aggressive marketing or sales efforts to drive revenue follows the pump model.
In contrast, the flywheel model is akin to a heavy wheel that’s tough to start but, once spinning, maintains momentum with minimal additional effort. This approach in business is about creating a self-sustaining system that becomes more efficient over time. Initially, it requires significant investment and effort, but as the system gains momentum, it requires less effort to maintain or grow. An example is a company investing in customer satisfaction, which eventually leads to word-of-mouth referrals, reducing the need for direct marketing efforts. The flywheel model thus symbolizes a cycle where initial hard work leads to easier, ongoing success.
There will always be opportunities to find arbitrage, but if you’re sick of jumping from one niche to the next only to find your effort losing efficacy or becoming exhausted over time, then it’s time to ask how you can dig deeper to build arbitrage for yourself.
I’m no longer willing to seek out arbitrage and wring it all out before the opportunity dries up, but I am interested in finding that arbitrage and using it to help build my own arbitrage, which I think is something Deserts are uniquely qualified to do.
In an ideal world, these two concepts work in tandem with each other. I recommend finding arbitrage opportunities that you can then leverage to bring people back to your own arbitrage. That’s how we throw gasoline on the fire of our spark and grow faster.
There will always be arbitrage opportunities, and you don’t have to be well-known to find them. So, if you’re exhausted finding and exploiting them without ever feeling like you’re getting ahead, maybe it’s time to think about how you can focus on creating your own arbitrage instead of leveraging it from other people.
