top of page

Benefits of total scarcity

R&R,' a classic Harvard Business School case study, tells the story of a startup founder, Bob Reiss, who identifies a lucrative opportunity to create a TV-themed trivia board game in the wake of the runaway success of Trivial Pursuit in the 1980s. Bob is a good example of someone who has a great idea but faces some significant hurdles in bringing it to market. He is also a good example of a geographic follower that I describe in more detail in the Solve: Develop a Value Proposition step. He had noticed the success of Trivial Pursuit in Canada and knew from prior experience that successful Canadian products tended to do ten times the sales when they entered the US market.

The hurdles? Bob lacks capital, he has only one part-time employee (an assistant), he has no one on his team who can design a game, manufacture it, or pick, pack, and ship it; he has no recognizable brand; he is not able to do credit checks or collect his customer payments; and what's more, he estimates that he has a limited window (eighteen months to two years) in which et in and get out to capitalize on this trivia game's opportunity's short life cycle that is inherent in the faddish toy industry.

Bob has no doubt that his game idea focused on TV trivia is lucrative (an assessment that will later be proven correct). But given his basic lack of resources, Bob might well have given up before he got started. Instead, he responded with a discipline that allowed him to think as an entrepreneur to solve for those scarce resources

After making that list of all of the things he'll need to get started,

Bob determines that he'll need roughly $5 million in startup capital, a daunting amount to be sure. You probably don't have $5 million in cash lying around, and you may not think you could raise it. Bob's response is to shift what otherwise would be fixed startup costs (in hiring a game designer, manufacturing capacity, a sales team, a credit department, etc.), to variable costs that the venture incurs only if and when his product is sold. All of the functions that Bob lacks design, manufacturing, distribution logistics, finance, sales, and marketing- he outsources to experts. Because he can't afford to pay them up front, he offers these experts a percentage of sales. This has several virtues. Among them is that it shifts some of Bob's risk to his partners in exchange for sharing the upside with them if they succeed. It also gives them the incentive to do everything in their power to make that happen. Rather than hiring the designer of the trivia game as an employee or even paying him a lump sum up front, for example, Bob pays the designer a percentage of the game's eventual sales. Bob will make less money than if he'd had the money to pay everyone up front. But he'll also incur significantly lower losses if things don't work out.

Bob eventually brought his game, TV Guide's TV Game, to market In the next two years, it would sell over 580,000 units and earn Bob over $2 million. All because he didn't let his lack of resources stop him from following through on a very good idea.

This tidbit is from the book See, Solve, Scale by Professor Danny Warshay

4 views0 comments

Recent Posts

See All

A few of us put everything on the line. Elon Musk, the founder of SpaceX and the CEO of Tesla, comes to mind. Buoyed by an unshakable faith, he plowed most of the $180 million fortune he accumulated a

We often think of frontiers as wild places at the edge of the known world, full of risk and danger, and so while they might make a great movie setting, we tend to avoid frontiers in our own lives. We

Martin Chalfie is a soft-spoken man with a relaxed way of describing complicated topics. He is a professor in the Biological Sciences Department at Columbia University, conducting research on the nerv

bottom of page