Why I’m Curious About The “Law of Large Numbers”

.... And The Book That's Fueling It

Multi-Level Marketing (MLM) is a concept that elicits all sorts of opinions among people, both favorable and negative. While my experience has been more of the latter, there is one invaluable MLM takeaway that has fueled my curiosity in recent months. 

I first became aware of MLMs back in the 1970s while growing up as a kid in Columbus, Ohio. Rumor on the street was that the parents of one of my friends I grew up with were heavily involved with Amway. 

They arguably had the finest house in our black middle-class neighborhood — a two-story Tudor mansion with a large spiral staircase to the second floor, plush 70-ish green carpet, an immaculate Olympic size pool in the backyard, and two fancy Cadillac’s parked in the front driveway. While I had no clue as to what an MLM really was, what became abundantly clear is that his parents were making a boatload of money. 

I, too, had a couple of MLM experiences in my lifetime. The most recent one, about ten years ago, was with an Aloe-Vera-based nutritional supplements company called Univera. Having been invited to one of their introductory meetings by friends in the Denver area, I became enthralled with their mission of bringing “The Best of Nature to Mankind.” 

Problem was, I took this mission a bit too seriously when the real intent of any MLM is to help you and the company make money —ideally lots of it. Like many who join MLMs, I struggled with how to become one of the elite earners at the top who were (supposedly) earning ridiculous amounts of money along with fancy cars and trips to Hawaii. 

A man by the name of John who was our local leader happened to be among the top five Univera earners in the world at the time. He had no qualms in sharing stories about his wealthy status with those of us in his down line as well as his secret sauce for achieving it. So imagine my elation when one day he invited me to meet with him one-on-one for coffee. He told me that he thought I had great potential with the company and wanted to mentor me. I was over the moon

Well, you probably know how things turned out. I barely earned $50.00. No fault of John’s because deep down inside he was a great guy with an enviable lifestyle of wealth. 

He did however share one life-altering networking concept in one of our MLM gatherings that made little sense to me at the time but has now become my fundamental model for building “Great Books, Great Minds.” 

He called it, “The Law of Large Numbers.” 

Let me try to explain. Given my propensity for being a minimalist - a do less, accomplish more type of guy — I was always looking for that one lucky person who would not only purchase my Univera products from me but become a member of my proverbial up line.  Problem was, aiming to recruit only ten people a week simply wasn’t enough for me to hit any sort of meaningful income targets. 

John wasn’t the only one encouraging me to pursue a larger target radius. A Denver area business coach by the name of Russell Owens was articulating the same message. 

Russell asserted that the key to his high wealth status was what he called “ratios” where on a spreadsheet he meticulously kept tabs of the number of sales prospects he would approach (in his M&A — mergers and acquisitions business) on a daily, weekly, and monthly basis. By reviewing the patterns of these ratios he would then be able to determine exactly how much activity he needed to produce in order to hit his income targets. 

Just like it was yesterday, I recall him telling me about his excitement in receiving a bunch of “no’s” from potential suitors. Why? Because for him that was an indicator that a big “yes” was coming. 

Bottom Line: It’s all a numbers game.

Bestselling author and thought leader Grant Cardone is another proponent of this. In his book “The 10X Rule” he asserts that achieving your aims requires "Massive Action." In other words, normal action or even no action, which for many years was my modus operandi, is the path to little or no results. 

Grant’s prescription: “Take what you’re doing in terms of activity and multiply it tenfold to get the results that you want.” 

The Network Effect of Building An Empire

With rapt attention and highlighter in hand, I recently started reading a book by prominent VC advisor and investor Andrew Chen entitled “The Cold Start Problem: How To Start and Scale Network Effects” that takes an even deeper dive into this “Law of Large Numbers” theme.  

Here’s the main thesis of the book:

“When launching a new product, service, or creative endeavor, one often faces what the author Chen calls a ‘cold start problem.’  In other words, like trying to start a vehicle’s engine on a frigidly cold day, it's hard to gain traction and momentum when there are few or no existing users.” 

What he is referring to here is what is known as “Network Effects” which Chen describes on page 25 of the book as

…..” the ability to attract new users, or to become stickier, or to monetize, become even stronger as its network grows larger,” 

Chen wrote the book, he says, because the inner workings of network effects, while often touted as being semi-magical, are often poorly understood. As he notes: 

“The term ‘network effect’ has almost become a cliche. It’s a punch line to difficult questions, like ‘What if your competition comes after you?’ Network effects. ‘Why will this keep growing as quickly as it has?’ Network effects. ‘Why fund this instead of company X?’ Network effects.” 

He says that if this issue is not overcome quickly, a new product or service being championed by a startup will die. 

Published in late 2021, Chen’s book was eagerly anticipated among startup and venture capital communities, given his work as a general partner at Andreessen Horowitz along with board memberships at startups that include Substack and Clubhouse. 

Chen, who played a prominent role in Uber’s growth and ascension as a rideshare service, focuses in the book on the role that networks play in igniting successful tech companies. He uses network effect examples involving Facebook, Uber, Airbnb, Dropbox, Slack, Instagram, Reddit, TikTok, YouTube, and Twitter to solidify his message. 

“Network effect describes what happens when products get more valuable as more people use them,” he writes. One example he uses in the book —how a telephone is useless without a strong network of users. In other words, phones become more valuable the more people you know that have a phone.” 

One big takeaway for me from The Cold Start Problem is Chen’s concept of “atomic networks” or niche markets. He cites companies like Bank of America which launched the first credit card in 1958, exclusively in Fresno, California to 60,000 residents, and Tinder and Facebook which were in a sense beta tested within specific college communities (USC and Harvard).

Says Chen in his book: 

“To build a massive successful network effect, I argue that you must start with a smaller, atomic network. And use the success in the first set of networks to tip over to the next set of small networks. I’m not convinced this step can be avoided.” 

The book, which is a robust 387 pages— explores five stages of businesses that Chen encapsulates as part of his “Cold Start Theory. These are the cold start problem, tipping point, escape velocity, hitting the ceiling, and the moat.

In the end, the Cold Start problem delivers a clear articulation of how one should begin building a network and community for their business. It distinguishes what some of the most successful leaders and companies of our time did to distinguish themselves from competitors that often collapsed. Those in product, startup, and investing ventures will find Chen’s book of particular interest.