Two pieces of startling news to consider when thinking about how money is really made in our brand-driven 21st century economy:
1. James Cameron's 3-D beyond blockbuster "Avatar" - reported by the New York Times' Michael Cieply to have a total budget - production and marketing - in excess of $500 million!
Director Cameron, of Titanic, is blowing away ALL movie cost records here. To give a feel of the size of the bet that Cameron, Fox, and private equity partners Dune Entertainment and Ingenious Media, are taking on the film, Avatar may have to become one of the top-twenty grossing movies of ALL time just to break-even!
2. Ms. Kim Kardashian, kindly described by Wikipedia as "an American celebutante, socialite, model, actress, businesswoman, and television personality" is the 8th most followed person on Twitter. She trails only Ashton Kutcher, Britney Spears, Ellen Degeneres, Oprah Winfrey, and oh yes, the President of the United States.
This is relevant only because, whatever you think about the quality/lines of work and political leanings of others on the list, at least they have actually DONE SOMETHING to become famous.
Ms. Kardashian, for all of her obvious charms, is that particular modern phenomenon of seemingly being famous because she is, well, famous.
So You Say - So What?
Well, as any regular followers of mine can attest, at the core of my belief system and the Growthink investment strategy is the The Black Swan.
Popularized by the great Lebanese thinker and writer Nicholas Taleb in his New York Times bestseller of the same name, the idea of the black swan comes from the Enlightenment in Europe to describe a logical fallacy. In the 17th century, Europeans assumed that 'All swans must be white," because they had never seen a Black Swan. In the 18th Century, black swans were discovered in Australia.
The logicians of the time - most prominently John Stuart Mill- associated the term "Black Swan" to the concept that a "previously perceived impossibility may actually come to pass."
Taleb describes it best:
"What we call here a Black Swan (and capitalize it) is an event with the following three attributes. First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable."
Taleb continues, "I stop and summarize the triplet: rarity, extreme impact, and retrospective (though not prospective) predictability. A small number of Black Swans explain almost everything in our world, from the success of ideas and religions, to the dynamics of historical events, to elements of our own personal lives."
Bringing it to November 2009, man who would have thought that a) a movie featuring a love story between 2 ten-foot tall blue aliens and b) a 29-year old actress with no major film or television credits or awards would have far more brand and marketing dollars and reach behind them than every single technology startup in the United States combined?
The answer: Nobody. And more importantly, the phenomenons of Avatar and Ms. Khardashian CANNOT - I repeat CANNOT - be retroactively analyzed for guidance as to what the next new thing will be. As Kim might say - "just don't go there."
So the true Black Swan acolyte does not look for guidance from past, outlier events, he or she does seek lessons. Here are three:
1) Everybody loves to place on a pedestal (and I put myself in this category for sure) the "pure" paths to entrepreneurial riches. It goes like this: Have a great idea, start a company, have venture capitalists back you, build the business with blood, sweat, tears, and brilliance, go IPO, be featured on the cover of Fortune, and everyone lives happily ever after.
It is what getting rich in America SHOULD be about. But the statistics tell a far different story.
Think about the size of Avatar's reach - a $300 million production budget? $200 million for marketing? There probably aren't 10 technology startups in the whole world with these kinds of numbers behind them.
And the nice thing about a movie versus a startup is that you can usually find out in real-time if you have something. Don't you think the VC's with their full portfolios of "waking dead" startups would like to find out as Fox will with Avatar, in like 2 weeks, if they have something?
2) "Vanilla" investment in business models, in corporations, LLCs and the like, are almost passing into the realm of quaintness. I come back to my good friend Rafe Furst and his brilliant idea of the personal investment contract.
Investing in any one of Ms. Kardashian's various companies (perfume, clothing, DVD projects) is highly risky and on the surface, not all that attractive. But being able to invest in the Kim Khardasian personality brand itself - with her top 1,000 website and 2.8 million Twitter followers (put this in perspective - Jim Kramer's Mad Money gets about 300,000 viewers/day) - is a sure-fire moneymaker.
3) Bet on the Unexpected. Check your ego firmly at the door when evaluating business models and investment strategies. Accept that you (and everyone) for that matter KNOWS NOTHING about what the future will hold other than the fact that we don't know what the future will hold.
That is philosophy - here is money-making: The big, big outlier events - the 1,000 to 1 shots and beyond - are always, always, always, UNDER-PRICED in the marketplace.
Bet on them.