Rather than wasting their time on Wall Street, Mathematicians should be guiding online marketing for startups.
For years Wall Street has used brilliant mathematicians to create investment models that they hoped would reduce risk and generate billions of dollars in investment returns. They increasingly leveraged their investments falsely believing that they had eliminated most of the risk – which of course added more risk. Unfortunately most Wall Street investments are based on speculation which makes it is nearly impossible to remove risk regardless of the sophistication of the model. Before I stopped watching the news CNBC was blaming these mathematicians for creating the complicated investment instruments that led to the recent collapse – claiming that even the CEOs didn’t understand them. And it’s not the first time that too much trust has been put into the abilities of these whiz kids. The financial crisis of 1998 has also been blamed on overconfidence in mathematicians ability to predict speculative markets.
I have zero confidence in really smart people being able to predict speculative markets. I’ve never trusted mutual fund managers with my cash – instead always putting most non-angel investments into S&P 500 index funds.
However, this is a place where mathematicians can create vast wealth – and that’s in startups. The returns in online marketing are a lot more predictable than investment banking. By knowing the lifetime value of your users, you know exactly how much you can pay to acquire new users with an acceptable profit margin. As long as you don’t saturate a source, it generally delivers the same ROI with each campaign. The beauty is that a very small investment can give you excellent guidance for the returns of a much larger investment. Even with 7 figure monthly budgets, I’ve always insisted my teams test every new media with $5o0 buys. I’ve used this approach to discover ways to spend millions with a very fast return on investment.
At my last long term VP marketing role, my first hire was a trained actuary (the guys that calculate risk for insurance companies). And the marketers at two startups I’m working with now are both sharp mathematicians – one recently graduated from MIT with a math major.
I first witnessed the power of marketing number crunchers when I was at Uproar. In 2000 we acquired a startup called iWin. In a very short time they had created the second most popular casual game website in the world on cashflow positive results. Their secret weapon? Several math whizzes in their early 20s who had spent a year in investment banking before running the iWin marketing and product teams. They were so effective that they took over the marketing and product leadership at Uproar (I had already moved on to President of Uproar Europe).
The math behind viral marketing is even more intriguing. Read Andrew Chen’s Blog for the inside scoop on how it works. Viral Marketing has created some of the fastest growing companies in history and most have never spent a dime on marketing. And who is dominating the field of viral marketing? You guessed it – mathematicians.
Unlike investment banking where leverage increases both risk and reward, in online marketing leverage only increases the reward. The 12in6 Methodology is all about focusing on high leverage projects that improve the ROI of every future marketing initiative.
Looking to hire someone to lead your marketing? Hire one of the recently unemployed Wall Street analysts (and show them this post to get them excited about the potential of their new job).