The Opportunist Advantage


While continuing my search for the best ways to Win Financial Freedom by Building Ownership, one was right under my nose this whole time. In fact, it's always there.


The Power of Invention


One of the struggles many people run up against when building ownership is the pace. As I've shown in the 7th Golden Milestone, you can steadily build diversified business ownership and let some of the best entrepreneurs in the world manage it by simply investing in a low-cost index mutual fund. The downside is that this takes time, patience, and the discipline to save money to invest.


You might think, why not go into business for myself? I can be my own boss, have ownership of the business, and position myself to create the next unicorn. While you can, and this is another good way to build ownership, building a business is difficult unless you have something revolutionary and of value to bring to the world. Most new businesses fail over time.


My experiment of running this blog has showed me that the free market business world of blogging is zero-sum when it comes to readership. To win in any market, you must grab market share of a sector or niche right at the beginning of a wave of popularity. As an example, see how "side hustle" gained popularity. One personal finance blog specializing in side hustles used clickbait-style headlines, bite-sized articles, social media's exponential sharing power, and affiliate marketing to grow into a $50 million-a-year business which was purchased for $102.5 million in 2020.


The blog in my example was started in 2010. This is how you enter and conquer a niche market. In 2004, the most looked-up word of the year on the Merriam-Webster online dictionary was “blog” as it rode the peak of a wave of popularity and discovery. By 2010, you couldn't profit in established markets (fitness, health, personal finance, etc.). However, nobody had focused on the resurgent term "side hustles" in the wake of the financial crisis, which was a huge catalyst for people searching for ways to replace lost income.


This branch of personal finance filled a need, but it takes a person who is opportunistic enough to capitalize on the momentum and the need. In this case, the blogger happened to specialize in side hustles, noticed the high demand, gave the internet more of exactly what it wanted and continually published new content geared toward social media engagement and search algorithms while reinvesting in the design, recruitment, and marketing strategy of the website to funnel users into their social media and email lists. At the same time, being early adopters of new sharing features rolled out on social media sites allowed them to feed the momentum with exponential growth.


The Economy of YouTube


There are many well-known examples of market and niche-market conquering on YouTube, which resulted in hobbyists finding themselves in the pole position of a entire market sector.


YouTube as a platform only existed officially since December 15, 2005 and originally limited clips to 30 seconds of footage. YouTube itself only had one video-sharing competitor, Vimeo. However, as you can see from these snapshots on that day, Vimeo's home page was a sign-up page, offering itself as a video service to embeg in your blog, while YouTube offered a splashy front screen with viral videos, contests, and giveaways. People wanted viral videos, and YouTube gave the internet what it wanted. The concept democratized video in a way that most didn't understand at the outset.


At the time, most people thought YouTube was a silly child's game, like most other video sites on the web during that time (such as eBaum's World or CollegeHumor). While internet videos were nothing new, video-sharing was revolutionary, and only two websites were doing it. It took a gigantic amount of funding and technology support from Google while the platform pushed to scale past it's loss-making years until it grew to 2 billion users today. Could anyone have foreseen that? You only would if you knew Google was growing into a powerful monopoly with monetization methods already well-adapted from its search engine results.


Felix Kjellberg, a.k.a. PewDiePie in the video gaming sector, found himself atop the fast-growing video games category of YouTube when the platform permitted videos to be monetized with pre-roll ads in November 2008. Felix joined YouTube on December 19, 2006 and was creating videos at a time when the platform offered no money or incentives in return. At the time, his competition was a handful of other hobbyist users. While recording gameplay was an easy way to mass-produce content at no cost, it's also a copyright violation if games companies care to enforce them. This legal gray area caused gaming video-sharing (and later, streaming like Twitch) sites to explode because they elected to defer copyrighting issue responsibility on the users, while law-abiding mainstream TV could not compete.


At over 100 million subscribers, is his content 100,000 times as valuable as someone with 1,000 subscribers? This is an example of an algorithm-fueled winner takes all economy. While he has amassed almost 15 years of experience, with a now-gigantic userbase to compete against, inevitably there are many who have surpassed him in his sector as the market became saturated. However, YouTube ranks its suggestions and search results on the momentum of new, popular videos. With more subscribers, he gets a stronger launch and more promoted videos from YouTube. It's self-reinforcing and extremely difficult to dethrone someone once they have taken the top of a popularity-based algorithm for their sector.


Invention follows exactly the same pattern. If you invent something that grabs the public consciousness and do it earlier than anyone else, you can become the only 'expert' for the niche and gain a massive following before anyone else can try and overtake you.


For newer, popular online video platforms, such as TikTok, this pattern repeats itself. Children, living under the security of their parent's income, can 'win the TikTok lottery' and become millionaire entrepreneurs because they have the opportunity to jump on a trend to build their own brand into 'influencers' while the platform explodes in popularity. Parents are even raising their children with their own social media brand to piggyback off their popularity and handing it down as a legacy gift for their children, as social media aristocrats.


What You Don't See


What people don't see are the untold, often unpaid hours of people pouring their time and energy into early versions of sites or apps that don't catch on, languish in obscurity, or are eclipsed by other products because of crushing competition (MySpace and Vine being good examples), or can't keep pace with technology. The same is true of any business.


Invention Takes Time


Can you break into an established market? You can, but your invention must be a revolutionary step forward and you face the prospect of having the incumbents copy your offering even if you have patent protection, since they know they have more money to tie you up in expensive litigation.


After 5,127 prototypes, Sir James Dyson invented the bagless, cyclonic vacuum and first tried to license the new technology to existing vacuum manufacturers. Every single large manufacturer brushed him off because of a defensive attitude toward their own product and because they wanted to keep their cash cow of selling vacuum bags to consumers.


Dyson had his Eureka moment for the cyclonic vacuum at the age of 31. Eventually, after manufacturers violated his patent protection, lawsuits, and struggles to negotiate and collect royalties, he was 45 by the time he created the first marketable vacuum of his own. That included 10 full years of research and development, and he hadn't even yet started his own business to manufacture it and try to convince retailers to sell it.


Established products like this tend to have high barriers to entry. Even his vaccum with multiple revolutionary advances took that long to bring to market and it takes determination to believe in your own product through the grueling process of establishing a foothold. I highly recommend reading Dyson's book, Against the Odds, for an inside look.


The Winklevii Opportunists


The Winklevoss Twins, Mark Zuckerberg's nemeses in the movie The Social Network, found out about Bitcoin from early Bitcoin evangelists in 2012. This was when Bitcoin was only known in obscure corners of the internet and was trading at around $7. No merchants accepted it, and no major journalists covered it. It was in an embryonic state that, as economics majors at Harvard, they both recognized as being technologically similar to social networks in their infancy, yet passed the basic tests of a functioning currency.


The technology was awkward to use and surrounded by hackers taking advantage of weak security on early exchanges such as Mt. Gox, which was later hacked to the amount of 850,000 Bitcoins. However, after spending a lot of time on due diligence in understanding blockchains, mining, and other new concepts by speaking with early proponents of the technology, they were able to not only see the potential rewards, but more importantly, the potential risks.


With a lot of capital on hand from their litigation settlement against Facebook (also depicted in The Social Network), they started buying Bitcoin heavily. While they bought significant amounts of Bitcoin from Mt. Gox, they understood the technology well enough to avoid keeping any of their holdings on the exchange. Instead, they decided to spread their private keys among slips of paper in multiple safe-deposit boxes. Interestingly, that's the approach now taken by the largest cryptocurrency exchange, Coinbase, whose website states that "Drives and paper backups are distributed geographically in safe deposit boxes and vaults around the world."


Both of the Winklevoss twins fortunes have swung wildly with the high volatility of Bitcoin, but as of today, after investing roughly $11 million of their $65 million settlement from Facebook, they are multi-billionaires...each. Notice that they only invested about 16.8% of their windfall and left more than enough to retire on conventionally many times over. Not putting all your eggs in one basket is a fundamental of investing (diversification), but especially so if you're investing in emerging technologies.


While it's debatable as to the long-term value and utility of Bitcoin, everyone can agree that they wish they had the foresight to buy into Bitcoin while it was $7 with their "gambling money." Its revolutionary invention was to be the first cryptocurrency with an incentive system in the form of mining, using Bitcoin to "print its own money" for the huge cost of energy consumption required to maintain the blockchain.


Can ordinary people like us be opportunists like the Winklevoss twins? Fortunately, because of the internet, we can. Bitcoin was first featured in the social news website Slashdot as early as 2010. If you're a technology enthusiast, one of the best places to find emerging technologies is user-curated research on underground blogs such as Slashdot.


Notice that the Winklevoss twins did not get rich by investing in the 185th cryptocurrency Bitcoin clone, or by investing at the peak of the frenzy in 2017. They invested in 2012, at the embryonic stage of the very first revolutionary invention.


Idea Person vs Baker's Apprentice


The financier/philosopher Nicholas Nassim Taleb is famous for his discussion on the challenges of being a baker. His argument contains this passage, from his book The Black Swan:


J. K. Rowling, the author of the Harry Potter books, does not have to write each book again every time someone wants to read it. But this is not so for a baker: he needs to bake every single piece of bread in order to satisfy each additional customer.


How does he recommend you escape a profession that cannot "scale up" if you are successful, as he describes it? He says it's to get a global audience and get paid for thinking as an 'idea person', not working . I'll go a bit further and add in the Ownership aspect. If you are a baker's apprentice, you don't know much yet, and you don't own anything. You don't have much time to think, because you're getting up at 3 a.m. and toiling in a kitchen 60-70 hours a week.


By all standards, the baker's apprentice is a hard worker, but it's difficult to create any wealth in this position. To move up, it takes a high level of skill to open your own bakery, then management skills to run your own business. How does a baker accomplish this? Pietro and Piera Ferraro did just that by starting with a pastry shop in the small town of Alba in Italy. The Ferraro family transformed this into what is now €12.3 billion in products sold in 170 countries during 2020.


How? It started with creating what is now Nutella. Pietro was not afraid to experiment with any ingredients they could get their hands on in the scarcity of post-WWII Italy. When they found that hazelnut oil, coconut butter, sugar, and cocoa made a pleasant-tasting and popular paste which was cheaper to make and sell than chocolate itself, they created a company and factory to keep up with the increasing demand.


Over the next 20 years, the Ferraro family tweaked and improved the original recipe and rebranded from a loaf called 'Giandujot' to 'Supercrema' to 'Nutella'. Nutella was now inexpensive, did not require refrigeration, and was branded for a global audience. Is that a good thing? On one hand, the modern incarnation might be considered as a portable, non-perishable, cheap, sugary, glorified donut, little better than carbonated beverages in terms of actual nutrition. However, it does present us with an example of taking the position of baker and maximizing it through the revolutionary food science ideas (in the 1950s) of using oil additives to stabilize the spread which could be mass-produced in factories. For better or worse, this tactic was used by all major food conglomorates. While they fed more people at a lower cost, it also introduced more obesity.


There are other great examples of maximizing the position of baker, such as Panera Bread. One of its predecessors exploded from a single bakery in Kirkwood in 1987 to over 2,000 locations today. It took fast food and rode an emerging sector of premium 'fast casual' dining to become the best performing restaurant stock in 20 years from 1997 to 2017, rising 86-fold from 1997 to 2017. Look at other fast casual stocks like Starbucks and Chipotle and you see the same story.


The bakery's origins were traditional 18-hour workdays using a west coast sourdough recipe, which was part of a 1980's artisal bread wave of popularity. It launched into the stratosphere in the 90's by franchising the business and using regional 'fresh dough facilities' to create high-quality organic dough which was refrigerated and delivered via refrigerated trucks to franchisees, where it was then baked on-site. This gave this a strong supply-chain advantage which permitted the franchising concept to work.


In a Forbes interview in 2019, the longtime former CEO of Panera, Ron Shaich, said creating a successful brand required building competitive advantage. He added, "you need to figure out today what’s going to matter tomorrow. The world doesn’t pay any of us to do what everybody else is doing. It pays us to figure out where the world is headed and to be there when everyone arrives."


It used to be that fast food was its own sector, but the catalyst for the fast casual revolution was that rising prosperity had reached a point in the US, nationwide, where consumers who wanted to go out to eat, quickly, could also afford to eat consciously and was willing to pay a premium over low-cost fast food to do so. This paralleled other premium sector gains by grocery stores such as Whole Foods.


Prosperity Shifts


To visualize this gain in prosperity, which is causing many shifts in preferences like this due to increases in productivity from technology over time, see this chart of GDP per capita in England over several centuries. When civilization progressed from a mostly agriculture-driven economy to the industrial revolution, prosperity began increasing exponentially. While we traded horses for the automobile some time ago, we are still making increased-prosperity decisions over time, with premium fast food and premium grocery stores on a large scale as just a couple of examples.


For example, since the iPhone was introduced in 2007, this created a new thriving sector of micro-computing. While PDAs and phones were around for a while, this was the first time somebody had merged it in a revolutionary way using a touchscreen and intuitive OS design. Fast-forward to today, and in developed countries, even those in poverty, own smartphones because they've become cheaper and indispensible.


Golden Rules of Invention


I've distilled everything I've learned from biographies and my own experience into a set of golden rules which can help us invent our way to financial freedom. Think of any others? Let me know!


  1. What you're offering must be a revolutionary step forward to create value for others.

  2. Invention is as much luck as it is skill. Opportunists know this, and so they increase their odds by experimenting new things over and over again until they strike gold.

  3. If you want to be a global leader in an emerging sector or niche, you will have to be one of less than five people in the world who are experts in it.

  4. Your timing must be perfect. Look for a catalyst that permits everyone to access a market that was previously restricted to them. The best ideas catch fire quickly.

  5. What you create must be practical and useful, typically saving time or earning money.

  6. Use momentum for you by investing in sectors which benefits from underlying shifts or prosperity gains in the economy. For example, the shift from reading print news and magazines to reading online.

  7. Don't chase opportunities in a dying sector or waste time creating clones of established products, or momentum will work against you.

  8. Don't waste your time trying to learn or take advice from people who achieved success through luck. This is like trying to learn how to make money from people who won the lottery.

  9. You can't be just the first. You have to be the first to do it right.


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