Category Archives: Business Models

Case Study: Should this business proceed?

One of my projects this year is helping a friend of mine start a business that he’s always wanted to run. The business centers around a common interest, and we have very complimentary (ie non-overlapping) skill sets, so it’s a good partnership, and one of his other friends is the partner in charge of the practicalities of business/legal aspects and of developing an online presence.

The first step of starting a business, of course, is to determine whether or not you actually want to start the business. We got a team together and discussed everything from location and possible promotions to the details of which products to sell and how many employees we’d need. Then we put together financial projections to figure out how much money we’d need to start, and how much money we’d need to make in order to pay that back, and whether that seemed possible. The numbers come out right in the middle: success isn’t obviously impossible, but it’s not guaranteed either.

At this point we face four possible options:
1) Drop the project entirely.
2) Modify our plans and assumptions to make success more likely
3) Proceed with caution, and see what develops
4) Damn the risk and full speed ahead!

Let’s examine them each in turn:

Drop the Project

The big and obvious advantage to this one is the lack of risk. If we don’t even try to start the business, we can’t possibly lose any investment. Just how advantageous that really is depends on how much investment we’re putting in. In this case it’ll take $20,000 – $50,000 to start up the business, and $10,000/month to run thereafter. So we’re looking at potential loss of several thousand dollars (although it’s unlikely that we would fail to make a single sale, it is possible, so that’s the worst-case scenario), which could be guaranteed not to happen if we simply stop here.

The big and obvious disadvantage to this one is that my friend will have to give up running the business that he’s always wanted to run. Just how disadvantageous that really is depends on how much he has always wanted/still wants to have this business. Despite illusions/stereotypes of coolly logical CEOs, this business decision has to be made emotionally: how much does it matter to you?

Modify our plans and assumptions to make success more likely

The financial projections provide for a salary for each of the partners; if we could get by on a smaller salary, or support ourselves in other ways while the business gets going, that would lower the financial risk, and make it easier to break even. Obviously that won’t help unless we can then increase the business’ earnings so that we can take salaries, but it does help smooth out the start-up/transition period.

We could also figure out some way to test the market: by selling our products in another store, which would provide some information on demand in the area; by getting hard data on the walk-by and drive-by traffic in our proposed location, which would help us estimate the required conversion rate; by doing surveys in the neighborhood to estimate demand; by spending some money now to start our proposed promotions and measure the resulting demand. These would let us get a better feeling for how accurate our financial projections are, and to revise them as necessary.

We could change our business model to one that’s less capital-intensive, such as online affiliate programs, online drop-ship options, etc.

The advantage of this method is that it gets us almost as little risk as option #1, but without giving up the dream.

The disadvantage is that there may be really long delays while we tweak and measure and brainstorm and adjust, in order to get the risk within acceptable boundaries.

Proceed with caution, and see what develops

This is fairly risk-intensive: it involves starting up the business as proposed, albeit making as few expenditures as possible until we have a feel for what kind of income we can expect to receive. The partners should discuss what situations we might face and how we would respond, so that we don’t get caught completely flat-footed when something comes up. We should also define the limits of our experiment: under what circumstances (number of months, certain level of income, certain number of sales, etc) will we declare ourselves finished and take steps to dissolve the business?

The advantage is that we have this plan in place, so we can proceed immediately (well, as soon as we raise the capital, anyway). And although it is risk-intensive, we know what we’re getting into, and we’re prepared to make course adjustments

The disadvantage, obviously, is the possible loss of $30,000 – $170,000.

Damn the risk, full speed ahead

Or we can proceed just as we planned, bet it all on one roll of the die and see if our current business plan is perfect.

There are no advantages to this plan; it would be stupid.

The only reason I bring it up is that most people, when they’re deciding whether or not to start their own business, create a blog, write a book, or look for a new job, think that it’s an all-or-nothing proposition. Either you drop the project entirely or you implement your ideas without any room for reassessment and adjustment.

Remember that you got this far by experimenting, observing, and learning. You can continue forward the same way.

And your final answer?

There’s no way for one person to make this decision. There’s no clearly right or wrong answer.

When deciding whether to proceed with your business, you have to consider all of the above: what’s the risk? How much do you want to do this? What could you do to adjust? How would that affect the risk? What would happen to you if the works-case outcome occurred? What would happen to your partners? What would you do in that scenario? What’s the probability of that outcome? What’s the probability of success?

And given all that, what do you want to do?

Monetize Yourself Case Study

The last 3 posts have talked about specific ways you can monetize yourself: by selling your time and expertise, by selling your expertise directly, and by giving your expertise away. But in actuality, these categories are not so clear-cut, and the applications get a bit messier. So I thought it would be helpful to look at an example of someone trying to plan out a monetization mix.

    Jargon Alert: in marketing, a “mix” is the list of things that you’re going to do for a particular purpose. So a product mix is the products you intend to sell; a promotional mix indicates how much of your budget is going towards TV ads, how much towards radio ads, and so on. In this case, a monetization mix is a list of which monetization methods you wish to use, and to what extent you intend to use them.

Case Study: Andrea the Accountant

Andrea is in her mid-20s, with a bachelor’s degree and a few years of work experience. She’s determined that, although jobs have their uses under certain circumstances, she doesn’t want to have a job as a long-term solution; her independent and creative spirit will be happier without a boss, and she feels she can provide more and better value to the world by sharing her expertise directly.

Andrea has an interest in personal finance, and a talent for organization and practicality. Over the last few years she’s done a lot of research on budgeting, investing, and getting out of debt. From what she’s learned, she’s created a few spreadsheets to help keep an eye on her family’s finances. Lately she’s found that she has enough knowledge and information to be able to help others out: she’s taught college friends about debt management techniques, and helped her grandmother create a monthly budget.

Andrea’s Monetization Mix

Sell your time
Although Andrea doesn’t want a job long-term, she has bills to pay right now, and she doesn’t want to have to worry about whether or not her business will be able to support her instantly. She calculates that she needs to bring in $900/month to supplement her husband’s income and keep the family budget running smoothly, so she’s going to get a part-time job while her business is getting started.

She also is going to sell her services as a consultant to anyone who wants help with setting up a budget or making a financial management plan. Because she wants to be affordable to those who need help, and because she doesn’t have a lot of experience as a consultant, she decides to charge $25/hour.

Sell Your Expertise
Andrea’s done a lot of reading about personal finance, and she has noticed that some books on personal finance are too theory-oriented, with not enough information on how to actually use those theories.

She’s written an e-book with practical tips on how to actually track your expenses and calculate your cash flow. It includes example categories of spending, ideas on how to figure out how much you’re spending in each category, and the equations you need to do the necessary financial calculations. It also includes a link to a spreadsheet that Andrea made, that will do the calculations for you. She plans to sell this ebook, but she hasn’t decided on the price yet.

Share Your Expertise For Free
Andrea still has student loan payments, and remembers how hard it is to manage your money when you’re not sure what to do. So she wants to make sure that she’s providing free resources as well. She’s going to set up a website and a blog, where she can provide information on personal finance, and keep it up-to-date with whatever she finds during the week.

Since the goal is to create a free resource, Andrea doesn’t want to charge for access. Instead, she’ll monetize her website through ads and affiliate programs. Companies that want to reach personal-finance audiences will pay Andrea to advertise on her site (she’ll weed out the ones that she doesn’t want to be associated with). When someone clicks on those ads, Andrea will get paid. Products that are particularly good, Andrea will review and recommend. She’ll set up an affiliate program with those products, and whenever they’re sold, Andrea will get a share of the money.

A Harmonious Mix

Notice that none of Andrea’s monetization methods is operating in isolation, but that they all support each other:

  • Her website is easy to find, and a free resource for those who want help with their finances. It helps Andrea’s customers feel comfortable with her before they purchase: they know that she’s competent, and they know what kind of advice they’ll be getting. With ads and affiliate programs, it’s also a source of revenue.
  • Her ebook is a way for Andrea’s customers to get a little more information than is on the website, without having to go “all the way” and hire her as a consultant. It builds on the information found on the website, and again establishes her competence in the minds of anyone who reads it. It provides another way to monetize the website, and it helps her reach potential consulting customers. She can price it medium-high ($5-$10) to maximize revenue out of it, or she can price it very low ($.99) if she wants to use the ebook primarily as a marketing tool for her consulting.
  • Her consulting service gives Andrea with a way to provide personalized, timely information to her customers. It lets her give a boost to people who have read the ebook but still need a little more help. It also gives her another way to monetize the website, and it lets her practice her financial management skills. Although this is owning a job, because she has to spend time to get money, what she has to spend time on is
    1. helping people
    2. working with money, and
    3. organizing things

    — three things she loves to do.

Also notice that Andrea can add other monetization methods as she has time, resources, or desire to do so. As interest grows in her services, she could set up a class on personal finances at the local library or community college. She could start creating a podcast to complement her blog. If she gets enough traffic, a publisher may approach her with a book deal. She might want to make videos on personal finance: she could post them for free on YouTube, and sell them bundled on a DVD for anyone who’s interested. None of these are critical to start right now, but they leave Andrea plenty of room for development in the future.

Summary: Lessons Learned

You don’t have to pick a single method of monetization — in fact, a diversified income stream is better. And your monetization methods will usually work together in mutual support.

This list of options I gave is neither comprehensive nor exclusive. Use my ideas to get ideas of your own, and experiment with what works for you. My goal is not to make you try to fit into my pre-ordained categories, but to give you as many options as possible to express your creativity.

Monetize Yourself Media – Share Your Expertise For Free

This post is part a series on specific media for monetizing yourself. Today I’m going to talk about another category of potential media: sharing your expertise for free.

That Doesn’t Sound Like Monetizing Myself

This is the least intuitive category, so let’s take a moment to examine it. As I discussed in Distillery Tours and Alternate Monetization, “free” doesn’t necessarily mean that you’re not making money. That post used the example of Maker’s Mark Bourbon, who will let you tour their facilities for free, and make a lot more money selling you souvenirs than they ever could have made on the tour itself.

Free is the newest craze, and it works really well in some cases. The best example is our favorite search engine: Google doesn’t charge you for the use of its amazing search technology. They make their money “through the side door”, as Jeff Jarvis would say.

You, too, can open a side door.

Share your expertise…

Make a website

A website is actually just another form of Information Product: a way to provide information to those who need it. It can be less daunting than writing a book, and may be a better fit for the information you want to provide, since it lets readers easily browse information in whatever order is useful to them. It’s also easier to edit and update than a book, which is great if your area of expertise is expected to change itself in your lifetime.

Start a blog

Blogs are another way to share what you know. Since the days when they began, as a way for teenage girls to keep each other constantly updated on their social lives, blogs have evolved into a great source of information for whatever you may be interested in — from fantasy football to making money. And whatever you’re an expert in, you could write one, too.

…or site-blog

Blogs are great because you can keep them constantly up-to-date, and can write about whatever comes to mind. But websites are really nice because your readers can find the information they’re looking for (without digging through years of chronological posts). A compromise that’s coming into vogue is the site-blog: a blog that has all its posts in chronological order, so you may read back issues to your heart’s content, but also has the posts sorted into categories like a website, so that you can find specific, targeted information.

Make a podcast

Does your area of expertise lend itself better to audio or visual media than to text? Make a podcast or a video podcast. It’s not as hard as you think, and it can probably be done with free software.

Check out my first YouTube video.

You can do better than that. So why don’t you? You get to talk about your favorite stuff once a week, and you can call your mom and tell her you’re in a video.

… and monetize

If you make good stuff — a website with good information, a podcast that’s entertaining, or a blog that keeps people up-to-date in your industry — people will enjoy receiving it. And then all you have to do is monetize. Do this by

  • Selling ads
  • creating premium content, available for a fee
  • selling your services as a consultant
  • selling related products through an affiliate program
  • creating an information product you can sell to people who want more
  • selling t-shirts and coffee mugs related to your work

Low Risk… So Why Not?

All of the above can be done for free, or for very low cost. So why not try it out?

Resources For Further Reading
Site Build It! (A great resource for making a website – but the only resource on this list that isn’t free.)
WordPress (This is where I started my blog)
How to Podcast: 4 Basic Steps
How To Make Money From Your Blog

Monetize Yourself Media – Sell Your Expertise Directly

This post is part a series on specific media for monetizing yourself. Today I’m going to talk about another category of potential media: selling your expertise directly through books or information products.

Sell your expertise in products

Write a book

Yes, you can write a book. It used to be that writing a book involved a huge mess. You had to get an agent, who had to convince a publisher that you could sell 1000 copies, so as to find a book deal, then negotiate an advance, and so on. Big deal, big mess, and contingent on the approval of people you don’t know and probably don’t like.

Not any more. It’s now easy to

  • write a book (word processing! No more white-out!),
  • publish a book (you can publish an ebook for free, or get someone to publish it for you for less than $100. Paper books can be printed in lots as small as a dozen, so publishing houses are far less concerned with selling 1000 copies), and

  • market a book (it’s hard to get on the shelves of Barnes And Noble or Borders, but almost trivial to get on the “shelves” of Amazon.com).

Now all you have to do is figure out what to write a book on. What have you found yourself wishing you could find a book about? What have you had to experiment and develop mostly through trial and error, because there are no books on it? What do your family and friends call you to get help with? Don’t tell me that there isn’t anything; see the story below.

Create Information Products

A book is actually a subset of information products, but I gave it its own category because it’s by far the best-known information product.

An information product is just what it sounds like: a product that provides information. A book is one example. Other examples include (but are not limited to):

  • a DVD on how to use your new exercise equipment, or
  • a 1-page checklist of things to pack on your vacation, or
  • a spreadsheet that sorts your expenses into budget categories, or
  • a deck of flash cards, or
  • a comic book on how to play this board game, or….

Information products are great because they’re so flexible, and it’s entirely possible that your expertise doesn’t fit well into a book. Someone whose gift is in designing and assembling awesome carpentry projects would be far better off selling how-to videos. If your gift is organizing things, you may be better off selling mini e-books like “101 Things To Take on Vacation” or “Everything to Do To Get Your House Clean Enough For Your Mother-In-Law”.

But I Don’t Have Expertise

Judy Murdoch tells a story of a teacher who said she couldn’t make an information product, because she wasn’t an expert on anything. Judy challenged this statement, said she was sure the teacher knew something worth $50. Intrigued, they started discussing.

Turns out…
this teacher, having years of experience with 7-year-olds, knew how to get first graders to pick up after themselves.
Wouldn’t you pay to know that?

The lesson?
Everyone undervalues what they know. You undervalue what you know how to do, just because you know how to do it.

We’re all experts at something. You just have to find your market.

Resources For Further Reading
Information Product Development from Highly Contagious Marketing
Buy The Book Marketing: Internet Marketing for Authors

Monetize Yourself Media – Sell Your Time and Expertise

I’ve talked a lot about the theory behind monetizing yourself: what it means, how to provide value, how to identify value you could provide, and so on.

But I haven’t discussed how to actually deliver that value. What do you do in the day-to-day to monetize yourself? How do you get started?

Steve Pavlina distinguishes between the medium with which you present your message, and the message itself. The crux of the article is that the message is the most important thing, because it’s what people care about. So if you’re new to this blog, and thinking about monetizing yourself, I strongly recommend going back and thinking about your talents and skills, what value you can provide, and what you wan to accomplish.

But if you’ve been with me for a while (thank you!) you’re thinking, “Enough with this theory already! Tell me what to do!”

Disclaimer

Part of the reason I’ve been avoiding this is because it’s such a huge project. There’s so much to talk about: not just the individual media you can use, but for each medium there’s how to use it, what to do with it, what your options are, and so on. Not to mention keeping up with changes in each area.

So this is, by necessity, a really broad, high-level picture. I’ll try to at least keep it coherent, but I certainly can’t cover everything. Help me out by leaving a comment or sending me an email, telling me what questions you still have.

Ways You Can Monetize Yourself

There are a bunch of different routes for monetizing the value you provide, at a bunch of different levels. I’ve broken it up into three broad categories, to avoid overload and really long blog posts. So today I’m going to discuss monetizing yourself and your expertise with your time.

Sell your time and expertise

Freelance

If there’s something you can do that others can’t, you can charge people to do it for them. You can do this on evenings and weekends, in your free time, to get a little extra spending money.

Start your own business

This is kind of an ambiguous term, and the line between this and freelancing is pretty blurry. Generally people call it “freelancing” if you do it in your spare time, and “running a business” if it’s your primary income source.

There’s also an important distinction between “owning a business” and “owning a job”. Details are here, but Michael Gerber defines it this way:

    Go out to the lobby and call your secretary. Tell them you’re not coming back for a year. If they panic, you own a job. If they’re cool with it, you own a business.

(If they celebrate, you need to rethink how you treat your staff.)
Owning a business is more fun and more lucrative (I think). But owning a job is faster to set up and easier to get started on, so if you’re new to the monetizing yourself thing, I recommend starting there.

There’s also a terminology ambiguity about what’s involved in “starting a business”. Usually this term means that you’re starting what’s called a “small business”, which is actually owning your own job. But as I said in Annual Planning, I recommend you treat it as a business regardless of your monetization selection. Freelancing? I recommend you set up a business and handle the money separately. Selling a book? I recommend you think of it as a business with one product. You don’t necessarily have to legally set it up as a business, but the attitudes of a business person (What’s my ROI? Who’s the target market? How is my product perceived?) will help you monetize yourself more effectively.

On Monday I’ll discuss monetizing yourself by selling your expertise, writing a book or selling information products.