Only One Rylan

If there is one thing that I am confident that I am one of the best in the world in, it would be understanding scarcity, and how to manufacture hype.

Having gotten my start in the sneaker botting world – which, if taken at face value – sounds like I was reselling sneakers, which could not be further from the truth. The only pair of shoes I actually ever sold was a pair of Yeezy 350 Clays.

On the surface, an outsider might rightfully assume that the lucrativeness within sneaker botting derived from the limited supply of sought-after sneakers and the ability to use bots to purchase tens or hundreds of pairs while everyone else struggled to get just one. But, I would imagine that if there was magically some list of the top-100 or so most successful people to come from sneaker botting, not a single one of them made their money actually botting sneakers during their time in the space.

The largest sums of money were made by cook group / proxy company owners, and bot developers. Bot developers were essentially always forced to utilize artificial scarcity and “manage their own economy”, since after all, if everyone had access to their software, the users would cannibalize each other, and success per user would decline sharply. But to succeed within the first two businesses, the absolutely only thing that mattered was your ability to drive demand through manufactured hype and artificial scarcity, since it was incredibly difficult to provide a service or product that a competitor could not.

I would note that everyone knew that whatever cook group they were a member of gave them no real edge over anyone in other groups. But the illusion never broke, and people always desired being in a “top” group. So much so that people would buy memberships during restocks just to immediately resell them for hundreds of dollars more than they paid. The highest sale of a cook group I could find was $2,500 for a lifetime membership to AMNotify.

But a much lesser-known group called Doom Calls, which I had started when I was 15, had a membership sell for $4,400—nearly twice that of the AMNotify sale, and over 4x our retail price. In addition, we had restocks sell out in under three seconds (which will be important for later).

Regardless of industry, I would argue that it is crucial to manufacture hype and leverage artificial scarcity in some capacity, whether through product launches, capital raising, or marketing. For early-stage companies, positioning, narrative, and the terms on which people engage with the company are particularly difficult to control, since the company has little idea how the market will react to anything they do. I view artificial scarcity as creating a faux bottleneck that gives greater control over these things, with the “tradeoff” being that you're intentionally making it harder for people to give you money.

But in the context of a startup's valuation in today's environment, revenue matters considerably less than other factors such as its team, positioning, intellectual property, and future potential. So I wouldn't necessarily describe foregoing immediate revenue to strengthen these things as a sacrifice. And if a startup finds itself in a spot with little runway and on the brink of shutting down, I would argue that the lack of revenue was a symptom of a much larger factor (like the ones just mentioned), rather than the problem itself.

I think sneaker bots are a good example because there was always demand. As I mentioned earlier, the developers understood how to manage their own economy, allowing them to turn that initial demand into something far more valuable by controlling how, when, and to whom they distributed their software.

For some reason, virtually every early-stage company defaults to being a second-class citizen of sorts in which it gives all power to the customer or investor. The goal should be to flip this dynamic early on. I don't mean that companies should simply make it difficult for people to buy their products for the sake of doing so. Obviously, restricting access to something nobody wants isn't going to accomplish anything. But I think companies severely underestimate how much leverage they can create with relatively little demand.

What I mean when I say to “flip the dynamic” is that instead of constantly trying to convince people to buy your product or invest in your company, you should be trying to create an environment in which they're convincing you to let them.

When a company is willing to sell to anyone who wants its product, every prospective customer represents an opportunity that it risks losing. Naturally, this puts the company in a position where it's constantly trying to accommodate the customer. But when demand exceeds the amount of access the company is willing to provide, the relationship changes. The company can then dictate the terms of the transaction, rather than having to appeal to what the customer wants. If there is no substitute, the customer is left with a choice between accepting those terms or going without the product entirely.

You don't necessarily need overwhelming demand to establish this dynamic. Consider a company whose product has no close substitutes and 100 people interested in purchasing it. The company could sell to all 100 and immediately exhaust that demand, or it could sell to 25, leaving 75 people who still want access. The latter sacrifices immediate revenue, but it also creates something the former doesn't have: a pool of prospective customers whose inability to purchase can become part of what makes the product desirable.

This is the point where the company has flipped the dynamics enough to give them leverage over their customers.

Manufacturication

As I mentioned previously about my cook group, restocks on memberships would sell out in three seconds. But that doesn’t tell the whole picture. The quantity of memberships sold at one time was always deliberately well under the demand. If I expected 100 people to be going for a restock, maybe only five or ten memberships would actually be up for grabs. These are relatively low numbers compared to what a startup could do, but it worked perfectly. I could have sold memberships to anyone who was willing to purchase, but if / when they churned, that demand would have been gone and getting back to that level would have been extremely difficult.

To a customer, selling out in three seconds showed that we had sky high levels of demand. But, it was an outcome I had predetermined by capping the number of memberships available. The purpose of it was always to cement my positioning and create the perception that we offered a level of service that our competitors couldn’t, and selling out instantly was the “proof”. The revenue generated never did, or was intended to, move the needle.

Every company has, in some ability, to create their own faux bottleneck to control a key factor to their success. What that bottleneck looks like depends entirely on what the company is trying to accomplish.

To give an example with pertinence, consider a neolab developed a model that could provide a meaningful advantage in pharmaceutical R&D. The lab could license its model to every pharmaceutical company willing to pay, but suppose it instead decides to offer only one license, leaving everyone else without access and effectively setting the frontier.

Rather than simply evaluating whether the model is worth purchasing, prospective customers would then have to consider the possibility of falling significantly behind the competitor with the license. This creates a competitive dynamic that otherwise would never exist, turning what would have been an ordinary purchase decision into one with potentially significant strategic consequences, for both the companies within the industry and the lab itself.

In this case, the lab might not even sacrifice revenue. Instead of selling five licenses for $100k each, the competitive advantage granted through exclusivity could allow it to sell a single license for $500,000, or potentially considerably more. After all, the purchaser wouldn’t simply be paying for access to the technology, but also for the fact that its competitors won't have access to it, and what that could do for the value of their company.

I recognize that I might be making it seem that it is easy to just “set the frontier” and suddenly have customers fighting for the opportunity to give you money. Obviously, that isn't the case and most companies will never find themselves in a spot like that. But, my point is that it's imperative to understand who you're selling to, what they value, and how you can create a sense of desperation around obtaining it.

Choosing Champions

One of the best perks about having leverage is the ability to pick who gets access to your product. Ideally, the first people you allow to purchase your product are the ones whose participation will make everyone else want it more.

I think companies tend to view customers as relatively interchangeable, at least when they're all paying the same price. But I would argue that, particularly in the early stages, who your customers are can be considerably more important than how many you have. The goal at this point is to be able to get the product in the hands of people whose endorsement carries weight and can get eyes on the product. Ideally, you should be able to “trade” access to the product in exchange for that.

In today’s environment all it takes is one tweet to get all the eyes on your company. For me, if I had the choice between selling a membership to some random person or someone who was widely respected, or known within the sneaker community, I would always prefer the latter. Not necessarily because they would spend more money – oftentimes they wouldn’t spend any – but because their presence and following alone could move the needle greatly. At the end of the day, much like software, a membership cost nothing to create.

And I think this is something that extends well beyond having influential people use your product. Depending on the industry, the most valuable person to have associated with your company might not have much of a following at all. It could be someone who is particularly well respected within a niche, a company whose customers you ultimately want to reach, or simply someone whose involvement gives your product a degree of credibility it otherwise wouldn't have.

The mistake would be to approach this as some sort of traditional influencer marketing campaign. The whole point of manufacturing scarcity in the first place was to put yourself in a position where you have something other people want. Now you can use that leverage to get your product into the hands of people who would ordinarily be much more difficult to reach.

And I would argue that this becomes even more important when you have relatively few customers. If you're only going to allow x people to have access to your product, why wouldn't you make an effort to ensure that those are the people whose involvement is going to be the most valuable to you?

The same principle applies to investors. If you're raising a limited amount of capital and have more interest than you're willing to accommodate, you have the opportunity to be selective about who gets to participate and get more favorable terms.

Conclusion

While writing this, I realized there are too many nuances between industries, business models, and individual companies to suggest that any particular approach would work universally. I also realize I might have just ended this out of nowhere, and I do believe I have much more to share on this topic, but I want to write about other stuff, so that is what I will do.

Ultimately, I think companies spend far too much time thinking about how to convince people to give them money, and not nearly enough time thinking about how to put themselves in a position where people have to convince them to take it.