Arbitrage is the core of profitable business: buy for $20, sell for $50. The fastest way to grow is giving customers tools to create their own arbitrage, like HubSpot lets businesses earn more revenue than they pay for the software. The Chicago Bulls monetized Michael Jordan's talent at a higher rate than his salary.
I wanted to share with you a little inside secret that very few people really understand truly about business. And in one word, that word is arbitrage. Let me explain what I mean. So when you are in business, the whole idea is that you make more money on the output of your inputs. So for example, You hire people for your company, you pay them $20, you sell their services for $50, you just made $30. In product terms, if you buy a Coca-Cola for a dollar and you sell it for $2, you just made a dollar profit. That is the basis of business. And so as you think about ways to grow your company, If you think about your customer and give them a way to create arbitrage for their business, now you're starting to think like a really world-class operator because you are providing them tools upon which they can create arbitrage for their own business. This is how much of SaaS software businesses work, right? So let's take, I don't know, HubSpot, right? Yeah. Right? They keep adding features, understand who's visiting my site, build a website. You pay them maybe $100 to a couple grand a month. And you do that because your business believes that you will make money on top of that. It's the same reason that companies hire employees. It's the same reason that the Chicago Bulls hired Michael Jordan is because they could sell his skills For more via ticket sales, merchandise— hello Nike— than he cost. So that is the game. And the more you can think about arbitrage, like further steps down the field, the better you can get. So if you're a business, you provide a service to business, how can your service give them the ability to create more money? Then for them, how can they sell products or services to consumers that allow them to earn money, not save money like Walmart and all the discount retailers. Saving money is a cost reduction mechanism. But ultimately, if you can figure out a way for businesses and consumers to earn money because of your product or service, wow, that's pretty cool. So, like physicists used to say, it's turtles all the way down. In the business world, it's arbitrage all the way down or up depending on your perspective. Alrighty, have a great day. Toodles!
