Profitability often requires better rules and speed, not more time. (Photo: Jetta Girl)
I wrote this “margin manifesto” several months ago and somehow neglected to post it. Your requests for more content on start-up economics and processes reminded me.
These are the principles I review whenever facing operational overwhelm or declining/stagnating profits. Hope you find them useful.
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The financial goal of a start-up should be simple: profit in the least time with the least effort. Not more customers, not more revenue, not more offices or more employees: more profit.
Based on my interviews with high-performing (using profit-per-employee metrics) CEOs in more than a dozen countries, here are the 11 basic tenets of the “Margin Manifesto”… a return-to-basics call that gives permission to do the uncommon to achieve the uncommon: consistent profitability (or doubling of it) in 3 months or less.
1. Niche is the New Big — The Lavish Dwarf Entertainment Rule:
Several years ago, an investment banker was jailed for trade violations. He was caught partly due to his lavish parties on yachts, often featuring hired dwarves. The owner of the dwarf rental company, Danny Black, was quoted in the Wall Street Journal as saying: “Some people are just into lavish dwarf entertainment.” Niche in the new big. But here’s the secret: it’s possible to niche market and mass sell. iPod commercials don’t feature dancing 50-year olds, they feature hip and fit 20-30-somethings, but everyone and his grandmother wants to feel youthful and hip, so they strap on Nanos and call themselves Apple converts. Who you portray in your marketing isn’t necessarily the only demographic who buys your product — it’s often the demographic that most people want to identify with or belong to. The target isn’t the market. No one aspires to be the bland average, so don’t water down messaging to appeal to everyone–it will end up appealing to no one.
2. Revisit Drucker — What Gets Measured Gets Managed:
Measure compulsively, for as Peter Drucker stated: what gets measured gets managed. Useful metrics to track, besides the usual operational stats, include CPO (“Cost-Per-Order,” which includes advertising, fulfillment and expected returns, chargebacks, and bad debt), ad allowable (the maximum you can spend on an advertisement and expect breakeven), MER (media efficiency ratio), and projected lifetime value (LV) given return rates and reorder %. Consider applying direct response advertising metrics to your business.
3. Pricing before Product – Plan Distribution First:
Is your pricing scalable? Many companies will sell direct-to-consumer by necessity in early stages, only to realize that their margins can’t accommodate resellers and distributors when they come knocking. If you have a 40% profit margin and a distributor needs a 70% discount to sell into wholesale accounts, you’re forever limited to direct-to-consumer… unless you increase your pricing and margins. It’s best to do this beforehand if possible – otherwise, you’ll need to launch new or “premium” products — so plan distribution before setting pricing. Test assumptions and find hidden costs by interviewing those who have done it: will you need to pay for co-op advertising, offer rebates for bulk purchases, or pay for shelfspace or featured placement? I know one former CEO of a national brand who had to sell his company to one of the world’s largest soft drink manufacturers before he could access front-of-store shelving in top retailers. Test your assumptions and do your homework before setting pricing.
4. Less is More – Limiting Distribution to Increase Profit:
Is more distribution automatically better? No. Uncontrolled distribution leads to all manner of head-ache and profit-bleeding, most often related to rogue discounters. Reseller A lowers pricing to compete with online discounter B, and the price cutting continues until neither is making sufficient profit on the product and both stop reordering. This requires you to launch a new product, as price erosion is almost always irreversible. Avoid this scenario and consider partnering with one or two key distributors instead, using that exclusivity to negotiate better terms: less discounting, prepayment, preferred placement and marketing support, etc. From iPods to Rolex and Estee Lauder, sustainable high-profit brands usually begin with controlled distribution. Remember, more customers isn’t the goal; more profit is.
5. Net-0 — Create Demand vs. Offering Terms:
Focus on creating end-user demand so you can dictate terms. Often one trade publication advertisment, bought at discount remnant rates, will be enough to provide this leverage. Outside of science and law, most “rules” are just common practice. Just because everyone in your industry offers terms doesn’t mean you have to, and offering terms is the most consistent ingredient in start-up failure. Cite start-up economics and the ever-so-useful “company policy” as reasons for prepayment and apologize, but don’t make exceptions. Net-30 becomes net-60, which become net-120. Time is the most expensive asset a start-up has, and chasing delinquent accounts will prevent you from generating more sales. If customers are asking for your product, resellers and distributors will need to buy. It’s that simple. Put funds and time into strategic marketing and PR to tip the scales in your favor.
6. Repetition is Usually Redundant — Good Advertising Works the First Time:
Use direct response advertising (call-to-action to a phone number or website) that is uniquely trackable – fully accountable advertising — instead of image advertising, unless others are prepurchasing to offset the cost (e.g. “If you prepurchase 288 units, we’ll feature your store/URL/phone exclusively in a full-page ad in….”). Don’t listen to advertising salespeople who tell you that 3, 7, or 27 exposures are needed before someone will act on an advertisement. Well-designed and well-targeted advertising works the first time. If something works partially well (e.g., high response with low percentage conversion to sales, low response with high conversion, etc.), indicating that a strong ROI might be possible with small changes, tweak one controlled variable and micro-test once more. Cancel anything that cannot be justified with a trackable ROI.
7. Limit Downside to Ensure Upside — Sacrifice Margin for Safety:
Don’t manufacture product in large quantities to increase margin unless your product and marketing are tested and ready for roll-out without changes. If a limited number of prototypes cost $10 per piece to manufacture and sell for $11 each, that’s fine for the initial testing period, and essential for limiting downside. Sacrifice margin temporarily for the testing phase, if need be, and avoid potentially fatal upfront overcommitments.
8. Negotiate Late — Make Others Negotiate Against Themselves:
Never make a first offer when purchasing. Flinch after the first offer (“$3,000!” followed by pure silence, which uncomfortable salespeople fill by dropping the price once), let people negotiate against themselves (“Is that really the best you can offer?” elicits at least one additional drop in price), then “bracket”. If they end up at $2,000 and you want to pay $1,500, offer $1,250. They’ll counter with approximately $1,750, to which you respond: “I’ll tell you what — let’s just split the difference. I’ll overnight FedEx you a check, and we can call it a day.” The end result? Exactly what you wanted: $1,500.
9. Hyperactivity vs. Productivity — 80/20 and Pareto’s Law:
Being busy is not the same as being productive. Forget about the start-up overwork ethic that people wear as a badge of honor–get analytical. The 80/20 principle, also known as Pareto’s Law, dictates that 80% of your desired outcomes are the result of 20% of your activities or inputs. Once per week, stop putting out fires for an afternoon and run the numbers to ensure you’re placing effort in high-yield areas: What 20% of customers/products/regions are producing 80% of the profit? What are the factors that could account for this? Invest in duplicating your few strong areas instead of fixing all of your weaknesses.
10. The Customer is Not Always Right — “Fire” High-Maintenance Customers:
Not all customers are created equal. Apply the 80/20 principle to time consumption: What 20% of people are consuming 80% of your time? Put high-maintenance, low-profit customers on auto-pilot–process orders but don’t pursue them or check up on them–and “fire” high-maintenance, high-profit customers by sending a memo detailing how a change in business model requires a few new policies: how often and how to communicate, standardized pricing and order process, etc. Indicate that, for those clients whose needs are incompatible with these new policies, you are happy to introduce other providers. “But what if my largest customer consumes all of my time?” Recognize that 1) without time, you cannot scale your company (and, oftentimes, life) beyond that customer, and 2) people, even good people, will unknowingly abuse your time to the extent that you let them. Set good rules for all involved to minimize back-and-forth and meaningless communication.
11. Deadlines over Details – Test Reliability Before Capability:
Skills are overrated. Perfect products delivered past deadline kill companies faster than decent products delivered on-time. Test someone’s ability to deliver on a specific and tight deadline before hiring them based on a dazzling portfolio. Products can be fixed as long as you have cash-flow, and bugs are forgiven, but missing deadlines is often fatal. Calvin Coolidge once said that nothing is more common than unsuccessful men with talent; I would add that the second most common is smart people who think their IQ or resume justifies delivering late.
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I love Pareto’s law. I’ve always known this idea intrinsically, but I was never able to articulate it until I found Pareto a few months ago.
~Sean
Now that was amazing. I was just wrapping up a company meeting where we were discussing applying the 80/20 rule to a product that is consuming too much of our time to fulfill. After we discussed our options on how to make some adjustments, my RSS reader went “ding!” as if your post wanted to participate in our meeting. Great timing. 🙂
Jeff
Outstanding Post. How would you perceive companies that are not based on products directly? I mean companies like Myspace, Facebook, Twitter, companies that rely on hits being the metric by which they become successful. How can one measure whether a community will be built around a single idea?
Thanks
Jose Castro-Frenzel
My question too is, Did having “As seen on TV” assist you in your sales of your product?
Jose
I love Pareto’s law. I had always known it intrinsically, but I could never articulate it until I learned about Pareto.
~Sean
Great advice, amazing how a profitable business can be had by following a few simple steps. Glitz and snazzy PR work, at the end of the day, doesn’t have staying power. I mean, at some point we’ll be tired of talking about Paris Hilton, right? right?
Glad you “found” this after a few months.
Enjoyable and informative article.
Thanks for the inspiration.
In #8, I think that last figure should be $1,500.
Tim-Love the post. I especially like the part about firing high maintenance customers and focusing on a tight niche.
I also liked your points about Pareto’s law. I have more trouble with this, but I’m making progress. I’ve been able to cut my work hours to around 20/week which allows me time to work on a side business and still have time for a personal life.
Keep up the good work!
Tim, as usual thank you for a useful post that’s short and to the point.
This is (mostly) common sense to me. The key to all of this is the product. What product are all of your followers becoming newly rich on? Seems like all I see are spin-off lifestyle blogs promoting mediocre ebooks. The product is key and a product that works the way you describe is *very hard* to find. There are only so many people that can make money selling brain-enhancing supplements. Sorry, this post is based in frustration in trying to find a great product following your tenets.. Arrg.. I’ve been brainstorming sinceI read your book right after it came out! 🙂
I do love the blog. Thanks for sharing.
Victor
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Hi Victor,
Not to worry. Nothing worth doing is easy. Simple, often, but easy — not often.
Examples of successful products range from photograph enhancement and software design, to magazine publication and restaurants. It’s not at all limited to “brain supplements” or anything of the type, and I — on the record in many cases — actively dissuade people from pursuing ingestibles.
I think spin-offs are common because they require less thought than an original product. Some will no doubt generate temporary income, and there is nothing wrong with derivatives, but I question the shelf-life.
Hope that helps,
Tim
Tim,
I’m glad you are taking the time to flesh out some of the start-up principles you outlined in the book. For me, this has been the area I’ve struggled with the most since trying to achieve my own 4 hour work week. (Planning for mini-retirement– no problem!) I’ve started my first company based on your model and have been learning on the run… in particular, I’ve struggled with pricing. As you wrote, many companies don’t build enough margin in during the ‘direct sell’ phase and I’ve caught myself in a bind where I feel like I would be sacrificing sales now in order to preserve distribution channels which don’t always have clear terms, and may or may not pan out.
Can you (or someone on the board) point to some resources further actionable insights on these topics? In addition to the pricing and distribution issues, I am interested in examples of how to create demand with ‘good advertising’ that can be measured.
Thanks for your help,
Dan
Excellent food for thought, I especially like the phrase “What Gets Measured Gets Managed”. Will definitely research these in more detail!
So what you are saying is if you retail your product out for a specific price then later you want to sell it to distributors you must have that specific profit margin in mind to begin with. Wouldn’t that be setting yourself up to losing customers on the retail end in the beginning? Maybe I misunderstood. I have a couple of websites, one retail. Blogging is causing it take off. My next step is to hire a copywriter, but until that is in the budget I will have to settle for buying Headliner Pro or Glyphius. Have you heard of either?
Great post, I will definitely apply those rules to my start-ups. This article elaborates well on the same chapter in your novel.
-Ram
In your negotiation example, when it comes to services I get a little apprehensive to negotiate too much. Often the service is inferior and the trouble to fix it is a large headache.
My friend does bids for his services and the company requires in the bid to show his profit margin. Counter to my thinking they actually want him to make a reasonable profit. They know he will be around where the others may not eventually.
Tim – REALLY cool post brother! Thanks my friend!
–z–
Two things:
In point 8, the last sentence, is “exactly what you wanted: $1250.” supposed to be a joke or is it $1500?
In your RSS feed, the Buzz button is not there.
Good post.
Thanks for the $1,500 correx, all. Fixed.
@All
Setting pricing to allow for distributors/retail shouldn’t lose you customers in the beginning.
If you choose a product and then just mark it up X times to allow for retail, yes, you could lose them, but that’s not what I’m suggesting.
I’m suggesting that — keeping necessary margins in mind — you choose a product that will allow for those margins while still offering a reasonable end price to consumers.
In other words: abandon a product that doesn’t offer sufficient margin at a reasonable price to both retailers and the end user. Do not choose a product, then multiply cost to reach necessary margin.
@Victor,
Not to worry. Nothing worth doing is easy. Simple, often, but easy — not often.
Examples of successful products range from photograph enhancement and software design, to magazine publication and restaurants. I — on the record in many cases — actively dissuade people from pursuing ingestibles. Too much liability for the inexperienced and undercapitalized.
I think spin-offs are common because they require less thought than an original product. Some will no doubt generate temporary income, and there is nothing wrong with derivatives, but I question the shelf-life.
Hope that helps.
@Jose
I think non-product companies like Twitter, Digg, etc. are perfectly viable IF the entrepreneurs’ objectives are in sync with potential exits (IPOs, acquisition, etc.) and they can live w/ a worst-case scenario contingency plan if that doesn’t happen.
Pura vida,
Tim
Awesome post Tim, thanks. I am launching a new blog soon and I have been thinking about many of the principles that you noted, you just slammed dunked the whole process. You rule
Brad
Nice post. Your book certainly had a lot of great stuff like this – I hope you will continue to do more business topics.
Tim,
Brilliant. I’m printing this out, and sharing it with my mastermind group.
Have a fabulous day!
Mr. Twenty Twenty
Hey Tim,
Sacrificing margin at first while testing is a great tip… and something that I’ve been doing… without thinking about it.
That also works great as an affiliate/reseller for mid to high end products ($50 – $500). Start at the max commission the manufacturer will offer… and convert the heck out of it and once you show them that you are producing sales… then go and ask for a higher commission/lower wholesale price.
Anyhow, great info that carries across more than just start ups.
Hey, what did you check out here in Portland (I’m here in Portland) while you passed through last weekend? I saw you hit Voodoo doughnuts up… hope you had a blast.
Chat soon,
– Trevor
Hi,
80/20 rule is a work/life balance saviour, although always difficult to align people with which part is worth going after.
Cheers,
Derek
Bookmarked.Thanks once again.
Tim, great post, glad you found this one and published it here.
Your lead (“The financial goal of a start-up should be simple: profit in the least time with the least effort.”) reminds me of something simple but smart about new businesses that I heard from consulting firm Innosight: “Be patient for revenue but impatient for profit”.
Related to your 11 basic tenets of the “Margin Manifesto”, here’s a post I made to my blog: “”6 big mistakes that people make in business”… these can work well together:
[Sorry D, but URL removed per comment rules. Otherwise, the blog quickly becomes a link fest. Cheers!]
Thanks again for the great read!
[From Tim: Thank you for commenting and the wonderful quote.]
– David
Funny that you posted your blog as I was at a meeting with a food broker who wants to rep our products, and the margins are something I was trying to determine. We sell innovative “better for you products” and we strive to do high margin products, but the marketplace in food is competitive, and it can be quite easy for others to determine margins. Tricky. On another note, great to see you repeat the pareto principle – I follow that as much as I can and it has helped my success a lot.
Thanks Tim. This precisely nailed 3 points I was suffering over this very morning. I’m going to dig into it and really put some road mileage on it.
Thank you for your generous spirit. Sharing it via my LJ.
Hey Tim,
When are you coming to Hong Kong?
Thanks Tim. This precisely nailed 3 points I was suffering over this very morning. I’m going to dig into it and really put some road mileage on it.
Thank you for your generous spirit. Sharing it via my LJ.
Live fast, love hard, and don’t let anybody else use your comb!
Who’s cool and has two thumbs? This guy!
Sorry, couldn’t resist with the Fonzie comment rules…..
Tim, as others have already commented, this is a really great post. And it’ll be particularly useful for those posters still thinking about, or trying to figure out how to take the leap.
I wanted to peek my head in and second. . .underline. . .bold. . . your 11th suggestion. As a firm that delivers a creative service, I tell my new hires that delivering on time is one of our most important responsibilities to the client, and it is in every position posting I throw out online.
Being late is endemic in creative industries, and products tend to be worked to death. . .as the creator is often never satisfied, and unfortunately, making the client wait means they’re never satisfied either — but for completely different reasons. Being late, in my opinion usually leads to an increased need to bring in new business because those who are constantly late, but “perfect” as you suggest, never have repeat customers.
I’d almost take off that second “1” and make number “11” number “1”.
Again, really great post! Cheers, D
Tim, great post–even for someone like me (a novelist) who can’t control many of the terms of how her final product is sold.
But what I can control is the negotiation for my payment, how much influence I have on the publisher’s decisions, and bonuses. Your point on negotiation was wonderful–I would love to hear more thoughts about practical, non-adversarial negotiations.
Because as soon as the deal is done I have to turn around and work very closely with the folks my agent and I were just negotiating with–so taking a hard-line on every contract point may look good on paper but might end up sinking my future if things become too adversarial.
Thanks!
CJ
Thanks for the reply, Tim. Sorry if my post seemed negative. Truth is: I’ve bought about 5 copies of your book as gifts for people and never miss a blog post. I’m a big fan. I can’t wait to see what you’re up to next.
[…] Pareto, Tim Ferriss, Toyota Production System, TPS | Tim Ferriss wrote a great piece called The Margin Manifesto: 11 Tenets for Reaching (or Doubling) Profitability in 3 Months. His suggestion to use the Pareto 80/20 rule for “Hyperactivity vs Productivity” is […]
I really do like the blog entries and the book. I was wondering though if anyone could help me with getting out of my current situation. I don’t have much to work with but don’t want to keep getting stuck in the same cage as so many others, is anyone willing to talk?
Good post, Tim. I can attest to all of these. I would add two other items to think about:
Barriers to entry: It’s not fun to have identified a nicely profitable small niche just to have a larger, better financed firm snag it from you. The good news is that barriers to entry can be as simple as ‘that market is too small for us (GE) to bother with’, or more substantial – patents (if you’re willing to defend them), specialized know-how, tight supplier relationships, the dominance of your brand, etc. Having a collection of barriers to entry is key, especially as your business start getting successful. And it’s fun to think about – ‘how can F#@& with my competitors if they spot my niche and try to come after me’?
Exit Strategy: I remember the first time I was asked about this, and I just kind of sat there in a board room and gaped, blathering about how we’d ‘stay profitable… good return to investor group’. B.S! If you have ANY investors – even family – be sure you’ve thought hard about exactly how you might sell or otherwise get out of the business, and return the investor’s money. It’s even a useful exercise if you’re not planning to exit (a la the 4HWW) – your exit strategy might be “when do I hand over all day-to-day operations to my staff and start backpacking around the world’. Exit strategy thinking clarifies many issues (why am I doing this, how long should I do it, how much money do I want to leave with, what’s my quality of life on the job).
– Karl
I need to meet you…. I have your same desires on advancement and challenges of life.
I am an adrenaline junkie, I crave to do all I can in my life, but I am now a small business owner and have not been able to continue my missions..
I have read the 4 hour workweek book at my reading pace and I am now going back and really trying to absorb the details.
I am having a hard time making the outsourcing work for me. I am the brain & worker of my business and have a hard time letting go of certain jobs to my employees…
My desires are traveling the world, but I have dedicated my time to the business now…
I left the country for about 6 months my Junior year of college to travel on the rail in Europe. I spent a month teaching a small girl to speak English in Austria and traveled to 13 other countries during my stay…
I have traveled most of the Western states in the US and have a desire to make my course to all of them in my life.
I am 28 years old and feel dedicated to make money and opening a business was my only alternative.. I refuse to work under somebody else.
I have been there and done that, I worked for my local city for a year and a half and also the local school district while going to school..
I am a graduate in Business Management and have thought about getting my Masters, but have not made the decision at this point in my life.
I am hoping you can give me a little push to guide me in outsourcing my jobs in my business..
I am really anxious to hear from you, I cannot stop reading your book and would love to meet you someday…
Hope you take the time to read my email yourself in all your adventures..
: ) Jamie : )
Very nice post. These three statements jumped off the page at me, forcing me to really think about how I am (or should be) incorporating them into my own efforts:
“so don’t water down messaging to appeal to everyone—it will end up appealing to no one.”
“Outside of science and law, most ‘rules’ are just common practice.”
“Perfect products delivered past deadline kill companies faster than decent products delivered on-time.”
Thanks for your great post again.
I just checked my client list and the total revenue each of them have generated over time. I found that 25 % of my best customers have brought almost 85 % my sales. That wasn’t such a big surprise but when I paid attention which customers needed most of my time. I found that 10 ( 5 %) of the most difficult customers steal 35 % of my time and they really are not the most profitable ones as you can easily imagine.
I try really hard to let go of the headache customers to free time for more profitable ones. I believe my life will be better off those trouble makers even if it means some lost sales.
Have to admit that still the idea of firing some customers makes me sh*t into my pants 😉
Matias – Vagabond Investors
Tim Thanks for taking the time to help us out here. I hope by the time I am able to exit the rat race 30 won’t be as old as it sounds right now and things like this post ups the learning curb for us. Any word yet as to when the updated version of 4HWW will be out? Thanks!
Well, I must say, I am surprised. I just finished your book and you blew me away.
Not so much the general message, or that you’re teaching people how to be assertive. (Which was pretty funny. It never ceases to amaze me how many people have problems asserting themselves. It’s like teaching someone how to be an 8 on the enneagram; if you don’t know what this is, you should look it up. It’s hysterical.)
What surprised me is to hear someone mention participating in Brazilian JuJitsu and tango. I nearly fell out of my chair.
I have been a Brazilian JuJitsu/Muay Thai fighter for 6 years, and a tango dancer for just as long. Being a woman it’s difficult to get a lot of MMA fighters to respect you. Most of them don’t want to train with you since they’re afraid of hurting you. This has been a challenge that I’ve had to overcome (in addition to having a severe cardiac condition since birth). I would get funny looks from people when they ask what I enjoy and I say “Oh, well I do a bit of Muay Thai and Brazilian JuJitsu, and I tango, and I paint, and….” The most frequent question is “What is Muay Thai & Brazilian JuJitsu?”
It’s so incredibly rare to hear someone mention in a book, no less, that they enjoy both MMA and tango. You get kudos just for that.
Oh, and also, the book was excellent. I have had a business model in mind for several years but I never thought seriously about pulling it off until now.
Take care, and all the best.
Hi Tim,
I will tape this next to my keyboard, so I can’t avoid it. Especially in the blog world, many folks, including me, get lost in the “means” rather than work on the “end”. As you’ve said in the book, we need to focus on “dollars per day” that must be generated to meet the goal.
Thanks,
Dan
WOW,
You got lots of people wanting to meet ya. A heads up to everyone, I suggest using the forum. There are a lot of great minds willing to help in the forum.
Cheers
Jose
Donald Trump writes about limiting downside as well in his book The Art of the Deal. Most would consider him a pretty enterprising business person, and without question a ballsy one.
Hope you’re enjoying Portland. From the looks of it in the Huff Post, you must be. 🙂
Tim – great points. All valid. But most people will read this and say “great, that’s cool, he’s right, let’s do this, etc” and a week later nothing has changed.
The number one issue in moving a business forward is that it is a pain in the ass to follow a management system that generates the results are possible. Look at your point that you get what you measure. You probably know you don’t have to measure a lot to know whether you are on track or not. Plan, actual, variance is the key to the vault with the gold.
I am the Results Expert because I insist companies follow a proven process for making more money. I say I teach them but in reality most already know they just are not doing it.
Thank you Tim for this article.
Steve Pohlit, Presdent
International Resources
hey Tim,
Alex Jeffreys here from the UK.
I just wanted to leave you a quick reply as
I’ve just finished reading the 4 hour work week
for the 2nd time 🙂
First time Phuket Thailand (this christmas)
then back home to re-design my online business
fast forward to this month Im already making double
the money and taken double the time off ???
Second time reading 4hww Cancun Mexico (this month)
you can read my comments & what I think about 4hww
and my new lifestyle here …
http://marketingwithyou.com/free-ride-into-your-future/
look forward to meeting up soon tim
alex
Hey Tim,
Just started reading your book and i think it is great. I am having some troubles answering some questions in chapter 5 because i am not working. I used to play a sport for a living till it sucked me dry and i refuse to enter into the insane would of 9-5, it is never an option. So, that said how and what does a person think about starting up and making some good money quickly without putting in those long days that the “real” world does.
thanks for you passion and this book
Steve
Hi Tim,
You mention some really useful ‘rules of thumb’. Charlie Munger, Warren Buffet’s business partner is a great thinker in terms of ‘rules of thumb’, or to be more specific ‘mental models’. Some great ones for business include (shameless self-promotion, as they are on my website):
Moat around the business (competitive advantage);
Switching costs (both from your business and those of the competition);
Getting further along the learning curve (core competence);
Using the network effect;
Ability to raise prices;
Ability to minimize, or maximize, one/two key variables;
Standardization (production or delivery process);
Company culture (eg. thinking patterns in Toyota);
Catching some kind of wave (implicit/explicit);
Hope the ideas help others.
Best – Dean
Yea, nice list of points….I remember reading an article about small business startups and the people all said that most of the time the owner ends up being an employee, rather than an owner because their business model didn’t allow for scalability or automation. Def gotta view the full life cycle of the plan before taking any action.
Okay Tim,
This isnt a post related to the topic but the first part of me trying to contact you for some one-on-one, whether by email, phone, or in person.
I’m all for business and making it work in ones favour to enjoy the life we have been given. My travelling day are coming up this december when I first emark to Australia with a one way ticket so I can continue up to asia. If I choose that school is worth finishing, my last semester has to be done in another country. Im thinking argentina or spain as of now. Having been to both im assuming, which place do you think is best to awaken the soul?
I could start skowering the net in search for you number but I thought leaving you my email to start might be best…..mattbailey84@hotmail.com
Enjoy your day, night and morning!
Matt
Tim is quoted in this CNN article today:
http://www.cnn.com/2008/LIVING/wayoflife/06/26/outsourcing.life.ap/index.html
I followed your 80/20 principal over the last couple of days and I would honestly say that there has been a 500% increase in my results. My company caters to the Jet Set Lifestyle and has an enormous amount of daily e-mail etc. I have identified the 20% that gives me the results I’m after and haven’t looked back. Great post and Thank you!
Hey everyone,
This question is off topic, but you all are so smart, I thought I’d get some advice if I can.
I have a marketing idea for an existing mass-produced product (its in every grocery store) that I would like to market for a new demographic and new purpose. I feel the existing co. is totally missing a huge market by not doing this! What is the best way to approach this? Any help or website for further research is appreciated!
Thanks guys!
Pete
Brilliant post Tim.
Your business posts are just perfect for any entrepreneur seeking for solid and useful advice. These are FAR better than most of the “so called” business and entrepreneur blogs.
I’m a co-founder of a tech startup in Brazil and a big fan of your work.
Leo Kuba
Well, Pete, the best approach I can think of is to very publicly specify exactly what it is you are considering. Don’t hold anything back. Include all brand names, the market demographics, and your excellent new model. Then just wait around for someone to come knocking on your door with a bunch of money. There probably is no better venue than the comments section of Tim’s blog, so just go right ahead, we are all listening…
Actually just kidding, in case you didn’t catch the sarcasm. But there is no way for me personally to recommend a next action without knowing more. You should find a *trusted* friend or colleague, and discuss this further with them. If you have someone you trust with your finances (tax advisor?) then they would be a good source. If you have a trusted attorney, s/he would be another. If you don’t have either one, why not?
Is it me? What happened to the Overture keyword search page? I keep getting sent to a Yahoo page. Check it out – http://inventory.overture.com/d/searchinventory/suggestion/
Hi Tim,
Off topic, but I saw your twitter update that you are in my hometown of beautiful Vancouver. Wish I could say the same for me. You’re bloody awesome and a huge inspiration!
Tim,
You’re # 9. Hyperactivity vs. Productivity really hit me hard. That’s been my main objective this month and I’ve been offloading a number of things and tomorrow will spend the morning closing affiliate accounts that are not working and pushing what does work.
I think it’s important to keep in mind because I know that I feel very tired, yet I don’t feel I’m as far as I should or could be…so I’m taking a look at what is not working and getting rid of it all together.
Thanks for this post. I’m happy I checked it.
Miss Gisele B.
Hi Tim.
I find the 10th point (The Customer is Not Always Right) very correct and precise. I’ve this in my mind all the time, too, and try to automate processes for clients (for a major Market Research firm I work for). Nevertheless, I guess I’m in a business that may not be ‘repaired’, as the management is constantly afraid of losing clients and ‘surrenders’, giving up more and more to retain (in their mindset) the customer.
Thus, I’m in the process of creating my own company (of course in a different industry) in order to apply the principles I think shape a healthy, profitable enterprise. By the way, the company I currently work for is trying to deal with low (small, single-digit) profitability by the (in my opinion) absolutely mistaken way of cost-cutting, just to make things even worse.
I’d be glad to hear your point of view.
Cheers,
Pete
Fantastic post Tim.
Thank you. Perfect timing for something that I needed to read.
Dear Tim,
Thank you so much for your book. I’m currently reading it for the second time. All the tips you provided us with I’m sure are helpful, but it seems that such techniques are much easier to accomplish and utilize in the U.S. rather than anywhere else. I’m probably too narrow-minded in a business sense but I live in Russia and setting up online business seems harder here. My questions are:
1) Can you please let m know if it’s possible to establish business anywhere for any place or does it have to be tied to the place I live in?
2) And also, can you please provide a couple of sources rather than thomasnet to get some ideas on a product to sell?
I got many ideas but all of them evaporate after a detailed analysis of markets and demands.
Please post or email me at lylylyly(at)mail(dot)ru.
Thank you for all the help and inspiration you have given us to get one step closer to becoming NR.
Sincerely,
Liliya I.
Tim,
In regards to your twitter post about being in Whistler – I hope you get a chance to make it to the Stampede in Calgary. It’s starting this Thursday, and is 10 days of partying. Don’t miss it!
I know this is off-topic, but I hope you are enjoying yourself in Beautiful British Columbia! I also did the Sea-To-Sky Highway on vacation last year and it was one of the most stunning drives I’ve ever done!
Thank you for your book and this blog — I will be referring to both as I get an internet business up and running in the coming weeks and months.
Cheers,
James S.
Aloha Tim,
I started your book today and had to pause when I read: Creative contract negotiation is essential and most readers will run into problems if it is their first product. I have run into plenty of problems but without them I would not be so good at; what not to do -Grin.
I can’t find some information you alluded to having available on your web-site. Could you be so kind and point in the direction where I may find this information? You mentioned to having real case studies and full agreements with actual dollars amounts etc… page 156. I am just curious what that all entails.
I am very interested in selling my inventions but lack the no how and who too. I want to find the company who sells to the retailers cut me out so to speak doing all the leg work and have someone else do it for me and cha ching.
Is this contact information you have and share?
Big Smiles!
Hi Ferris,
Just finished your book! Wow, you have done a lot of liven in your 29 short years. I came away with the feeling that you are a very old soul come to teach us not so free spirits a thing or two. Enjoyed you book immensely and will use as a guide for my business Truson Organics. Good luck in all you do,
I hope our paths cross someday I’d love to give you a hug!
Thanks for the great book,
Mavis Erikson
Truson Organics Inc.
( Director of Stuff)
I am partially crediting this post with saving me from mistakenly engaging a business partner who exhibited potential but was in many ways a mere indulgence on my part and not a necessity. So, instead of teaming up, I threw him out of my house today. Strange but true.
Thanks for the inspiration.
Hey Tim,
I have heard some much about you but resisted for some strange reason checking out your info. Just read this post and loved it so much that I have just gone and purchased your book. Cant wait to get my hands on it.
Cheers
Rich Muir
Greetings Tim, NR, and all you fabulous people!
What should be the first step towards taking a hiatus for travel from my place of work?
Also, I am in broadcasting, and at the moment want a business in creating my own podcast/radio programs. How do I use the “becoming NR” tools to start a business that makes money while I sleep. Achieving what I “want” means having more freedom and breaking away from the “9-5.”
Thanx all,
Peace in…
& blessings to all.
Just read this which is in a similar vein to Ori Brafman’s book. I’ll pick up a copy when I get a chance.
“In one study, a group of Stanford students was exposed repeatedly to an unsubstantiated claim taken from a Web site that Coca-Cola is an effective paint thinner. Students who read the statement five times were nearly one-third more likely than those who read it only twice to attribute it to Consumer Reports (rather than The National Enquirer, their other choice), giving it a gloss of credibility.” ~ http://www.iht.com/articles/2008/06/29/opinion/edwang.php
It’s slightly disheartening that our minds are prone to deceiving us. Does anyone know if Brafman proposes solutions in the book?
# 11 is the most important one to keep in mind. Deadlines are the most important thing in our customer’s minds. If it ain’t done – give them something other than an excuse. A partially completed product is psychologically more meaningful to the customer than nothing.
Chris Henry
http://www.greenerversion.com
An amazing book about the factors of influence and what makes someone says “Yes” is Robert Cialdini’s, “Influence: The Art of Persuasion”. Once you’re aware of these tactics, you can defend yourself from them and also use them to your advantage. Highly Recommended.
Hi Tim,
My name is Yves Marie Danie Baptiste, a fan of yours.
I’m not sure if I’m posting this in the right place at your blog. ??
I was reading an article earlier and immediately thought of you because
this would give you an opportunity to sell more of your books
if you were to piggy back on it. Take care and keep on rocking!
Here is the article link:
http://www.usatoday.com/news/nation/2008-06-30-four-day_N.htm?se=yahoorefer#Close
###
Hi Yves,
This is a great article! I will definitely link to this… 🙂
All the best,
Tim
Peteyak:
Your first move should be to get an idea of the product licensing market.
4HWW has an overview chapter on that, but “How to License Your Million Dollar Idea” by Harvey Reese is good too.
Glad to see you emphasize the importance of “call to action,” fully trackable advertising. Online, click-to-actions can point you to exactly where, when and by what route people got to your ad. The same principle can be used in off-line advertising, too — for example, with unique 800 numbers. This also makes it easy for customers to connect, helping to build a relationship.
Tim – nice post, many great points but I think you’ve got a few mixed messaged in #1 and #6.
* The target isn’t the market – TRUE
* don’t water down messaging to appeal to everyone – TRUE
* but everyone and his grandmother wants to feel youthful and hip, so they strap on Nanos and call themselves Apple converts
UM NO – the reasons behind product purchases from segments outside of the target are non trivial. I think tipping point theories offer a better explanation as lots of non-target segments don’t give a toss about what the target segment does and won’t buy the product as a result.
#6
If what you are saying is true it means that people would immediately buy something after the first exposure to a marketing communication otherwise the communication is flawed. Purchasing decisions are usually quite complex and depend on a number of variables – repetition has been shown to increase purchase readiness. HOWEVER not necessarily repetition of the same ad but repetition of the message – e.g. a friend telling you about a new product after you’ve seen an ad for it.
-Stef
Hi Tim – I’m wondering if you accidentally wrote this the wrong way round – or am I missing something? Would it not be better to fire the high maintenance, low profit customers and put the high maintenance, high profit customers on autopilot?
Just curious as to why the high profit customers would get fired and the low profit customers would stay. Or is it because you don’t believe the high profit customers would stand for being put on autopilot anyway, so you might as well get rid of them?
Hey Tim
I was in the midst of trying to reorganize my life to find more time to dedicate to running my business whilst raising my 1,3,and 6 year old daughters.
I’m a third into your book and have scraped the notion of “more time”.
Effectiveness vs efficiency………….ummmm that is so good.
I love hanging out with my three little dumplings.
One thing I have also learned and I don’t know yet if you make reference to this in your “4hww”, but that is about where you set your sites.
When I was pregnant with my first gal, I aspired to create a business that would allow me to work from home, where I put in about one to two days a week, and I make enough to pay my bills. Lo and behold that’s exactly what I got. Most of this is great except the part about just paying my bills. This is where I sold my self/sites short. What I really truly secretly wanted was to create a business that would allow me to work from home, where I put in about one to two days a week, and I make a shit load of money.
But I didn’t have the guts to say that not just to other people but even to myself!!
I equate time with money – the more time you put in the more money you make.
I thought it ludicrous to think I could get rich working one day a week and for the most part I believe that it is precisely why I am not rich working one day a week….I didn’t BELIEVE it possible.
Not anymore.
Thanks
Nancy
PS you have a kick ass sense of humour – I can’t remeber the last time I read anything that had me laughing out loud.
I have the same question as Cath… Is the point of “firing” the high maintenance, high profit customers that you hope to reform their behavior thus saving the relationship?
Quoting: Cath Lawson July 6th, 2008
8:40 am Hi Tim – I’m wondering if you accidentally wrote this the wrong way round – or am I missing something? Would it not be better to fire the high maintenance, low profit customers and put the high maintenance, high profit customers on autopilot?
Just curious as to why the high profit customers would get fired and the low profit customers would stay. Or is it because you don’t believe the high profit customers would stand for being put on autopilot anyway, so you might as well get rid of them?
@ Liz and Cath:
I recommend firing high-maintenance customers, even if they are high-profit. That’s just the point I wanted to make.
People find it easier to “fire” or part with low-profit, high-maintenance, so it’s the type above that usually prevents them from scaling up in revenue or down in time requirements.
Hope that helps!
Tim
Pareto’s 8020 Rules!…here is why (paretoplatform.com, my8020.com) and now you’ll know.
Knowledge is Key.
hastala8020,
IE/AI
Hi Tim
Loved the book, putting into practise. Just establishing a company In Australia based on the spirit of entrepreneurship.
Want to know if 4HWW is published in India and if not i would like to know your requirements so i can publish in India.
Awaiting your quickest reply and keep on rocking
Karen Heiden
Yeah, Tim. I believe you don’t have a book published in Russia either. Please do let us know about the requirements. I would love to help you transkate and distribute in Russia.
lylylyly(at)mail(dot)ru
I have an idea for a product. And by doing some preliminary research I have found an existing patent from 1970 and the same patent applicant modified it twice until 1892. Is there anyway to find out if the product was ever manufactured, produced?
Is there a way to find out if the patent owner is even still alive.
Any help would be appreciate.
This book has changed the way I am thinking about business. Thanks for sharing it with the world.
Dear Tim, I love your book and blogs, and am about to be a second year college student. Do you have any course recommendations to aid in entrepreneurial success? Thank you – Austin
@Austin,
I’d recommend:
Non-fiction writing or creative writing — for clear thinking
Foreign languages — non-linear thinking
Accounting in the context of entrepreneurship, if possible
Good luck!
Tim
Mr. Ferris,
you da man.
I’m on my 2nd reading to take notes, & more importantly action!! I’d like to thank BusinessWeek for the recent article that turned me on to your book. Simply said, your book may be the pebble that started an avalanche of action on my part…in a good way ofcourse, no St. Bernards necessary to recover my body…I hope.
I’ve always felt guilty thinking working less & playing more was not “appropriate”, but when else are we going to do it, when we retire @ 60?!!
Tim, a heart-felt thank you for your insight, advice & spirit. I know I’m ready for some positive action & a lifestyle to be the envy of my neighborhood “Joneses”
Drop me an email(whenever you actually check them.) if or when you visit South Florida to perhaps pique your interest on an “off-the-road” biking adventure.
Best of luck & health. Keep the posts coming.
Cortina
My Background: I am German, live in Germany, but I travelled and worked already in many different counties, incl. 6 years in Dubai and 2 years in Canada. With 29 I already had more then 60 Employees and my department made 40 Mill EUR on revenues. I read this book in English to make sure there was nothing “lost in translation”.
Here is my social experiment: Just 5 days ago I posted in around 8 different forums where this book is currently discussed, that I am suggesting to have all over Germany (and the planet) small casual 4hww gatherings as a form of leisure activity and to party and celebrate the mobile MBA.
This idea came to me after I discussed the book within my friends, just to find out that nobody was able to understand the key messages in that book.
Now, 5 days after I posted this in Germany, I got just one (1) Email back! In that Email I am being asked “…why to gather, we could meet in forums…”
My observation: Even so many may have read the book, Tim might be the only one out there who enjoys most his ideas (with his friends) about elimination and liberation and rediscovering life!
My intention was to find people, all over Germany and the planet, then to meet anywhere and anytime. Because within our own social network, it will be very hard to find someone to travel with, for extended periods of time or to share these mini-retirements.
What are your ideas about my observation?
Patrick
[…] Ferriss makes some excellent points in his post The Margin Manifesto: 11 Tenets for Reaching (or Doubling) Profitability in 3 Months which it got me thinking about how margins are changing in the software business and why enterprise […]
How can these tips be implemented for service companies (I run a plumbing company)?
[…] a recent post, best-selling author and business guru Tim Ferriss (”The 4-Hour Work Week”) advises […]
Hi Tim,
First of all – Great book. It really put everything I was thinking and MUCH more in a logical order for me.
I bought your book twice! 🙂 Second time to replace the lost copy.
I’ve been thinking of how to turn my SERVICE business into something that you advocate all along – a biz that does not require me to be there and control things. But for last year or so I have not been able to come up with the way to transform.
In your book, in the beginning of Ch. 9 you briefly mention the transformation of services-based biz into products based one, but jump right away into products.
Anyway, I have eliminated a lot of annoying things I had to face before, like customers bugging us left and right for a free estimate – now we charge $100 for them 🙂
Never the less, only a couple of above manifestos will work for our biz model – like the 80/20 and “less is more”.
But steel we need a total transformation of biz.
So here are my thoughts:
We have a high-end roofing company with very little competition in our segment. My partner and I, we do sales/management and have a crew to do the work. We also created a way to generate alot of targeted sales leads, so finding customers is not a problem.
What I want to do now is to one:
1 – Outsource all the management of the work and just sell the jobs for who-ever installs the roofs.
2 – Simply sell roofing leads to local roofing companies in the same segment. I know there is at least 20 other companies installing similar products.
3 – Sell the biz all together. This will give us time to concentrate on our other interests and will let our small “muzes” to grow.
I’ve never done the “biz selling”, but my idea is to retain a small stake in it (like 10%) and have nothing to do with managing. I would also want to retain control of leads generation as in my opinion it is the biggest asset of our biz.
The plan is to work the second and third options for now, as that will actually allow me to disappear from the managing scene 🙂
I can take care of part two, but had questions about selling.
What is the good source to find perspective buyers? (Except of course the local competition)
What is involved in business sales?
Where do I start?
Thanks in advance,
Leo
@Leo,
Gotta run, but I highly recommend checking out a book titled “How to Sell Your Business” by Colin Gabriel.
Good luck and congrats on the progress!
Tim
Hi Patrick,
They’re out there! The last few meet ups I’ve done have had a few hundred people each, and http://www.meetup.com is a great tool to use for smaller gatherings.
All the best,
Tim
Tim,
I’m a huge fan of your book and the principles you teach. My wife and I have both read your book several times an we love working on our dreamlining and charting out our businesses and cashflow to get us there.
Alex Jeffrey’s blog and his Post Launch Profits series have been a HUGE resource, and I’ve already got a few muses that I am working on with him. Post Launch Profits lay out a step-by-step process and great foundation so that the rubber can hit the road and that I can hit the ground running with my new muse ideas.
Your book is truly an inspiration that is changing our lives–to the New Rich!
Adam
Hi Tim, I liked the book and post thanks…… but……. I although I find your take on outsourcing good and ideas on cutting out news excellent and distrubution knowledge pretty good, most of this is not news to me.
In fact as a National Account Manager to major retail and previously a wholesale AM I know how to handle margin and dustrubution very well.. also having designed my own website with freelancers I know the effectiveness of outsourcing…. but that doesnt mean I know which product to go with and why I would be confident to invest in one… even with great research..
What I am saying is your underplaying the importance and difficulty of finding the right product at the right time with the right marketing strategy… This is NOT easy at all… This is the most difficult part and in many ways I think you were somewhat lucky to come across your opportunity as was your mate with prosound. Who would believe or even be able to with the best google keyword tools know that many people are interested in sound effects…
Anyways it was a good book but like most things even with the highest motivation 300k + opps are not easy to find
Be honest and admit that you only have one idea – Brainquicken…. If it was such a textbook strategy then why cant u build 10 ir even 50 x $300k businesses
Thanks
MP
tim,
good stuff. it’s amazing how all of us need a profit. a mr. miyagi. wax on wax off. we founded the american assoc. of young people b/c of poverty of mind. who is going to lead us eliot spitzer, adam sandler, tupac, or even oprah.
no. it’s someone who cuts thru the cacaphony of modern existence and says wait, there is no spoon.
FHWW is not for everybody. but we’ve made it required reading internally. profit not business. i would kill for our employees and members to understand this underlying principles. pull vs push. 80/20.
your flinch, counter, split comes rt from our money sections on our site. it’s like bats and birds. parallel evolution.
as ceo of the soon to be the worlds largest consumer group (80 million usa youngins spend 3 trillion a year) i’ve made it a key goal to live, frankly like tim ferriss.
so when i was invited to a wedding in mexico. i was like hell yes. outsourced my shit and just left.
no cell phone for 3 days. delish. of course the world crumbled. the newsletter didn’t go out, contracts for employees and clients didn’t get signed. but they are now.
i’m not advocating irresponsibility but super responsibility.
in short. rock on tim ferriss. we are all watching just don’t do something stupid like smuggle coke or be involved in 11 year old prostitution ring. america, no the world needs a boy wonder we can trust.
matt
sorry folks spell check slipped in profit for prophet.
[…] Ferriss makes some excellent points in his post The Margin Manifesto: 11 Tenets for Reaching (or Doubling) Profitability in 3 Months which it got me thinking about how margins are changing in the software business and why enterprise […]
I’m glad I found this post!
Some solid points I can take away from it.
Chris