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When I was younger, I enjoyed going out every now and then with my friends in Las Vegas, but premium clubs had table service that could cost up to $5,000 a night. After some thought, I devised a social hack: One night at a well-known club, I approached a group of well-dressed men that were getting table service. After a brief introduction, I mentioned I was there with some girlfriends. I then left the table, went to the dance floor and approached a group of women and asked them if they wanted to join us at our table. On the walk there, I asked their names and where they were from. After I was able to help both parties get acquainted, my friends and I were invited for free drinks the whole night.
Identifying the Spread
Why did this work? In finance, when a trade is made, there is an “ask” and a “bid.” The “ask” is the price the buyer pays. The bid is the price the seller receives. The ask price is always greater than the bid price, and the difference between the two prices is called the spread. Let’s say Apple stock is trading at $157.75. The bid price would be something like $157.60 and the ask price would be $157.85. Where does the difference in 25 cents go? The difference (the spread) ends up in the pocket of the broker. In the club, I created a market and then became a broker. The men wanted to meet women and were willing to offer a nice table and free drinks. The women presumably wanted to meet men and get free drinks. The men’s risk was the financial commitment and their return was an introduction to the women they were hoping to meet.
To create something from nothing, you need to identify the spread. Often times, we limit ourselves. In business, this translates to the buyer or seller of the deal. We think we can’t build a business because we need programmers and they cost money. We can’t get that superstar sales executive because we can’t afford to pay him. Always look for the “spread” and ask yourself what is it that people truly want. Furthermore, by understanding what they need by putting yourself in their shoes, you can found out how to offer value that is not necessarily monetary.
About two months after we beta-launched our company in 2012, our CTO left and we were left in limbo. We were on the verge of signing up more clients and he was the only person who knew how to program. We knew a prolonged absence of a programmer would force us to close shop. I brought up my dilemma to a good friend and he mentioned that his current startup was having a barbeque. He informed us that Zach, one of their star programmers, was resigning. He urged us to attend and I was able to pitch to Zach.
Zach had already run a couple startups before as the founding CTO, but he was tired of building product without a strong sales team. Superstar programmers want superstar sales executives. Although Zach was impressed with our sales pedigree, he wanted to be assured we weren’t putting up a verbal tap dance. After about three or four meetings with Zach over two weeks, he finally decided to start a trial for a couple of months. Zach’s addition meant a huge boost in technical talent.
In the meantime, I was working feverishly to sign up the historic Grand Lake Theater. However, because of the lack of product development, the theater was stalling the deal. The press didn’t want to cover anything until we signed a major theater. It seemed like a standstill was inevitable and we worried Zach would walk away. With so many stakeholders in the mix, I focused on each party’s needs. Zach wanted sales competence; the media wanted an interesting article; the theatre wanted an improved product. I put on my nightclub broker hat: I pitched Zach the advantages of closing a deal with the theater. To the theater, I pitched that a press release and the addition of Zach on our technology team would boost sales. To the media, I pitched how the partnership with the theater would intrigue readership since we offered discounted movie deals.
Just like that night at the nightclub, by pitching according to each stakeholder’s interests, within a few weeks, we went from nothing to something with no financial commitment. Zach built out a new website, the theater partnered with us, and we were featured not only in The Oakland Tribune but also on the local CNBC news. All this was possible because we identified the spread. This my friend, is essentially the art of creating something from nothing.