Ratio thinking

April 29, 2013strategy

Something I’ve found difficult to completely embrace, but which understanding has been super important, is the idea that there is a ratio for everything. I’ve started to call this Ratio Thinking, and I’ve found myself describing this to quite a number of people recently.

The law of averages

I think we all understand that we might not get a 100% success rate on everything we do. In fact, in most cases it is far lower. For myself, I think I have struggled to fully comprehend this.

I’ve heard the idea of a ratio for success many times. I think perhaps the best description I’ve come across what Jim Rohn describes as the “law of averages”:

If you do something often enough, you’ll get a ratio of results. Anyone can create this ratio.

Once I fully understood this, it made everything much easier. As soon as I accepted that the whole world works in ratios, that’s when it became easier. Knowing that success happens in ratios allowed me to go ahead and send that email, without worrying about not getting a response, about ‘failing’.

Here are a few examples where I think ratio thinking can help you as a startup founder:

Ratio thinking in marketing

Arguably some of our biggest success with Buffer has been the content marketing we did in the early days and are once again pushing hard recently. In fact, we are currently hiring our first content writer beyond my co-founder Leo, and plan to grow out a full team for our blogging efforts.

I can remember very well many of the conversations I had with Leo. What he did so well was to quickly realize the law of averages and know that to get a single reply, a large number of emails must be sent to bloggers for a potential guest post. This knowledge meant he rarely felt bad if he didn’t get a response. Instead he knew it’s just the way it works.

What is perhaps even more powerful than just knowing about ratio thinking, is that Leo used this knowledge to his advantage. If he wanted to get a single guest article published, he would sit down and send 5 emails. We had around a 20% success rate based on the emails Leo sent.

Once you’ve established the success rate, for example 20%, you can keep working and eventually the ratio will improve. Maybe you’ll eventually get 3/10 instead of 2. Once that happened, Leo was smart and moved on to bigger blogs and pulled that ratio back down to 20%. This technique led us to our first 100,000 users.

Ratio thinking in fundraising

When we finished AngelPad, we started trying to get meetings with and pitching investors. The law of averages really comes into play with raising investment, too.

Overall, we probably attempted to get in contact with somewhere around 200 investors. Of those, we perhaps had meetings with about 50. In the end, we closed a $450k seed round from 18 investors.

Perhaps the most important part of our success in closing that round was that Leo and I would sit down in coffee shops together and encourage each other to keep pushing forward, to send that next email asking for an intro or a meeting. In many ways, the law of averages is the perfect argument that persistence is a crucial trait of a founder.

Ratio thinking in hiring

The most recent area where I’ve found ratio thinking to be useful is hiring. It can take a large number of applicants to find the right person, someone who has the right skills and is also a great culture-fit.

There are so many factors at play here - so of course there won’t be a 100% success rate. Once you accept that, it can make your life a whole lot easier. That was the case for me - I conceded to the fact that I will need to work hard to publicize our positions, and then only a small fraction of the applications would make sense to follow up for interview.

And the ratio thinking applies in the same way for the hiring process as well as once somebody is on board. This stuff is hard, but once again it is simply how it works - the sooner you accept it, the sooner you can thrive.

Photo credit: Peter Renshaw