How My Friend Made $50,000 in a Single Week

A few months ago, I was having dinner with Mark (that’s not his real name), a friend who had recently started an online marketing business in San Francisco. When I asked him how he was funding his new venture, he said “Vik, you’re not going to believe this story…”

Rewind to November of 2009. A few months before, Mark had left his lucrative job on Wall Street to set out on his own. At the same time, a large online marketing company called QuinStreet filed to go public on the NASDAQ. All of a sudden, Mark was bombarded with calls. All of his Wall Street buddies wanted the inside scoop on the industry. What exactly was online marketing? How did this company make money, and was there potential for growth?

Most of Wall Street knew nothing about the online marketing business, and they were hungry for any information they could find. After all, millions of dollars were on the line.

At first, Mark decided to be as helpful as possible. He took the calls and answered the questions as well as he could based what he knew. But a few calls in, he had an epiphany:

Why am I not getting paid for this?

Back in his Wall Street days, Mark had used a resource called GLG which connected Wall Street analysts to industry experts around the world. The analysts would pay the experts a generous hourly wage for their time and insights. So Mark called his contact at GLG, and requested to be put on the expert list for any online marketing inquiries. Before he knew it, Mark was charging $400 per hour for his time.

But it didn’t stop there.

As it turned out, several of the callers wanted more information. Mark’s general thoughts were helpful, but did he have any data or “competitive analysis” that they could use to better analyze the investment opportunity?

So Mark decided to write a detailed industry report on online marketing. Using completely public data, he put together a formal analysis, filled with charts, graphs, and numerous insights on the online marketing industry. It took him less than a week to complete. The price? $5,000 per copy.

To date, he’s sold eight copies. You can do the math.

Here’s the kicker: My friend was by no means an expert on online marketing. He had spent his entire career on Wall Street. Sure, he was a smart guy with a strong statistical background and the ability to learn, but that certainly didn’t make him an expert. But the fact that he could convince others of his credibility allowed him to charge huge amounts of money.

So what can we learn from this? Here are a few thoughts:

Perception is Reality: Sad as it might be, it’s important to give off the perception of success and expertise. This perception is what allows people to charge absurd amounts of money for their time and insights. You may be a real expert, but it means nothing if no one knows it. Therefore, it’s always crucial to develop, maintain, and grow your personal brand and make sure that the buyers understand your value.

Your Time is Valuable: Your time really is your most important asset. If people are using it to make money, you should figure out a way to get paid. It’s ok to give away a bit of your time to generate some upfront interest, but never let people take it for granted. Understand that they are getting value and that you need to be compensated accordingly.

Presentation Matters…A Lot: I’ve known Mark for awhile now, and I’ve always found him particularly impressive. He’s a terrific salesperson and is extremely entrepreneurial. He always brings a unique energy to any situation. These personality traits added a huge amount to his earning ability. Also, his industry report was very polished and professional. It was written in a way that Wall Street analysts appreciated and understood. Mark maximized sales by presenting his value in a package that made sense to the buyer.

Leverage Price Signaling: When I was studying marketing in college, we learnt about a concept called price signaling. The basic idea is psychological: if you charge more for a product, people will think that it has more value. If Mark had only charged $100 per report, the analysts would have probably thought that the information wasn’t that crucial. But at a $5,000 price point, Wall Street analysts saw this as a “must-have” product. $5,000 per report isn’t much money for Wall Street, but it’s enough to garner their respect and interest. Of course, you also make more money at a higher price point =).

Sit Back, Relax, and Watch The Money Roll In (Finish)

Passive income.

Ah, those two magical words that sound so sweet, and yet are so hard to achieve…

Passive income is everyone’s dream scenario. We are free to pursue our life’s passions – whether that is traveling the world, pursuing a hobby, or spending time with our family – while money continues to roll in day in and day out.

What a wonderful fantasy.

But it doesn’t just have to be a fantasy. With the right knowledge and some hard work upfront, I truly believe that anyone can achieve the passive income lifestyle. Here are three concepts that will set you on the path towards sitting back, relaxing, and watching the money roll in.

The Power Of A Sales Platform

The single best way to guarantee yourself a good long-term income is to build a sales platform.

At the end of the day, a platform is simply a brand. You have built up trust with a group of individuals, and you are ideally positioned to leverage that trust into sales of a product. This “trust” can take many forms; here are a couple of examples:

A blog: In the last five years, blogging has evolved from a casual hobby to a serious business. There are many bloggers who make well over six figures from their blogs…and almost none of this revenue is from advertising.

Instead, bloggers use their brand to create their own line of products. One good example is Yaro Starak. Five years ago, Yaro was, in his own words, “barely making enough money to live independently.” Today, he uses his blog to market his line of high-margin information products…which generate more than $500,000 per year in revenue.

A book of clients: My friend’s father is a partner at a prestigious management consulting firm. He clears seven figures each year, and amazingly he does this without scrounging up very much new business.

Instead, he uses his existing book of clients for repeat consulting engagements. This client roster is more than large enough to keep him busy, and allows him to charge a very healthy hourly rate.

Of course, it took him years to build these relationships, but they will continue to pay out for years to come.

But be careful – you don’t want to make a quick buck at the expense of burning some bridges. It’s important to understand your audience and sell them products that they genuinely want, which leads me to…

Affiliate Marketing

Affilate Marketing is probably the single best way to generate recurring revenue. The idea is simple: find a bunch of “affiliates” and pay them commissions for selling your product for you.

For example, let’s say I’m selling a piece of software for $100. I can offer affiliates a commission of 20% for each sale. Every time they sell my product, I get paid $80 and they get paid $20.

The key to successful affiliate development is to find people who have relationships with potential customers. When best-selling author Tim Ferriss was building his first health supplements company, he reached out to affiliates who had blogs, e-mail lists, and other channels to reach customers. Within a year, Tim had an army of salespeople who were generating recurring revenue without any upfront cost.

The best part about this system is that negative cash flow is almost impossible. You don’t pay money unless your product sells.

The Value Of An Evergreen Product

An Evergreen product is something that is needed no matter what. Evergreen products are good business because they will continue to sell for a long period of time.

Examples of evergreen products:

The Snuggie: Some people might say the Snuggie is a fad. I disagree. I own a Snuggie, and it’s something that I will continue to use for a long time. Once it’s worn out, I’ll probably buy another one. I’ve written before about how the Snuggie is marketed brilliantly, but at the end of the day, it’s still a product that I find useful.

Ramit Sethi’s Earn1k: Everyone wants to earn more money. This will not change in the future. In the Earn1K, Ramit walks students through a step-by-step process to earn their first $1,000 as a freelancer. Ramit’s product is expensive, but it will continue to sell because it fills an ongoing need.

Dean Graziosi’s “Make Money In Real Estate.” People will always need property. Sure, there will be bubbles and busts, but there will always be a market for homes and apartments. In his course, Dean teaches people exactly how they can generate lots of money from real estate investment. Here's the thing: most people will never successfully act on this advice, 

Income 101: A Blueprint to Maximizing How Much You Make (Finish)

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The “80-20 Rule” And How It Applies to Making More Money

Hundreds of years ago, an ancient Italian economist had an idea. Throughout his life he had observed that 80% of the land in Italy was owned by 20% of the people. One day, as he was gardening, he noticed something else: 80% of the peas came from 20% of the pea pods in his garden. He realized quickly that this “80-20 rule” didn’t just apply to land and peas, but in fact to most things in life – including careers and relationships.

In the “Four Hour Work Week,” entrepreneur Tim Ferriss talks extensively about the Pareto Principle and how you can use it to be more efficient in your day to day life. His advice is simple: figure out the 20% of businesses, clients, and relationships that matter most. This focused approach will save you valuable time, energy, and money.

While I agree with Tim, I don’t think he tells the whole story. Yes, it’s important to find 20% of clients, businesses, and personal relationships that are going to make you all the money. But finding the 20% that matters is only the first step. You actually have to convert these opportunities into cash flow!

A personal example: when I worked in finance, we pitched hundreds of deals to clients. Most of these sales pitches would fall apart quickly, allowing us to focus on the 20% that actually had potential.

But converting them into successes was a whole different ballgame. Just because we eliminated 80% of the riffraff didn’t mean we were automatically going to achieve that home run of a lucrative, long-lasting business relationship.

The Difference Between Absolute and Relative Income

This is another concept from the Four Hour Workweek. A simple scenario: John is an investment banking analyst making $10,000 per month for 500 hours of work. Paul is an internet entrepreneur making $5,000 per month for 100 hours of work.

Who earns more?

In terms of absolute income – the total amount earned, John obviously earns more. But in relative terms – which measures your hourly earning power, Paul actually comes out ahead. John makes an average of $20 per hour ($10,000/500 hours), while Paul makes $50 per hour ($5,000/100).

In our competitive, adrenaline-fueled world, many people focus exclusively on absolute income. They will work 60, 80, 100 hours a week to earn as much as they can – often at the expense of their families, health, and social lives. Absolute income can be a black hole – sure, you’ll make a little extra money, but at what cost? It can quickly become a high-effort, low-reward situation, where you’re slaving away to maximize the financial gains of others.

Instead, Tim emphasizes the importance of relative income. A high relative income gives you flexibility; if you are making hundreds of dollars an hour, you have more discretion over how much you have to work. It also allows you (if you choose) to make more money on an absolute level – all you have to do is work more.

Achieving a high relative income requires a few things:

-  Hard Work: The whole point of passive income is that you’ve put in the work to build a brand that other people can’t easily clone. You’ve invested the time and effort into building relationships and/or awareness upfront. But this isn’t easy! It takes a huge amount of energy early on (usually for very little monetary reward). Simply put, patience and hard work are the name of the game. Otherwise, everyone would do it.

Ownership: The best way to maximize your earnings is to own a valuable asset. This can include anything from real estate to a small business to a highly-trafficked website – anything that will earn you money. It isn’t easy to own something of value; it requires time and often some money as well. But it is well worth it in the end.

-  Distribution: You don’t want to be the one doing all the selling. Take a look at the most valuable brands in the world – Coca Cola, Microsoft, Louis Vuitton. They all have one thing in common: amazing distribution. Around the world, thousands of retailers are selling these products on behalf of these brands. The same principles work on a small scale as well. When Tim Ferriss started his online food supplements company, he found dozens of online retailers to sell the product for him. He’d pay them a commission and pocket the rest. Within a few years he was making hundreds of thousands of dollars each year for just a few hours of work each week.

The Difference Between Active and Passive Income

Active income is money that you have to work for. Most day jobs fall under this category…as does this blog. Also included here are investments that need to be actively managed (such as real estate or a small business).

On the other hand, passive income is money that requires little to no work on your part. Having significant sources of passive income is the key to increasing your hourly wage. Examples of this include search engine optimized websites, automated businesses, and (in certain cases) long-term investments such as stocks and bonds.

Here’s a table illustrating the differences between active and passive income:

How To Profit From The Greatness Of Others

I was recently watching a Warren Buffett interview, and one quote really stuck out:

“The best way to generate an income is to have a useful talent…like helping the sick or writing a new piece of software. Of course, if you’re like me, and have no talents, you can succeed by investing in those who do…”

-          Warren Buffett

Ok, maybe Buffett is being a little too modest, but he makes a good point. Talent cannot succeed without resources, so if we don’t have the talent, we can make a really good living by investing in those who can do the most with the cash.

In fact, not being “talented” is one of the things that allows Warren Buffett to be so successful. By acknowledging his lack of expertise, Buffett gives more freedom and autonomy than most investors. He doesn’t try to micromanage his employees; instead, he simply lays out expectations, provides the right incentives, and steps in whenever they need a helping hand. This allows him to invest in far more companies than he otherwise would.

In short, he’s using his time efficiently while making his employees happy. Win-win.

Continue reading How To Profit From The Greatness Of Others →

Harsh Realities Of Business

Sexy Businesses Aren’t Actually That Sexy

Five years ago, a small social network called Facebook started to gain a lot of traction. Around the same time, MySpace was sold to News Corporation for nearly $600 million.

All of a sudden, lots of entrepreneurs and investors were pouring their time and money into social networking. After all, it was the next big thing, so how could anything go wrong.

The problem was that many of these people didn’t know anything about social networking, or even about the internet in general. They saw a success and wanted to copy it, but had no real vision about how to differentiate themselves.

The same thing happened with Groupon three years ago. The “daily deal” concept was easy to understand, but difficult to execute without a strong understanding of the local advertising market. However, lots of people saw an “opportunity” to get rich quick by starting their own daily deal sites.

Once again, most of them failed horribly, resulting in a huge waste of time and money.

Instead of jumping on the bandwagon, think about how you can solve a real problem that you actually understand. Even though this problem might not be “sexy,” it will definitely give you the best chance of success.

One good example of this is Cash For Gold, a business that buys gold jewelry for a serious discount and then sells the gold to other investors. The business made more than $100 million in revenue in 2010, with fairly gigantic profit margins.

Cash For Gold isn’t the “sexiest” business, and the company also engages in questionable business practices, but no one can argue with the fact that they are printing money.

Things Fall Apart:

Nothing is more painful than working for months on a partnership deal or prospective sale, only to see it fall apart at the very last minute.

I spent the early days of my career at a bank, pitching deals to rich clients. I can’t even count the number of hours I’ve spent writing documents and models that have gone nowhere.

The worst part is that sometimes there’s nothing you can do. It just wasn’t meant to be. But more often than not, you can at least increase the chance that the deal will go through.

First of all, be willing to compromise. Sometimes, tweaking the deal terms just a little bit can help alleviate a tense situation. Most of the time, making these small concessions is far better than losing the deal altogether.

It’s also important to show that you really want the business. Emphasize that you value the relationship and make sure to bring up the positives of moving forward. One of my good friends sealed a multi-million dollar affiliate contract simply by sending over a package of beef jerky.

Finally, be patient. Good things take time. Lasting relationships are not built overnight. Strong partnerships are the result of many hours of discussion, deliberation, and research. Don’t apply more pressure than you have to, or you risk things breaking down.

This last point is especially difficult for me, since I am a very impatient person, and it’s an area where I still need to show a lot of improvement. Any suggestions here are more than welcome.

You Can’t Do It All:

It’s important to know your limits. No matter how much you know or how talented you are, you simply can’t do it all yourself.

Tim Ferriss writes about this in depth in the Four Hour Workweek. After his first business, BrainQuicken, started to take off, Tim was working 15 hour days trying to ship orders, return calls, and build new partnerships. His dream of owning a profitable, growing business was quickly turning into a nightmare.

To his credit, Tim quickly identified the problem and came up with a solution. He realized that his strength was marketing and business development. Therefore, he hired people and set up automated systems to manage the back-end operations of his business.

The result? Increased profitability, improved inefficiency, and a whole lot less stress.

I owe a lot of my own business success to other people.

Ways To Increase Your Powers Of Persuasion

Reciprocation.

People have a natural sense of “fairness” – if I receive something from someone, I should repay them in some capacity. This makes it harder for people to say “no” to a request after they have already received something of value.

For example, the American Disabled Veterans organization sends out mailers asking for donations. They conducted a test: one group of mailers were sent with a simple form letter, while others included a form letter along with a small gift – such as personalized address labels. The result? A 100% increase in donations.

Commitment

People don’t like to break commitments. This is not just true with legal contracts or large, binding commitments; the motivational force is strong for all levels.

For example, a restaurant owner in Chicago was concerned because many people made reservations but didn’t actually show up, so he made a simple change. He instructed his receptionists to stop saying, "Please call if you change your plans" and to start saying, Will you call us if you change your plans?" The no-show rate dropped more than 60% within two months.

Consistency

This is simply another word for “brand.” Companies like Starbucks make large margins because they have built “authority” as a

Authority.

Authority is valuable because it conveys the perception of expertise. If you have achieved certain things, or have certain skills/abilities that others don’t have, you can charge a substantial premium for your time.

One expert at building authority is Ramit Sethi, author of the best selling I Will Teach You To Be Rich. He leveraged his Stanford education, entrepreneurial background, and NYC selling author status to launch the Earn1k course. Although this course is expensive, he has no problem getting a lot of costumers because his expertise is perceived to be very valuable.

Social Proof.

Most people are followers. If they see a trend, they are much more likely to jump onboard.

This is why good testimonials are so important. If people have seen that other customers are endorsing what they’ve bought, they are more likely to buy themselves.

Scarcity.

Have you ever seen the “only 2 more hours to buy!” icons online? This is the power of the scarcity tactic – people are more likely to take action when they perceive that an opportunity might go away.

This is the power of the Daily Deal business model. Companies like GroupOn make billions of dollars by creating a short-term opportunity, which dramatically increases sales.

Liking/Friendship.

This is an obvious one – people are more likely to say yes when they already like somebody.

However, it manifests itself in non-obvious ways. For example, my good friend Brian Crane runs a website called LuckyGunner, which is targeted at the hunter equipment niche. The site features an attractive blond named Heidi who is the “face and voice” of the LuckyGunner brand. The men visiting the site love Heidi, and thus they are much more likely to buy.

 

How To Save Lots of $$$ Without Changing Your Lifestyle

Focus on the Big Wins

One the main themes in Ramit Sethi’s popular blog “I Will Teach You To Be Rich” is the idea that you should focus on the big wins. In personal finance, that means that you’ll save the most money by cutting back on a few big expenses rather than trying to penny-pinch every step of the way.

For example, Ramit talks about how some of his readers saved hundreds of dollars each year just by switching to a low-cost brokerage account and finding the best credit cards. Check your credit card statement for monthly charges – chances are you’ll find some subscriptions (a gym membership or a credit report service) that you never use. Cut those costs first! These are “high-return” situations  – they take very little time, save you lots of money, and best of all don’t require any change in your lifestyle.

Another great option is the daily deal sites. There’s nothing wrong with going out to eat or treating yourself to a weekend getaway. But why pay full price if you don’t have to?

It’s just another application of the 80-20 rule: 80% of your gains come from 20% of the effort. The trick is to identify that 20% quickly and maximize those particular opportunities – both in personal finance and in life.

Interestingly enough, many people who claim to be frugal are in fact “penny-wise and pound-foolish.” They’ll try to save $2 on coupons, but will pay massive annual fees on credit cards and subscriptions that they never use. Don’t become one of these people! Figure out how much you can save upfront with just a few big wins. You’ll be surprised at how big a difference it can make.

Don’t Overcommit Without Knowing What You’re Getting

A couple of years ago, I was looking to hire an SEO (search engine optimization) company for one of my web projects. I interviewed a bunch of candidates and finally narrowed in on one company. Everything seemed to check out: great references, terrific work history…and the guy I talked to was really friendly.

Eventually, we started talking about price. He gave me two options – a monthly fee, or a larger upfront fee that would guarantee me services for one year. I did the math and realized that I’d be saving a bunch of money by paying upfront, but I was still a little concerned.

When the guy saw that I was interested in paying upfront, he went in for the kill. “Listen sir, I promise that you will get outstanding quality service here. We know that our fees are expensive, but the one year option will definitely make things more affordable.”

I was sold.

Fast forward a few months. The SEO company was a total disaster. They weren’t delivering the results that I had wanted and they were incredibly unresponsive. I was getting angrier and angrier, and demanded my money back. Of course, they refused. After all, there wasn’t a whole lot I could do about it.

It was my own fault. I had overcommitted. I had gotten carried away in the moment, and wrote a large check without knowing all the facts. Had I gone with the monthly plan, I could have cancelled at anytime. This would have motivated them to keep working hard. But by giving them the money upfront, I ended up getting sucked into a major black hole.

This actually brings me the final point: if you’re going to hire people….

Hire On A Contract Basis

Anyone who’s ever had to make a hiring decision knows how hard it is to make the right choice. In a tough economy, every job listing gets hundreds of responses. It’s fairly easy to whittle the list down to a few qualified candidates, but how do you make the right decision? After all, some people might be great during an interview but won’t be the best performers on the job.

The new contract economy provides an effective solution. As the job market gets more competitive, qualified applicants are more willing to accept paid contract work that could potentially lead to full-time employment in the future. By hiring someone as a contractor first, you can quickly and cheaply find out if they fit the needs of your organization.

The contract economy is a boon for cash-strapped startups. Around Silicon Valley, many startups hire new employees on a three-month contract to see what they are capable of accomplishing. After the three month period, the startup and contractor can decide to extend the contract or part ways.

For example, ODesk, a leading internet network of contract employees, actually uses its own technology to hire contractors for technical copywriting, customer support, and server maintenance. This allows ODesk to identify the best people quickly while keeping costs low.

But contract employment isn’t just a win for the employer. By having a chance to evaluate the company while getting paid, the contractor can also see if the job is a good fit. The short-term nature of the contract also allows employees to keep their options open and look for opportunities elsewhere if they realize the job isn’t a good fit.

My own story – A few years back, I accepted a contract role with a startup in the Bay Area. It was a short-term deal with the possibility for full-time employment if things went well. Although I really enjoyed working with the management team, I just wasn’t that passionate about the product. A few months later, one of the senior executives asked me if I would like to join full-time. I said no – I’d thought about it a lot and decided that this just wasn’t the best opportunity for me. We parted ways on good terms.

This was a good decision for both parties – the company hired another contractor (who ended up being a better fit), and I moved onto projects about which I was far more passionate. I had also made some money and some great connections, while providing much-needed business development skills to the company. Overall, a win-win that wouldn’t have been achieved through a full-time hire.

What are some ways that you’ve achieved savings without changing your lifestyle?

Eight Small Steps to Move Outside Your Comfort Zone

A few weeks ago, I was at a conference when I struck up a conversation with an older businessman. As we talked about the economy, I mentioned how it was really important for people to constantly adapt in an ever-changing world.

The businessman turned to me with a surprised look. “I’ve been with my wife for forty years, and I’ve worked at my company for the same amount of time. I know just about everything there is to know about what’s important in my life. I don’t really think stepping out of my comfort zone will teach me anything new that actually matters.”

I disagree. The world around you is always changing. People change. Businesses change. What helps people make more money and lead better lives is their ability to discover and adapt to these changes. To do this, you need to step outside your comfort zone.

It isn’t easy – after all, we’re creatures of habit. We don’t like change. With that in mind, let’s start small. Here are eight baby steps to help you move out your comfort zone.

Continue reading Eight Small Steps to Move Outside Your Comfort Zone →

Stop Making Excuses and Just Go For It!

“I don’t feel like going running today…I’m too tired.”

“I can’t believe that Jessie made so much money on his last company. I am way smarter.”

“She’s so annoying…I can’t believe she said that to me. If I had my way, I’d give her a piece of my mind.”

We all make excuses. It’s a natural way to let out our frustration once in a while. The problem is when it becomes a habit.

Continue reading Stop Making Excuses and Just Go For It! →

Lose the Jerks

I recently got this e-mail from a good friend:

“Hi Vik. I need a bit of advice. I have this co-worker who is a total jerk. He keeps bad-mouthing me and generally gets in the way of my productivity. I’ve made some efforts to fix the situation; after all we’re supposed to be helping each other, but nothing works. What should I do?”

I like to think that most people are nice and generally mean well. But every once in a while, you get someone in your life who is a real jerk, someone that you just can’t deal with. This could be a boss, a co-worker, or an acquaintance. Most people reason that this is part of life – they just have to put up with certain people.

My approach is different: Lose the Jerks

Continue reading Lose the Jerks →