What I Learned Losing A Million Dollars – Thoughts For Appreneurs

 “When I was a kid, my father told me there are two kinds of people in the world: smart people and wise people. Smart people learn from their mistakes and wise people learn from somebody else's mistakes.” – Jim Paul

I just finished reading Jim Paul's book What I Learned Losing a Millions Dollars. I highly recommend it.

The premise is that Jim, a very “successful” commodities and futures trader on the Chicago exchange, actually wasn't so successful after all. In fact, through the course of various ups and downs he managed to make over $250,000 in one day, then lose over $1M over a course of slow, agonizing losses.

The first half of the book is mostly stories. I'm willing to bet that a lot of you can relate to them – emotional roller coasters, highs and lows. The human, yet wildly inefficient place emotions have in business. He covers it all.

The second half of the book takes on a more economic feel, almost like reading a finance book. His words are not necessarily technical, but definitely appeal to the numbers side of the brain.

Here's what the takeaway from the book is: there are an infinite number of ways to MAKE money, but very few ways to LOSE money. When it comes to business, it is more important to understand why you're LOSING money than anything else.

In an industry typically dominated by explosiveness and speed, I think this is most relevant. I am guilty of this, using phrases like “crushing it” and “domination” all the time to show how fired up I am. Anyone who knows me understands that this is how I actually am, but what you probably don't see is the business side of Carter. The guy who creates iron strategies, sets forecasts, and cuts projects with little to no thought if they don't match criteria set by the cash flow projections.

Many of you are in this industry because of the opportunity. Some are in it because they like apps and building things. When it comes to growth, there really are no businesses with more upside than marketing businesses. It's ALWAYS focused on growth, on revenue, and the potential to get a project that “hits” and sends you millions.

You know what else has that profile? Casinos.

Burning Down The House

Burning Down The House

Here are the facts:

  1. Any game you play in a casino, for the most part, is fundamentally designed for you to lose.
  2. The longer you play any game, the more you will match the overall average payout. For example, the longer you play a slot machine, the closer your overall earnings match the Gaming Board approved payout (90%, for example). You will lose 10%. The wins and losses will eventually even out to -10% for you.
  3. THE ONLY WAY to beat the house is to have a plan that puts you in a winning position. Easier said than done, but the best blackjack players in the world, as an example, will never just sit down and play $50 hands. Why? Because the more hands you play, the closer you get to losing.

What big players do is bet big and bet early. They SETUP an environment where they have better odds – private table, negotiate rules, higher stakes – so that the payout is actually in their favor. This happens through knowing what is the absolute best course of action for a winning strategy.

Then, they walk in with an exact plan. If they lose $100K, they're done. Doesn't matter how “hot” the table is or how they feel. They leave and live to fight another day. Similarly, if they're up $100K, they leave. That's what their plan told them.

Ice cold. Emotionless. 

In an environment with high stakes, they NEED to stick to the plan. Otherwise they're going to get totally hosed over the long term.

Using This Strategy For Your App Business

If you've ever invested in the stock market, you've probably had this experience: buy some stock, watch it go up. So proud of yourself. You KNOW HOW TO PICK ‘EM. Watch stock go down. Convince yourself that it will eventually go up again because you pick winners. Surround yourself with information that reinforces that idea. Keep hoping and believing that some force will magically bring it back. Keep thinking you are smarter than the guys making $1M/year on Wall Street. No plan on when to sell.

End up losing more money than made. Realize that the “buy and hold” thing actually makes sense.

The exact same thing happens with apps. Almost all of us experience the process of getting drunk on possibility. “What if this one is THE ONE?? What if this one goes to the top?” You launch, it does what it does, and you're disappointed.

But, you invest another $1,000 and say “THIS IS THE UPDATE! YES!” and watch the market. Still small downloads.

“Well, I'm going to keep trying. If I believe it, the world will reward my faith.”

Unfortunately, this is business, and success happens in a lot of ways. But long term success happens when you have a solid plan and stick to it. And sometimes that means cutting your losses. Not everything can win.

Like I wrote about a while back – getting into a market is Goliath and you're David. It's not because of the app market specifically and it's not because it's not possible. It's because there are a lot of apps out there. It's how markets work. The “house odds” are against you.

More specifically, most appreneurs don't have a plan for their apps. I know I didn't for a very long time, I just “winged” it without following data. What if I asked you:

“If you launch, how many downloads does it need to get for you to make another reskin? How much money does it need to make? What do you do if it doesn't hit that number?”

And, even if that plan IS in place, would you still follow it?

Saying No Is the New Yes

stocks

This is the hardest part of running a business – knowing when to cut your losses. Admitting that you launched a dud is the WORST because you feel like you're a failure. You focus on the money you spent and feel like it was a total waste.

You look at the app that didn't do what your plan said it needed to, but you KNOW that if you just spend another $100 on it, it's going to take off. That's the shit that sinks businesses and it's the same mental process that creates gambling addicts. Convincing yourself that something exists in the short term in exchange for your long term goals. It's so easy to do, and even harder to stop.

The thing is, this is what business is. Losing money is part of the process – anyone who tells you otherwise is lying to you OR they just got lucky themselves. The key is that you have to CONTROL when you make those decisions.

If nothing else, realize these key points:

  • Making money with apps (especially reskins) is similar to trading stocks. Identify the source code with the best chances, set your low limit (when to stop working on it) and high limit (when to keep working on it) before you begin your project. If this particular project doesn't work out for you, that's just how it goes…but have a plan before you launch so that your emotions don't cloud your business acumen.
  • There is a HUGE difference between getting lucky and being good at business. I learned this the hard way. I thought I was hot shit when I first started because every app I uploaded killed it. Two years later I run things like a business and know that a lot of the apps I upload will not be winners, but at least now I can say “screw it” and focus on the ones the do win. (Note: this is NOT because of my budget, it's because of subscribing to this methodology).
  • Investing in education will always be your #1 ROI. Setting yourself up for a win starts early. Research, great codes, and good planning is a terrific way to maximize the number of codes that will be on the winning side of the equation. Just like the stock market – would you put your money into a company that someone told you is the hottest new stock, or are you going to look at their financial reports and research the people behind the company?
  • Be Patient. This is perhaps the hardest part of the app business. Saying no to apps you spent so much time and money is really hard, but it's vital to your success. You'll start to realize that you're spending a lot of time on projects that simply aren't making you money – they're just filling you with hope. Hope as no place in business.

Maybe the biggest lesson I've learned is that you're not going to become a millionaire overnight unless you get lucky. Making big money over the long haul requires a plan and strategy…because the “house” is against you the longer you play. You are much, much more likely to build wealth if you do it one step at a time. Take 6 months and try to break even. Then take 6 months and try to make $5,000 in pure profit. Grow from there. It's not sexy, but it works.

The longing and emotional desire to have some massive win is very dangerous in business because it's UNLIKELY. Starting small, laying down a lot of projects that have a huge chance of success (low cost, high quality tools, lots of research), and cutting the ones that don't meet the mark is the best way to build a business over the long term.

Lastly – this is not easy to do, but it's so incredibly important to build into your process. It is hard to sever ties with something you've invested both money and passion into, especially if it involves people. The good news is that if you can effectively do this, you will start to unlock more revenue and more profits than you ever dreamed of. Applying strategies like this to hot markets is as close as you can get to a guarantee for your 10 year plan. It's up to you.

 

Rock and roll,

Carter

 

 

 

 

 

COMMENTS

  • Godson September 23, 2014

    I find this piece invaluble, I’m not so into building apps but, i can apply this to my non tech related business I’m trying to build, thanks

  • Carter Thomas Carter Thomas September 23, 2014

    @Godson – Right on man. Glad you liked it. This stuff is definitely applicable to any business. The more emotional (read: growth oriented), the bigger the effects and the harder it is. All the best to you in your business! Send this to anyone else you think would benefit if you have a chance, hopefully we can help more peeps 🙂

  • Robert September 23, 2014

    I started growing my app business reading your post about app re-skinning. Even though was a lot of hate from people that spend their life “coding” useless things, I started doing what you were saying and guess what ? It worked, perfectly.

    I thing that if they start reading what you wrote in that article about re-skinning, they will start making money pretty fast.

    What you need to do when you go for the first time and try to hire a freelancer, try to be cheap, but efficient. Are a lot of people out there wanting to work for you.

  • Carter Thomas Carter Thomas September 23, 2014

    @Robert – Yes.

  • Jeff October 9, 2014

    Hey Carter, I really enjoy reading your blog posts… I can always relate so much to stories. I haven’t dabbled too much with re-skinning, but I do find that certain apps do much better than others… and a lot of time the app you think will dominate does worse than an app you thought wasn’t going to be very strong. Which is very similar to your stock market analogy… thanks again for sharing.

    Jeff

  • Iulian January 21, 2017

    I can relate to both sides of your story: I was a high stakes poker player in my youth and now a product manager at a small mobile development studio.

    Great post, however there’s one key point I disagree with you: you can’t beat the house (casino) without cheating in the long term, no matter the planning (see Phil Ivey current legal cases). However you can beat the app-store game with planning, hard work, a great product and a bit of luck!

    Cheers,
    Iulian

  • Carter Thomas Carter Thomas January 22, 2017

    @Lulian – very good points and I agree with you. Thanks for the comment!

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