Meta Post – Where to Go From Here

Advice is a funny thing. In real time it’s hard to know on which wrong side of history you’re going to be, in hindsight, come Monday morning.80/20 Drummer will go down either as the success I’m glad I believed enough in to carry it across the finish line or the modest failure from which I was smart to move on. But in the present moment it’s impossible to tell which.

[Context for new readers – I’m about a year into my experiment with Tim Ferriss’ “muse” businesses from Four Hour Work Week.]

About half the business “gurus” you listen to will spout some anecdote or other about giving up too early. “You have to be patient,” says Garry Vaynerchuk (I’m paraphrasing). “Don’t even worry about money for the first two years.”

So the greatest sin is giving up too early, right? How many businesses that could have been great were hobbled in the early stages because their founders didn’t believe in them enough?

Then there’s the other side. “Marketing is going to be difficult if nobody wants your product,” says Noah Kagan, who routinely, in seminars, will tell attendees, “yea you should probably abandon that” after listening to them describe their businesses for a few minutes.

“You have to be high on the totem pole,” says Noah. “If people don’t wake up in the morning thinking about you, there’s probably a better line of business to be in.”

Along the same lines, Mr. Ferriss, after whom this blog is titled, preaches “invest or divest.”

“Cut losses with losers [businesses that performed poorly during validation] and manufacture winners.” Four Hour Work Week suggests testing several things in parallel, and being ruthless about paring down and divesting the ideas that don’t work. The very essence of Pareto’s 80/20 principle for which my drum videos are named.

Finally, there are a lot of scattered examples of entrepreneurs preaching unsentimental abandonment of weak-performing biz ideas as examples of inoculating oneself against failure. I don’t know to whom to attribute this, but “your first [insert number] businesses are going to fail” is also pretty common parlance.

But here’s my issue.

Either 80/20 Drummer needs time and more effort to realize my sales goals or it’s a moderately profitable stepping stone and I should see it as that and abandon it to make (at best) $60-a-week in perpetuity while I consider lower-hanging fruit.

Just for fun, I decided to role-play what a guru on either side might say. Let’s just say I’m relating my story to Gary Vaynerchuk, author of 3 NYT bestsellers on entrepreneurship. Garry built his empire the patient way. Putting up a youtube channel and waiting for it to grow. With a seeming sixth sense about the viability of his idea he invested time and money in building his brand for a decade before he ever saw any great returns. In the end, he’d built the most valuable asset you can build: an engaged community – one that waited ravenously for each new blog post or youtube video. One what was practically begging him to sell them something. Here’s what Garry would probably say to me:

How many years have you been working on 80/20 Drummer? Oh – five months? And you’re whining about low sales? How many free youtube videos have you made? Six? How many facebook followers do you have? Only three hundred? And you’re whining about low sales? Did you think this was going to be easy? Let me ask you something – do you watch TV every night before going to bed? Why? Why aren’t you using that time to bootstrap your business? Why aren’t you on social media every day, building your brand, etc.

Noah Kagan is the guy I’m picturing arguing the other side in this fantasy courtroom scene. Noah is the (much more self aware) Sherlock of entrepreneurship, and is prone to decimating people with a single (well-intentioned) remark. A series of moderate successes abandoned due to lack-of-interest characterizes Noah’s career. He’s like the Jerry Seinfeld of entrepreneurship. (And also the Sherlock. Still the Sherlock.) He’s also one of the two gurus who responds consistently to my emails. To date, he’s hooked me up with two third-party websites for sales and escrow. Here’s what I imagine Noah saying:

Ok what does your business do? What problem are you trying to solve? Drums? Ok never mind. Anyway, how did you validate this? With a landing page? Did you get on the phone and actually ask ten people in real time to buy this from you? Ok, that notwithstanding, what’s your current conversion rate? [Percentage of people who see an ad who end up buying.] Yea dude hate to say it but this has all the hallmarks of “people aren’t desperate for this product”. But let’s see if we can find something they really do want. We’ve got two hundred people in the [imagined] room right now. Show of hands – how many of you are desperate to get better at the drums? [zero] Okay that’s a data point. Let’s ask people – what do you dread most in your day? Your commute? That’s one. Negotiating with your power company? That’s another. Recruiting new agents at your company? Ok see what’s happened? We just got [insert number] of REAL responses about what people are ACTUALLY concerned about. So let me ask – if Nate offered you a product to [xyz], how many of you would pay ten dollars for it? Nate, get up here and sell it to them. etc.

So you see the issue. The chasm between the two sides of the argument is actually emblematic of two pretty different approaches to entrepreneurship. The “build it, believe in it, and they will come” model, and the “see what people want, then sell it to them” approach. If you can’t differentiate which school a guru is from his or her advice lacks valuable context.

Here’s my suspicion about the “build it, believe in it, and they will [hopefully] come” crowd. This would be viewed as blasphemous in many a positive-imagery-centered seminar room, but I think a lot of them got lucky. It’s called sampling bias, and it basically means that if you’re in a position to write a book about your success, you’ve already won, by definition, and hence we often only hear from those for whom a method or approach has succeded, even if it’s failed for many others. Yes, treatises on success from successful people are so ubiquitous that we often miss the obvious analogy – what if double-blind placebo tests of new drugs only published the positive results. (Actually, they often do. But I mean, what if it was accepted scientific practice.) If making the sign of the cross before entering the gym worked to improve physique at exactly the same rate as random chance, you’d still assume there was something to it if everyone who achieved a Mr. Universe physique, and coincidentally also crossed him or herself, wrote a book about it, and none of the “crossers” who failed did. Point being, if 10,000 people put up blogs and pour their heart and soul into their personal brands and it pays off for five of them, and those five are the only ones to write books about their success, it’s going to skew public perception about the viability of said business model.

And of course, this is a version of what’s happened. With many shades of grey. (I tend to believe that those who succeed are also keenly adaptive and combine a sense of what’s working and not working with that unflinching belief in themselves they so love to tout.) I do believe Gary would have succeeded in whatever endeavor he set out on, but more because of his ability to ferret out the monetizable facet of a business than simply because of sheer dogmatic sticktoitiveness. (Oh that’s not a real word? C’mon!)

Noah Kagan’s approach is more strictly evidence-based. Don’t leave it to chance. Don’t believe this or that philosophy. Test what works. Here’s the problem with testing – you have to agree on a definition of “works”. In the case of the 80/20 Drummer, it’s selling modestly, and profitably. It’s not converting as well as my tests indicated it would, and that, of course, means my test wasn’t terribly accurate. That definition problem dogs me in the current stage as well. “What does success look like?”

So I really ought to be asking two questions.

  1. What type of sales were xyz successful brands who use a similar model to mine doing when they were at my stage of development?
  2. What are the differences between my product and theirs that might cause mine to be less successful with the same effort? What are the failures, who started where I am, implemented the same strategies as my successful peers, and still failed.

Both of these questions receive some treatment in the excellent new book Decisive, which aims to codify best-practices in decision making across a range of disciplines. Another two tips that probably apply to my situation?

  1. “Ooching”, or trying out a solution minutely, with little opportunity cost (wasted time or money that could have been better spent on something else). An example the authors give is quitting college to be a chef. Is it possible to work one night-a-week in a kitchen to see if you like the job while you continue to attend college? With respect to 80/20 Drummer, is it possible to try Garry Vaynerchuk’s persistence strategy while leaving enough time to pursue possibly-more-lucrative businesses?
  2. Midstream abort points and predetermined metrics. “If we’re not doing xyz sales by xyz date we abandon ship.” It seems common sense, but basically means a decision isn’t the endpoint, but a midpoint. We continue to monitor things to see if they’re evolving the way we predicted, and give ourselves predetermined abort points and criteria to avoid “mission creep”, the process of moving the goal lines midgame.

So that’s what I’m going to try to do with 80/20 Drummer. I’ll publish another earnings report at the end of the week, and profits are up this month from last. But I’m disappointed with sales at this point, especially relative to testing, which indicated I should have about five sales-per-week.

One final note in this soon-to-be-2000-word uberpost. I have an inkling that in the niche I’ve chosen, people convert slowly. It’s anecdotal, with a study sample-size of just one (myself). When I click on an ad and go to a sales page, I’m often just checking out the pitch for future reference. To put in my mental roladex. I may return and purchase later. Indeed, there are two products I plan to purchase and deduct as business expenses when I get a better picture of my finances. Both of them courses.

Second, when people are parting with money for an educational product, whether that’s Noah’s $333 Make Your First Dollar course, or a $200-some TOEFL prep course, needing the product is only one link in the chain. They have to trust you. They have to believe you can deliver. There are so many people offering free drum advice – how do I know I need to spend money for this. For people in the education material/courses niche, web presence and podcasts do seem to help. Let people get to know you, week-after-week. Let them observe you using your strategies effectively – the way Greg O’Gallagher of the Road To Ripped podcast does by 6-repping 275 on the incline bench. Could I use my own strategies to hack a real-life audition? Or maybe I only need to post videos of me deconstructing seemingly impossible things, for instance this.

But I will use the “ooching” from the Decisive book. I’ll streamline the free-video-making process to the point where I can do it one day-a-week, leaving myself time to pursue other ideas.

Thanks for sticking with me through this 1940-word post. See you soon.

Update – Pat Flynn actually responded to my email asking for advice, and since I don’t want to bug him for his permission to reprint what he wrote, I’m going to paraphrase. Pat basically said most people abandon things too soon. Yes, there’s a point beyond which you should cut your losses, but most people’s radar is calibrated to the “give up too soon” side. If something’s working for you, he said, do more of that. Decide which parts are working, and scale them. An obvious takeaway is determining my exact conversion rate and profit-per-advertising dollar, and seeing if it stays the same if I double my ad budget. Anyway, I’ll be back to post more soon.

Advertisements

First Earnings Report – Net Score for The 80/20 Drummer

So first off, I’ve decided to follow the lead of the bloggers I respect, and be completely transparent about my earnings from passive income.

Trouble is, it’s easier said-than-done.

A lot of my “expenses” were for experiments in business, and many don’t itemize super clearly – for instance advertising charges that may have been for 80/20 Drummer, private drum lessons, and Shoe Gogo (my as-yet back-burnered import idea), and as such are difficult to represent purely as expenses related to 80/20 Drummer. In the end I decided to put myself in the shoes of a reader deciding what the cost-of-entry is, and represent things as intellectually honestly as possible.

First, the good news:

Earnings – 80/20 Drummer – $277.92 so far

I’m happy to report that 80/20 Drummer has earned me a total of $277.92 since its partial launch in December. That’s $105.99 in December, $171.93 in January. That’s modest, but considering that I launched with half-a-product in December, and now have 3/5 of a product that I’m still discounting, I expect earnings to pick up in future months.

Now, the mixed news:

Total Advertising Costs for everything – $595.56

Here are the caveats – this includes advertising for other things besides the 80/20 Drummer, and it includes advertising for the “test” phase of launch, which can be shortened significantly. (Ads began running in late September, but the product didn’t launch until December.) Below, I’ll detail how much you would probably need to spend to follow in my footsteps, learning from my mistakes.

Total Website Hosting Costs – $40

That’s four months of Squarespace at $10-a-month.

Net Profit to-date – 357.64 in-the-hole

If 80/20 Drummer earns that amount, it will have paid for the entire experiment, including advertising testing other ideas that didn’t pan out.

You may be wondering – what about commissions from the sales-hosting site, Gumroad? Gumroad takes a small percentage, but that’s already deducted from the “earnings.”

Here’s the more important part – even if 80/20 Drummer earned only a modest $170-a-month, the apparatus is cash-flow-positive, and by a big margin. Advertising costs are about $52-a-month, and hosting is $10, so that’s $108 – or 63% of earnings –  profit. Obviously, I intend for it to earn far more than that, but it’s a useful illustration, because I could go on a polar expedition tomorrow, and 80/20 Drummer, unless demand dropped off sharply, would continue to profit-in-perpetuity.

Here’s what’s hamstrung my earnings so far.

Far and away the biggest albatross on the enterprise is the partiality. As soon as I put a contact form on the site and asked customers for feedback, the fact that they couldn’t get the entire series in a single swoop was the biggest complaint. As soon as I uploaded the third chapter of five, orders picked up. Actually, if orders continue at the rate they’ve come in since the third chapter went up, February’s earnings should be a lot better than January’s. But the other factor is once all five chapters are up, the price resets to full price from the “pre order” price, which should increase earnings still more even if the fact that people can finally download all five chapters as an “impulse buy” doesn’t increase the number of orders.

Even so, if I’m completely honest, I’ll admit I’m not 100% sure of the testing process. True, I validated a product then built it and now it’s selling, but it’s a bit of a “black box” to me. How do I know, for instance, that I didn’t just get lucky, and that orders won’t simply dry up forever? (Does that have something to do with sample size and statistical significance?) Or that the entire market for The 80/20 Drummer isn’t finite, and once I reach all the people who need a copy that orders won’t dry up? Or that demand isn’t cyclical – waxing in the months before college auditions, for instance, before waning in other months. I have no idea about that, and it truly won’t be until I’ve been in business for a year and seen earnings climb to a satisfactory level then either level off or average out without nosediving that I’ll be able to say with confidence that 80/20 Drummer was a “success” and not just a “fluke”.

How To Learn From Me

But here’s what I can already tell you, if, say, you were making an instructional video series about something you were good at. (Pottery, for instance, or test-prep.)

1) If you can test something and get it to-market in 3 months, you can probably do it for around $180 investment – $50-a-month on Facebook ads (knowing what I know now I wouldn’t have wasted any time on Adwords and I wouldn’t have spent more than $2-a-day on ads until I had the best ad in place and the product launched) and $10-a-month on Squarespace.

Screen Shot 2014-02-01 at 1.52.31 PM

2) Test the same product you’re going to launch – the minimum viable product. Meaning, work out how much product you need to build in the testing phase, rather than deciding arbitrarily how much, then struggling to “catch up”. The reason? You manage your customers’ expectations. Say you’re making an instructional video for pottery, just as a hypothetical. I would test short, medium, and long incarnations at various price points (for instance $59.99 for two 15-minute chapters, then $49.99 for two, then $49.99 for three – changing only one variable at-a-time), and as soon as you’ve located the minimum viable product, launch. You can add bells and whistles in beta, then charge a premium for them. If this sounds unscrupulous, just remember: your customers are telling you what they want. In this type of marketplace, the minimum viable product is by definition the incarnation people want the most. (And, for those of us who enjoy the process, and want to give people more than they paid for, there’s no reason we can’t be already selling product while we add in the labor-of-love stuff.)

3) Test ads and conversion strategies diligently and continuously during and after your prelaunch process. That means start with a Facebook ad. Leave if for a week. Try a different ad with only one variable changed. Etc. The same goes for landing pages. (Here’s my latest landing page.) Once you’ve found an optimal price and minimum viable product, change the copy one element-at-a-time. (This, by the way, is where Squarespace earns its $10/month. You can change page designs as easily as if you’re playing with post-its on a bulletin board, with no knowledge of code. No, I don’t have an affiliate relationship with Squarespace, but, Squarespace? Call me.)

Had I followed the above strategy instead of making the mistakes I made, I would be $97.92 in the black, to say nothing of what the minimum viable product and shorter launch timeline would have saved. But live-and-learn.

So there it is. Putting it on the line for my peeps. I’ll be posting plenty between now-and-then, but I’ll be back March 1 with another earnings report.

Peace,

Nate