In financial markets, in gambling, and even in entrepreneurship, there are two skills that are critical for success: making small bets consistently through developing a model (buying) and breaking an old model (selling), and building an anti-fragile machine that can withstand the shock of either of those small bets failing.
Arbitrage is the process of hedging bets (through the purchase and the sale of an asset) so that, no matter how much is spent, the buyer/seller can always either come out ahead, slightly behind (not enough to be far back, but enough to catch up), or slightly ahead (building a continuous lead). Hedge fund managers and stock traders with fancy algorithms understand arbitrage. So do insurance agents, financial advisors, professional gamblers, and even entrepreneurs.
Many people though, make bad large bets (thus financial collapses and the development of ‘flash’ trading via fancy computer programs) and take massive losses with little to no gains. This is due primarily to ego driven betting that has nothing to do with market conditions, and everything to do with personal psychological and emotional tics. The most successful people bet small, bet consistently—or they don’t bet at all.
Day by day, step by step, entrepreneurs should be building a machine in their unique niche that will arbitrage against their unique market. One that will allow them to see opportunities, take advantage of them, and not lose their livelihoods, their families, or their peace of mind. This does not have to be a stressful process, but it does have to be done.
When the entrepreneur makes those small bets they don’t become business people (business is about maintaining a consistent place in one spot with gradual upticks in growth, rather than about advancing a model) instead, they become evangelists for a new way of doing things. In whatever field they’re in, they begin to make bets that will fundamentally breakdown the model they saw as problematic (which lead them to entrepreneurship in the first place) and will replace it with a new model.
Customers, clients, and others don’t have to know what model the entrepreneur is building. As a matter of fact, they don’t really care. But the entrepreneur should care. Otherwise, freelance work is always an option.
-Peace Be With You All-
Jesan Sorrells, MA
Principal Conflict Engagement Consultant
Human Services Consulting and Training (HSCT)
Email HSCT: firstname.lastname@example.org