I saw billionaire Wilbur Ross, Jr. on Charlie Rose tonight, and something he said struck me like a thunder bolt. He talked about how his holding company bought bankrupt Cleveland steelmaker LTV for cents on a dollar, and later sold it for billions in profits.
He shared his secrets during the interview:
“We’re in the business not so much of being contrarians, deliberately, but rather we’d like to take perceived risks instead of actual risks. And what I mean by that is that you get paid for taking the risk that people think is risky. You don’t particularly get paid for taking actual risks… We basically spent $90 million for assets on which LTV had spent $2.5 billion in the prior 5 years. And our assessment of the values was that if worse came to worse we could knock it down and sell it to the Chinese. Then we also bought accounts receivable and inventory for 50 cents on the dollar. So between the combination of things, we frankly felt we had no risk…The joke was right when everybody was saying this was too risky, it will never work, the big debate within our shop was should we just liquidate it and take the profit, or should we try to start it up. That’s how sure we were that we weren’t actually taking risk.”
What does this have to do with marketing success? Well, too often people assume that successful people take big risks. Actually, more often they do everything they can to mitigate unnecessary risk. Then, once they have done everything they can to cut their risks, they are willing to step up to the plate and try.
That is why direct response marketing principles appeal so much to me. Start with an honest assessment, learn from the experience of others before you, invest a limited amount, test, track and adjust, and then roll out if your marketing hypothesis turns out to be correct. If you guessed wrong, cut your losses, regroup, and try something else. Eventually, you’ll find a formula for success.
I remember being in Las Vegas with a now deceased friend of mine who was a high stakes poker player and businessman. He put down $15,000 to open in blackjack, while I put down $250. He had money to burn so for him it was fun.
However, for me, I told him that while I am happy to invest thousands on a marketing idea that can work, I can’t do it while gambling. The difference is that even if he had a good night, the next night he would still have to start at zero.
On the other hand, once I invest in a marketing strategy, it will either work or not. If not, I stop right away. But if it does work, it will bear fruit oftentimes for years, sometimes for decades.
So as you think about marketing, remember to follow the principles of learning from the experience of others before you, invest a little after you have done everything you can to mitigate risks, then “double down” if successful.
So let the other guy either freeze out of fear about marketing or blow it all in risky endeavors.
Your goal will be to take risks that are either zero or limited – and capitalize big time when your assumptions turn out to be right.