Hey folks,
Short issue today. More of a signal about something I’ve been thinking about lately.
For work, I’ve developed an expertise in something called media mix modeling.
The idea is simple: marketing teams spend money across a variety of channels — TV, search, social, YouTube, display, and so on. The goal is to figure out how to allocate that budget to maximize some outcome like sales, leads, or profit.
At first glance, the answer seems obvious: invest in the channels with the highest ROI.
But that’s where it gets interesting.
You can only put so much money into those channels before the incremental return starts to fall. The highest-ROI opportunities saturate quickly.
If your goal is to maximize profit, the optimal strategy is often to keep spending beyond the highest-ROI opportunities and move into lower-ROI channels that can absorb more capital.
In other words, the decision isn’t just about efficiency.
It’s also about scale.
A small opportunity might generate incredible returns, but if it can only absorb a small amount of capital, it won’t move the needle very much.
Meanwhile, a larger opportunity might produce lower returns per dollar — but because it can absorb far more capital, it ultimately generates much more profit.
Once you start noticing this tension, you see it everywhere.
Small pools of capital can chase weird, niche opportunities with enormous returns.
Large pools of capital need much larger opportunities to deploy into.
And larger opportunities tend to be more competitive and more efficiently priced.
This creates a strange inversion.
When capital is scarce, the problem is finding money.
When capital becomes abundant, the problem becomes finding places to deploy it intelligently.
I think this tension explains a lot about investing — from why small investors sometimes outperform institutions to why some of the best opportunities simply don’t scale.
Next week I want to explore this idea in more detail.
Specifically: how the relationship between ROI, scale, and opportunity shapes the returns investors can realistically achieve.
Because in many cases, the highest-ROI opportunities aren’t the best investments.
They’re just the smallest ones.
