Are you finding arbitrage or building arbitrage?

How can you create better opportunities for your business without burning out through taking advantage of arbitrage?

Hi friends,

I recommend these pieces to give this article more context.

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When I first started building my career in earnest, Gary Vee was using the term “attention arbitrage” to explain what people needed to be concerned with in the then-nascent creator economy.

Attention arbitrage, a concept both simple and powerful, is becoming an essential tool in the toolbox of modern marketers.

This article explores how attention arbitrage is applied in different contexts and how it can be used by SMEs to create value and meaningfully connect with their customers.

The term "Arbitrage" is often associated with the financial world, where it involves taking advantage of a price difference on a financial product across different markets to create additional financial value. -Marc Lounis

I’ll be honest, every time I heard that term for years my teeth started gnashing together.

That said…he was right, and I hate that he was right. Since sucking it up and accepting he was right, though, I’ve identified two ways authors can use arbitrage in their own business. It’s completely revolutionized how I think about my own efforts.

Let’s step back for a minute and talk about the way I define arbitrage. I define arbitrage as the difference, or delta, between supply and demand. When there is more demand than supply, then there is an arbitrage opportunity. Here are some examples of arbitrage as I would define it:

• A classic example in fintech is when you buy a stock at $.90 and flip around to sell it for $1.00. That $.10 difference is arbitrage.

• Similarly, often people buy products from a company like Costco or Trader Joe’s for a 25-50% markup. That markup is arbitrage.

• When looking at authors, one classic example is K-lytics. Their entire business model is about showing authors emerging categories where the demand for a type of book exceeds the supply of them. The difference between demand and supply is arbitrage.

All three of those are classic arbitrage examples, but do you see the similarity between them? They all deal with finding existing arbitrage.

Each case above requires somebody to study data and find the gaps in the market where arbitrage exists. This is how a certain subset of authors, we call them Deserts, operate naturally. They can identify an area where readers are almost frothing at the mouth for new books, write books for that market quickly to satisfy their needs, drop a book into that frenzied market, and use that excitement to profit.

Simply by existing these books succeed. They don’t need an audience. They don’t need a popular author. They just need the audience to know about them and they’ll gobble it up.

That’s great in the short term, but there is a huge problem with it, too. Namely, if you find that arbitrage, somebody else will as well. The minute you find that opportunity, the clock is ticking before everyone else starts exploiting it too, and that arbitrage dries up.

If you’ve ever been around authors who talk about how their books are not performing as well, their ads are not profitable anymore, or they need to hop genres because it’s too crowded, in 99 out of 100 cases they are feeling the squeeze of arbitrage drying up.

If an author finds a category that can support 1,000 books and there are only 100, that’s a great arbitrage opportunity. However, what happens when more authors find that opportunity, and now there are 2,000 books in that category?

That’s when you get more expensive ads, fewer readers clamoring for your book, longer waits for readers to find and read your book, and a whole slew of headaches that revolve around that arbitrage drying up. Once that happens your only choice is to find another arbitrage opportunity, rinse and repeat forever, right?

That sounds exhausting, frankly. What if there was another way, though? This whole time we’ve been talking about finding arbitrage, but we can also create arbitrage for ourselves, and it provides a huge opportunity for writers.

Neil Gaiman, Stephen King, Tim Ferris, Joyce Carol Oats, Nora Roberts, Elizabeth Gilbert…these are writers who never have to find arbitrage because they spent an inordinate amount of time building their own names, creating their own categories, and separating themselves from the pack.

Yes, you could define each one within a primary genre, but they are so much more than that as well. Tim Ferris wrote a book on outsourcing, cooking, healthy living, and a coffee table book with advice from industry leaders. Sure he’s in the personal development category, but he’s really in the Tim Ferris category.

Stephen King mostly writes horror, but he also wrote The Green Mile and Fairy Tale. Again, he’s a category of one.

Building your own arbitrage is the best opportunity for sustainability because the supply of you is one and if demand for your work grows over time more people will spend more money on it.

While Deserts, and to a lesser extent Tundras, excelled at the last phase of the indie publishing journey, Grasslands, Forests, and Aquatics are primed to excel at the next phase of the self-publishing journey because they are all about separating themselves from the pack and creating their own arbitrage.

• Grasslands like

  Monica Leonelle
  , Terry Pratchett, Cassandra Clare, or George R.R. Martin who write long, in-depth series and know their topic better than anyone.

• Forests like Stephen King, Brandon Sanderson, Neil Gaiman, or Colleen Hoover who create a shared language and community for their readers to thrive through exploring common themes across their work.

• Aquatics like Stephanie Meyer, Stan Lee, and George Lucas delight readers with different formats and experiences that allow them to get lost in their rich universes.

As a Tundra I’ve had to completely revamp my business in the past year to become more “flywheel” than “pump” because the way I’ve been doing things for years became exhausting and unsustainable.

In business, the "pump" and "flywheel" models represent two distinct approaches to growth and operations. The pump model requires continuous and often significant input or effort to produce results, similar to a manual pump needing constant operation to move water. It's characterized by direct actions like aggressive sales, and the outcomes cease as soon as the effort stops. For instance, a business relying heavily on continuous aggressive marketing or sales efforts to drive revenue follows the pump model.

In contrast, the flywheel model is akin to a heavy wheel that's tough to start but, once spinning, maintains momentum with minimal additional effort. This approach in business is about creating a self-sustaining system that becomes more efficient over time. Initially, it requires significant investment and effort, but as the system gains momentum, it requires less effort to maintain or grow. An example is a company investing in customer satisfaction, which eventually leads to word-of-mouth referrals, reducing the need for direct marketing efforts. The flywheel model thus symbolizes a cycle where initial hard work leads to easier, ongoing success.

There will always be opportunities to find arbitrage, but if you’re sick of jumping from one niche to the next only to find your effort losing efficacy, or becoming exhausted over time, then it’s time to ask how you can dig deeper to build arbitrage for yourself.

I love how Grasslands think about this problem. Their whole strategy revolves around identifying an arbitrage opportunity 1-2 years out, and then spending an inordinate amount of time becoming the expert on that topic, whether that means writing 100 blog posts or a 12-book series so that by the time the trend comes they are already everywhere. That is how they win.

Forests and Aquatics, in contrast, create something wholly new and spend their time fostering a community that grows and grows over time with people who resonate with what they’ve written until they become the dominant force in their own little category they built from nothing into an unstoppable force.

Tundras combine evergreen trends together to build an irresistible package that excites everyone, but they lack focus. Tundras want to launch and forget the minute the launch is over. If they want to take advantage of building their own arbitrage, they have to get better at threading all their launches into one narrative.

At Writer MBA, we’ve used Monica’s prowess as a Grassland to identify two trends, Kickstarter and direct sales, and then my prowess as a Tundra to bring maximum attention to our efforts. Tundras are often unfocused, launching and abandoning things without prejudice, so having a common thread of Author Ecosystems, or even this publication, to keep my focus is very helpful. For my fiction work, I’m working on bringing all my work into one overarching concept called The Cosmic Weave that fosters community and topic dominance in the same way as Discworld did for Terry Pratchett.

I’m no longer willing to seek out arbitrage and wring it all out before the opportunity dries up, but I am interested in finding that arbitrage and using it to help build my own arbitrage, which I think is something Deserts are uniquely qualified to do.

In an ideal world, these two concepts work in tandem with each other. I recommend finding arbitrage opportunities that you can then leverage to bring people back to your own arbitrage. That’s how we throw gasoline on the fire of our spark and grow faster. If you want to learn more about how to evolve your ecosystem to include aspects of all five, I recently released direction on evolve on our other publication.

There will always be arbitrage opportunities and you don’t have to be a well-known author to find them. So, if you’re exhausted finding and exploiting them without ever feeling like you’re getting ahead, maybe it’s time to think about how you can focus on creating your own arbitrage instead of leveraging it from other people.

What do you think?

• Does this resonate with you?

• Do you excel at one or the other?

• Are you completely out of your depth and need to take our quiz?

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