How I Make Money, Part I: Top 3 Myths That Stop Would-Be Entrepreneurs

“So, are you here to work or to study?”

I get this question almost every day and it’s really a tough one to answer. It’s been 60 days since I got any real, tangible work accomplished, but January’s revenue is almost double what it was last January. I can’t say I’m proud of my obsolescence – I love being productive – but the results speak for themselves. As you may already know, I’m in Argentina indefinitely and I’m taking Spanish classes to improve my somewhat limited communication skills. I skipped class the other day to catch up on work – the pangs of guilt finally put the perpetual hangover in the backseat – and I sat down at my desk to plug away at the next big task.

There was just one problem: there wasn’t anything major for me to do. You see, 18 months ago, I read the 4-Hour Work Week and began to systematically outsource or automate all of my day-to-day tasks for the auto parts company that I started when I was 16. I’m the only employee, and even though I have a dozen major projects underway – from developing an all-new website to engineering a line of indestructible ball joints – they’re all in the hands of subcontractors now. Every few weeks, I have some updates to review and approve, but at the moment the only things on my to-do list were lingering, non-critical tasks that I’ve been putting off for the better part of the decade.

My auto parts company has over 1,300 products and, although it is more or less automated, its anatomy is a bit complex to digest. I own another ecommerce company that sells kettlebells (a type of weight for weightlifting). It’s a business I started on a day that I was particularly pissed off by the complexity of the auto parts company, and I strived to make every aspect as simple as possible. It has only 13 unique products and I spend less than an hour per week on it. I’ve boiled it down to a formula that I can teach anyone and I had planned to explain it all in this blog post. Unfortunately, the average blog reader probably has the attention span of 2,000 words (if I’m lucky), and I realized that  have a lot more to say.

I’m going to break it out into a multi-part series – but before we start, I want to make a few things clear. To start your own company:

• You don’t need a “big” idea
• You don’t need any experience
• You don’t have to quit your job

If you’re hoping for advice on starting the next Google or becoming the next Steve Jobs, you’ve come to the wrong place. I have only 1 goal here – to start you off with a small, automated income stream that will grow over time and give you the flexibility to pursue whatever your true dream really is.

There are thousands of definitions for the word entrepreneur, but for our purposes, we’ll use mine: an entrepreneur is someone whose income is independent of the time spent working. I want to make you temporally-independent (TI).

As you start to read further, you’ll realize that I hate jobs. Don’t get scared off – I’m not going to suggest that you leave your job or turn your life upside down and move to Argentina (what kind of nutcase does that?). I’m going to give you the tools to start an automated income stream that you can do alongside your job. If you want to keep your job while you’re earning six figures on the side working an hour a week, knock yourself out. Before this 2-month hiatus, I spent the preceding 4 months working 10-12 hours a day, 5-6 days a week. But the point is that I did it by choice, not by necessity.

Over the next few posts, I’m going to give you a crash course in becoming TI. We’ll figure out how to choose a product or service, start it up, and finally, I’ll show you how to automate it. But before we go down the rabbit hole, there are a few myths to dispel.

Top 3 Myths That Stop Would-Be Entrepreneurs

#1. I have a good job.

If someone is paying you to work, it means that you are creating more wealth than you’re earning. That makes you a sucker. I’m friends with all sorts of suckers – suckers who make $7/hr as a secretary and suckers who make $70/hr as a consultant. Did you know that a consultant who earns $70/hr is typically billed out to a client at $300/hr? That’s a staggering 4X screw factor (SF) – for every $1 he gets paid, his company earns about $4. If you want to know how big of a sucker you are, take a look at your paycheck. The bigger your paycheck, the higher your SF is. If you’re getting paid a lot of money, chances are you’re getting screwed. That’s because people who earn a lot of money are generally creating tremendous value for the company – their SF is huge. And if you’re making a small wage doing administrative functions or working in a retail store, a small side business will quickly eclipse your “steady” income.

I have a fundamental philosophical problem with the idea of a job, whether you’re earning $30,000 a year or $300,000 a year, for two reasons:

1. You get paid the same whether you do a great job or a terrible job. You may be thinking, “that’s great! I get to do a bad job and still get paid!”. Now that we’ve established that you hate your job and are miserable, you can move 0n to #2. In the off chance that you’re a CEO that gets paid based on performance, you still have to show your face at the office 30-40 hours per week. Congratulations – you’re rich but you’re still chained to your desk.

2. You’re limited by the number of hours in the day. If you’re paid hourly, your income is limited by the number of hours in the work week. And if you’re salaried, then you’re working extra hours for free. That earns you bonus idiot points.

When you work for yourself, you’ll generally get paid per unit (in a product-based business) or per job (in a service-based business). I prefer product-based businesses – if set up correctly, you can ship many units to many customers without any increase in the amount of time spent working. In a service-based business, you can hire other suckers to do the work for you and bill them out a huge screw factor – but a service business usually involves managing people and hand-holding customers, and both of those things cost you freedom.

#2. Running a business is hard.

I have a ton of friends that tell me, “I want to start a business, but I don’t know anything about accounting.” It’s true that running a traditional business is a very difficult thing to do – that’s because a traditional business is inefficient and stupid. In a traditional business, you have master a dizzying array of skills that are virtually impossible for one person to handle simultaneously. If I wanted to start a kettlebell company 10 years ago, I’d need to be a genius to run a great operation – I’d need to be great at advertising, purchasing, customer service, warehouse management, IT, HR, and a half a dozen other specialties. Sure, there are some people out there who can do this – but they’re one in a million, and that’s why most businesses are mediocre at best. An expert tradesman becomes a mediocre business owner. In the case of kettlebells, a hypothetical situation would be a personal trainer who saw a market for kettlebells and started selling them. Before she knows it, she’s shipping 100 orders a day and hiring people left and right. Her education is in fitness and probably had no formal business training, yet what her growing company really needs is a person who is an expert in managing people – a tremendously difficult skill set that requires daily presence at the office.

I’m going to let you in on a secret: to run a successful, automated business today, you only need to be good at one thing: choosing good services and software. I’m going to make you an expert at it.

#3. I need a good/great/new idea to start a business.

Every entrepreneurial book I’ve read talks about the importance of standing out. The books say that you need a great idea – “the next big thing” – in order to make it big. Jack Welch, the legendary CEO of GE, famously proclaimed that “if we can’t be #1 or #2, we shouldn’t be in the business at all.” I’m here to tell you that everything popular is wrong (Oscar Wilde).

I’ve got news for you – if you spend your life waiting around for that brilliant Apple-crushing idea to come along, you’re probably going to die poor. Like I said before, my goal isn’t to make you a millionaire – it’s to generate a small but growing automated income stream. A big idea will make you rich, but it is also incredibly difficult to get off the ground. Once successful, it requires constant attention and you’ll probably have to sleep under your desk if you want to make it big.

There is tremendous opportunity for you to compete in a market with established companies. Instead of competing with an innovative or superior new product (the Apple way), you’re going to compete by excelling where most businesses fail – operations. Today’s customer wants speed and consistency – they want easy-to-use websites, same-day free shipping, and perfect customer service. It sounds like common sense – most big-name ecommerce sites have this down to a science – but in terms of niche products and small businesses, most fail on at least one of these points.

A Real Life Case Study

I started working out with kettlebells about a year ago, and when the time came to get a set for myself, I started doing some research. I was blown away at how poorly the sites were designed – even the leading kettlebell suppliers made it difficult to find what I was looking for. I eventually settled on a well-known kettlebell supplier, placed the order, and 4 days later, they shipped them out. FOUR DAYS. I find it unconscionable that a company would sit on an order this long, but that’s just the way small businesses work. I paid about $60 for the kettlebell, but shipping was $25 – that means I paid 40% extra just to get it to my door. When the product finally showed up, it was damaged because the packaging sucked.

In the 4 days that it took to get to me, I contacted an iron foundry in China, wireframed my website, and started the process of forming an LLC (impulsiveness affects everyone differently, and I have a particularly bad case). I could think of no way to make a kettlebell better – it’s literally a chunk of raw iron – but the way the kettlebell businesses were run left a lot to be desired. I decided to compete as follows:

• Free shipping. I’m able to do this because my fulfillment company passes along their enormous FedEx discount to me. I pay a lot less for shipping than my competitors do.
• Orders ship same day. If you place an order by 2pm, the order ships today.
• Intuitive, easy-to-use website. It’s basically 1 page with all the kettlebells lined up. You can visually see the difference and you can choose your size in a matter of seconds.
• Custom packaging. This was one of the biggest investments, but it’ll pay off in customer satisfaction. I had special, virtually-indestructible double-wall boxes made with my logo printed on it. This means less returns and gives the customer a high-quality, big-company feel – this translates into more reorders and word-of-mouth referrals.

As an exercise, I want you to keep a journal for the next week. Every time you buy a product or use a service, ask yourself the following question: On a scale of 0-10, how likely is it that I would recommend it to a friend or colleague? It’s called The Ultimate Question, and it reveals everything you need to know about a business. At the end of the week, review your results. For the “2 and below” experiences – what was it that made these so bad? For the “8 and above” – what was it that made these so great? Can you think of a way to compete against the “2 or below” business by using the techniques employed by the “8 and above” company?

You’ll find that many entrepreneurial success stories are borne out of necessity – someone is frustrated by a bad experience and finds a way to do it better. Keep you eyes open and these opportunities will start to jump up everywhere around you. Poorly run businesses are much more common and you’ll rarely come across an “8 or above” experience. As unfortunate as that is, I see it as an indicator that the market is wide open for the taking.

In my next post, I’ll show you how to choose a market in which to compete and how to have your product made overseas without expensive R&D or big minimum quantities. We’ll get back to setting up a great operation a bit further down the line.

Until the next time – un abrazo fuerte.