Arbitrage vs. Alchemy
Subscriber Nick Neilson defines the two fundamental approaches to business as:
Arbitrage vs. Alchemy
Arbitrage means: Making the transaction happen a little more efficiently, a little more effectively. Shaving a few or a lot of pennies out of the deal. Getting more traffic for less money, sourcing the product at lower cost. Beating the competition in the apples vs. apples comparison.
Alchemy means: Creating value where none existed before. Converting low-value commodities into high-value assets. Turning lead into gold. Transforming desert sand into Pentium chips. Winning by creating an apples vs. oranges comparison.
Arbitrage has its place in the world, but victory ultimately belongs to the alchemists. Arbitragers are ALWAYS watching their back. Alchemists are always looking ahead.
The highest aspiration you can have in business is to be an alchemist.
My experience is that alchemy is something you master by being in the company of other alchemists. It’s an apprenticeship, not a college course or textbook.
Forgive me if this sounds mystical, but it’s almost more like a vibe that permeates a room full of alchemists and catches fire deep within, than it is like a process that someone sits down and explains to you.
One of the most interesting things I’ve seen in reading history is the impact of personality behind even things as seemingly logical and impersonal as “science.” You can read about the theories and accomplishments of people like Albert Einstein and Neils Bohr and Mr. Schroedinger and his poor indecisive cat. And if you’re a geek like me, their ideas really are interesting.
But if you read the stories what comes through more powerfully than anything is the FORCE of their personalities. I am convinced that the ideas themselves flowed from their personality and their very will to re-shape the world.
Last month I had a four man intensive and one company in attendance was a company who’s decidedly in the arbitrage business. They buy and sell transportation. A tough, hyper-competitive business.
They came because they knew we do some kind of magic over here, and they figured I would sprinkle some fairy dust on their Google campaigns or something like that.
What actually happened was surprising, unexpected.
Before we sat down to re-write the first Google ad I spent 2 1/2 hours grilling him about the inner workings of his business, his margins, the kinds of customers he has, the kinds of transactions he conducts. We tore it apart and put it back together.
In that time I completely re-oriented the way that he sees his business and identified some previously invisible profit pockets.
We re-examined what he delivers to his customers and developed a way that he could truly “sell results, not procedures.”
It was a completely head-twisting experience, and it was a blast. At lunch time he was shaking his head in disbelief, and marveling at how much there was to see that he had never seen before.
I am firmly convinced that this kind of alchemy ability cannot be fully transferred from one person to another without us physically being together in the same room.
Again, call me mystical but some things are more caught than taught. It’s as though there’s a vibration in the air that you begin to resonate with. I think almost everyone has had that experience at one time or another. It’s one thing to watch the playoffs on TV. It’s another thing entirely to be in the stadium.
Now of course the first step towards being an alchemist instead of merely an arbitrager is recognizing the difference. And there is much you can learn by reading or listening from wherever you are. But I have always made it a habit to be a member of an alchemist’s club and to be catching that vibe in-person from other people.
I create just such an environment for my Roundtable members.
Next Roundtable meeting is mid-October in Chicago and the on-ramp to Roundtable is the 2-day, 4-man intensive which is held in my home office. The next Intensive is August 26-27 and I have 2 seats left. In a span of 2 days we WILL perform alchemy on your business and it will have improved before you even go home.
Get details and apply here:
Perry Marshall
About the Author
Entrepreneur Magazine says: "Perry Marshall is the #1 author and world's most-quoted consultant on Google Advertising. He has helped over 100,000 advertisers save literally billions of dollars in Adwords stupidity tax."
He is referenced across the Internet and by The Washington Post, USA Today, and the Chicago Tribune.
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Perry,
Here’s the matrix I came up with sitting at Dateland Cafe in Yuma, AZ eating a Date flavored milkshake – not good by the way.
THIS GETS WAY SPACY AND MYSTICAL –
ARBITRAGE
exclusionary oppositions like 1′s & 0′s.
opposites are opposites.
ALCHEMY
complimentary oppositions like yin & yang.
opposites are reflections
ARBITRAGE
exploiting an imbalance in market.
ALCHEMY
turning seeming commodities in to precious metals (Dan would say creating value out of thin air.)
ARBITRAGE
driven by leverage. having command (usually temporarily) of a market force that carries its own innate influence.
ALCHEMY
driven by passion. sharing or transmitting a unifying story through a community. carrying your own influence by focusing a market’s desire.
Here’s what I think is the ironic kicker:
ARBITRAGE
driven by intellect or your capacity to absorb and retain principles; judged by both rate & volume.
ALCHEMY
driven by diligence or the study and application of principles at a rate & volume corresponding to your max intellect.
I think that’s a kicker because a lot of people say things like “I’m really smart, I’m honest, I have a lot of passion, and I know I have a lot to offer the world. I just need someone to help me get started.”
That’s all great, but usually that person is looking for someone to give them a tool or secret formula – something that will give them an arbitrage opportunity. Hopefully one that is super easy, super lucrative, and lasts forever.
Do you have one of those Perry? More importantly, do you have like a shed full of extras that you’re giving out?
It’s not the intellect that drives alchemy, it’s diligence. Not necessarily plodding digging ditches type of diligence. It’s just the process of becoming a craftsman. How do you become a craftsman, but joining a guild and learning from the masters.
I fully agree that we have become text book – academic society. Google is the ultimate card catalog and it’s even got a librarianbot that can make some sweet recommendations for your topic.
But, money still gets made when people sit behind closed doors. The good old boy’s club still exists, it’s just now full of women, teenagers, immigrants, school teachers, surfers, etc.
And to end it, what do we become craftsman of Perry? “One way of getting traffic” and “one way of converting it” right?
Anyway, sweet post.
Perry,
I think alchemy comes down to your ability to see the world differently than other people do.
Instead of seeing what is, you see what can be…
Instead of seeing limits, you see choices that are already made for you (fewer choices YOU have to make)…
And instead of using the energy that is stored in things that already ARE, you can redirect and recombine that energy to create things that shouldn’t be possible.
In the end, arbitrage is work and a rat race in disguise.
Alchemy, on the other hand, is probably the best way I know to travel through this thing called life.
The efficiencies of Internet search makes arbitrage businesses harder and harder to float in our age.
Entrepenurial success requires businesses based on alchemy these days. Everyone carving their profitable space has to deliver unique value and reinvent the wheel in some small way.
My favorite term for this is “disruptive innovation” (which I borrow from Scott Mcleod) – those two words nail what you need to create longstanding money making endeavors these days.
And I agree that a combination of smarts and diligence (and the luck of being in the right place at the right time, with your eyes open) is required to find lasting success.