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Scenario: Optimizing for Power Law

Have you ever watched every test win while the revenue went the other way? This scenario walks through why, one step at a time, with 100 fish and a net. It starts with the power law itself and what a baseline looks like when nothing changes. Then it puts a price on the catch, adds marketing and starts optimizing. When every fish’s size is visible, optimizing on margin works. When the catch moves through a funnel and only grows into its value in the last pool, optimizing on the cost of acquiring a fish drives the margin down, and sorting at the point of capture turns it back up.

1. 1Meet the fish: the 5 biggest of 100 fish carry 59% of the weight, and not one weighs the 10 lb average
2. 2Cast the net: one cast is luck, the average is steady, and that steady average is the baseline
3. 3Let's turn it into a business: one operation from the cast to the sale, about $100 of contribution after acquisition a cast and $10 to acquire each fish
4. 4Take the investor's chair: about 1 cast in 3 loses money, but over 100 casts every $1 invested brings back about 1.36 (136%)
5. 5Add bait: bait aimed at the average fish adds 10% more volume and 25% more value, and sets the baseline: a cost of acquiring a fish that improves as the team tests, with every fish still earning $4.55
6. 6Pick what to optimize: tested on the cost of acquiring a fish, contribution after acquisition evaporates; tested on contribution after acquisition, it climbs to $1,045, the end of part 1
7. 7The fish grow up later: every fish is caught the same size and only grows into its value at the end of a funnel
8. 8What the dashboard can't see: counting fish delivers the cheaper fish the baseline expects, while the real contribution after acquisition falls to less than half of it
9. 9The signal at the dock: priced by color at the point of capture, the value/signal team makes 6 times the lower-CAC team’s contribution after acquisition on less than half the money, 2½ times the baseline

The scenario runs in your browser. Press play, drag any round, or add quick throws to watch the averages settle.