The (Only) Two Patterns Investors Really Need To Know

Investors have a hard job.

Successful ones get rich, average ones pretend to be rich and many others never quite get there.

Intelligent investors (who haven't quite attained Warren Buffet status) look for patterns, trying to find the right point on the wave to jump in.

That is - as Buffet would say - the wrong approach.

Actually, there are only two patterns that investors need think about.

And they're not actually patterns at all.

Pattern Match - The Starting Point

It's no secret that one of the keys to success in business is finding the right product-market fit.

This is where "pattern match" comes in.

Pattern match means that a business "matches the pattern" - they align with the thoughts, feelings, wants, needs and desires of their audience.

Are you a luxury hotel catering to HNWIs? Then you better have a spa. That's part of the pattern and you have to match it.

Apple is a curious example of pattern match. Under Steve Jobs (round 2) the company came out strong about what "pattern" it was seeking to match. With powerful design tools and later its sleek and smooth form factor, it catered to a specific audience - the creative minds that "think differently."

By understanding its audience, Apple captured the enthusiastic support of a whole generation - and then the world.

But then something else kicked in...

Pattern Disruption - The Next Level

While pattern match is important, it is not the only factor in business success. Pattern disruption is also crucial. This is where a business thinks outside the box and does things differently.

Pattern disruption comes into play when a business aims to beat the competition. They "find the gaps" and do what the competition isn't able or willing to do.

This means looking for "an edge."

For example, consider Amazon. Amazon disrupted the pattern of traditional retail by offering a wide selection of products at competitive prices and fast shipping. This gave them an edge over traditional brick-and-mortar stores and allowed them to become one of the most successful companies in the world.

They hit retail where it wasn't - online.

Another example is Netflix.

As we all know, Netflix disrupted the pattern of traditional TV shows (as well as the studio movie industry) by offering a streaming service with original content and a hyper-personalized viewing experience. This gave them an edge over traditional cable TV providers and allowed them to become a dominant player in the entertainment industry.

Was any traditional entertainment company offering its customers such an experience "way back then...?"

Absolutely not.

Netflix disrupted the pattern.

Where traditional entertainment companies were not willing - or not physically and financial capable - of stepping oustide their own "box" - Netflix took advantage.

This is the essence of "pattern disruption."

First - identify the pattern in your industry. Second - consider the weaknesses and the failings of this pattern.

And finally - find a way to exploit it.

It's not rocket science.

It just takes time.

The Investor Perspective

As an investor, you should look for businesses that do pattern match - AND pattern disruption well.

Such businesses are 1/1000 - if even that.

As we all know - the first tendency is to find "product-market fit" and then be satisfied.

"We've hit the mark - we're appealing to investors...now we can relax."

Nope.

After zeroing in on "pattern match" - it is essential to quickly move on to "pattern disruption."

If you are an investor - angel, pre-seed, seed or Series A - you MUST consider...

a) How well has this team done "pattern match" ?

b) How capable are they of taking the next step to hit "pattern disruption."

The final word

Investors are only as smart as their analysis of the present conditions.

If you think you are living in the 20th century - or in the middle of the industrial revolution - you're wrong.

But if you understand the over-arching patterns of history, you may be - just maybe - turn out to be a successful investor.

If you are able to take your observations of historical - and current - patterns and use them to effectively analyze companies today...

...you will be invincible.

And you will be rich.