All Business Is Arbitrage
Here is a beautiful definition of arbitrage:
The simultaneous buying and selling of securities, currency, or commodities in different markets or in derivative forms in order to take advantage of differing prices for the same asset.
What a mouthful. Let’s break it down. We’ll start with the last part about differing prices.
It’s no secret that it’s always going to cost you less to produce or otherwise acquire something than it will be for your customer to reacquire that same thing from you. If that’s not what you’re doing, then you’re engaged in a hobby rather than running a business.
Why would someone pay you more for something that you found for less? Well, your customer isn’t in the same wholesale market as you are for reasons of expertise and time. Let’s assume that the reason is mostly time, because let’s face it, if we all had all the time in the world, there’d really be no reason to trust anyone to do anything that we could do ourselves.
And this goes double for the CEO you’re trying to close. He really wants to do the thing that you do himself. So your advantage is industry specialization.
You sell one thing to your customer, and you buy the same thing from your suppliers. “Securities, currencies, or commodities” is the long version of what we typically call goods and services.
Now, they’re not precisely equal when we’re talking about your wholesale and retail bits. You probably embellish: add your branding, marketing magic, design expertise, or whatever it is that makes something uniquely a product of your business.
And don’t get too attached to this whole concept of goods either: finding a software developer or creative professional to finish something for a client of yours uses the same underlying principles of leveraging your time advantage.
At the end of the day, you’ve taken something from one market and sold it to another at a price difference that constitutes your profit. Voila, arbitrage.
This is a transport mechanism for value: a series of tubes, if you will, moving awesome from point A to point B with at least a few greedy capitalist hands in-between.