We all make mistakes. The goal is to learn not only from our own mistakes, but the mistakes of those who came before us. Ray Dalio is one of the greatest investors of our time. His net worth (depending on market fluctuations) is about $16B. This puts him on the list of the top 25 richest men in America. One of the things I learned from him was how to profit from mistakes.

Let’s apply this to building a company.

One of the biggest expenses and pains of building a company is advertising. You might have an amazing product or service, but if nobody knows about it….crickets. So how do you decide how to allocate your ad budget? Well maybe you have this belief that FB ads are going to be profitable for your business. You believe that allocating $100 to a campaign is going to yield 200 signups to demo your amazing software. So you’re Customer Acquisition Cost (CAC) is 50 cents per sign up. Well that doesn’t sound too bad.

But in reality, you spent $100 over a 10-day campaign and only got 20 signups for your demo. Your CAC was $5 per sign up. That’s nothing to write home about. So let’s learn from this mistake. You want to put a system in place and profit from it.

Here are the 3 easy steps to do exactly that – figures out your what, create a rule, and build out an equation.

WHAT?

What was the belief that you held, that caused you to make the mistake? We can think about this as our revenue and expense assumptions.

Remember: Before we start any financial modeling, we create assumptions. We cover this in Founders’ Masterclass. In this instance, our assumptions were:

  • For every $10 in Facebook ads, we’ll yield 20 signups.
  • We’ll run a 10-day campaign
  • We’ll allocate $10 per day or $100 for the entire campaign
  • We’ll yield 200 signups for the campaign

These assumptions did not prove true. This is where we learn and create a rule to ensure we never make this mistake again. 

RULE

Our rule basically states, we’ll do X when Y happens. So it would look like this: We’ll continue to allocate $X in ad spend if our efforts yield X number of results. Your results can be signups, views, clicks, whatever works for you. For this example: We’ll continue to allocate $10 per day in FB ad spend, if we yield 200 leads per day. Then we set an equation based on other data we may have.

EQUATION

We know that an ad may take a while to gain traction. So, we’ll set our equation to allow for 3 days of ad run before we take any action.

Our results may look something like this:

Day 1 = $10 spend and 50 signups Day 2 = $10 spend and 150 signups Day 3 = $10 spend and 200 signups

Our equation would be:

If Day 3 = 200 or more, allocate $10 in ad spend. We can also look at averages.

For example, let’s say we want to review our weekly average: If AVERAGE(Day 1 – Day 8) is less than 200, halt allocation.

We simply set an alert when our signups drop below a certain threshold and stop the ad. This prevents us from making the same money wasting mistakes over and over. Not only have you stopped this mistake, you can also use this strategy to profit. You’re now only running ads that yield a healthy bottom line.

How many times have you heard about people spending hundreds of dollars on FB ads, only to later realize they were not performing?

So, now you understand the system for profiting from your mistakes. Identify the belief you held that caused you to make that mistake. Next, set a rule that will prevent you from making that same mistake. Finally, build and execute on an equation that will track the data you need.

What mistakes have you made in the past? Can you outline them in this 3 step process? Are you able to systemize the tracking of the results?

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