How to Make Money? Practice.

There is a great article over at Inc.com by Jason Fried of 37signals. Comparing making money to learning to play the drums well, he emphasizes the importance of practice.

I have a degree in finance, but I don’t remember taking any classes that even remotely taught me how to make money. I’ve read plenty of business books. Same thing—lots of talk about money, but not much about how to actually make the stuff. One thing I do know is that making money is not the same as starting a business. For entrepreneurs, this is an important thing to understand. It took me a long time to figure out how to make money. Here’s how the lessons unfolded….

He then goes on to break down all the lessons he had to learn to be good at making money (and he does, actually, make a lot of it these days). Some of my favorite points were

Don’t try to impress customers with acronyms, terminology, or jargon.

This has a negative effect. “When you describe things in terms people don’t understand, they tend not to trust you as much. Trust is important. You can bluff your way into money, but for only so long.”

Understand what the customer really wants.

This needn’t be an impossible, Freudian level analysis. Perhaps think about what are the top three things a customer thinks is important, in making a purchasing choice:

Once I stopped slinging the technical terms, I realized that when customers shop for shoes, they do three things. They consider the look and style. They try them on to see if they’re comfortable. And they consider the price. Endorsements by famous athletes help a lot, too. But the technology, the features, the special-testing labs—I can’t remember a single customer who cared. I sold a boatload of shoes and tennis rackets that summer.”Understanding what people really want to know—and how that differs from what you want to tell them—is a fundamental tenet of sales. And you can’t get good at making money unless you get good at selling.

Sell only things you’d want to buy for yourself.

You can understand a buyer best, and most naturally, when you honestly would like to buy your own product. And if you can offer people things that you want - for less than they can get anywhere else - you have a winning combination.

His advice about practicing by buying and selling things repeatedly on eBay is a good one.

Here’s a great way to practice making money: Buy and sell the same thing over and over on Craigslist or eBay. Seriously.

Go buy something on Craigslist or eBay. Find something that’s a bit of a commodity, so you know there’s always plenty of supply and demand. An iPod is a good test. Buy it, and then immediately resell it. Then buy it again. Each time, try selling it for more than you paid for it. See how far you can push it. See how much profit you can make off 10 transactions.

Start tweaking the headline. Then start fiddling with the product description. Vary the photographs. Take some pictures of the thing for sale; use other photos with other items, or people, in them. Shoot really high-quality shots, and also post crappy ones from your cell-phone camera. Try every variation you can think of.

Other tips include:

People are happy to pay for things that work well. Never be afraid to put a price on something. If you pour your heart into something and make it great, sell it. For real money. Even if there are free options, even if the market is flooded with free. People will pay for things they love.

Charging for something makes you want to make it better. There is a type of intimacy involved with selling (and buying) a product. Living up to expectations makes you perform.

Don’t just charge. Try as many different pricing models as you can. Jason’s description from his own business is persuasive here:

Before I launched 37signals, I worked as a freelance Web designer. I charged clients by the hour. I work quickly. But I soon realized that charging hourly penalizes efficiency. If I can finish something in an hour that might take someone else three or four hours, why should I be penalized? So when we launched 37signals in 1999, we charged clients by the project.

It worked great. But as the projects started getting bigger and costing a lot more, I noticed that clients became more reticent about signing on. Big numbers and long time frames make people nervous. More money and more time mean more risk, and risk is something all companies would prefer to avoid.

I thought about the problem and decided to try something new. Instead of doing long, expensive projects, we’d do short, affordable ones. Instead of billing $50,000 for a 15-page website redesign that would take three months, we’d charge $3,500 per page and offer to complete the page in a week. If you want another page, it’s another $3,500 and another week. We called it 37express.

It took off. It took the risk out. It let companies try us out before committing to something big. And it was a lot more fun for us—fewer meetings, less stress, fewer decisions to be made. Just a quick one-week project for a fixed price. If you want more, we’ll sell you another.

We no longer design websites, so we don’t offer 37express anymore. But it was a fantastic way to make money. Remove the fear, and people will be more willing to pay you. People don’t like uncertainty—especially when they have to pay for it. A week and a fixed price is certain.

We’ve continued to experiment with pricing models. It’s been a great way to get a 360-degree view of how customers think about their money and our products. Our apps, for example, are available as monthly subscriptions for $24 to $249 per month. We’ve sold our book Getting Real as an instant download for $19 and as a paperback for $25. We’ve sold tickets to our eight-hour workshops for up to $1,000. Listings on our job board are $400 for 30 days. We sell listings on Sortfolio, a service we built to help small businesses find Web designers, for $99 per month.

We’ve even sold promotional T-shirts, for $19, when just about everyone else in the business gives them away. People wear shirts they paid $19 for. People turn free T-shirts into rags. Rags don’t promote anyone.

Read the whole article here.

The Five Biggest Mistakes Entrepreneurs Make

Ok, schooltime again, everyone take a seat and spit out your gum. Today’s lesson is from Jerry Kaplan (Google it), and a lecture he gave at Stanford listing the five biggest mistakes he’s seen others make.

The first of these is not having a clear enough mission - or idea of what constitutes success. I also liked his idea of working with people you dislike, as working with friends necessitates working with people who already think like you.

There won’t be a test, and we won’t ask you the other points - but we would like to know if you think he’s on the money.

Short, Simple and Sweet Business Plans

One of the most refreshing developments in the entrepreneur world is the emergence of the short business plan.

In the 80’s and 90’s it was all about the maxi plan - include everything that can possibly be calculated, and if you don’t the other guy will beat you. Our heads were filled with our SWAT analysis, and SCAN, and Strategic Plans and Mission Statements… as well as a swathe of facts and figures relating to our businesses. If you had it done for you it could cost up to $50,000. If you did it yourself, it could take months out of your life you’re not likely to get back.

A big business plan made the bank manager and investors more comfortable. The more detailed your plan, the more you had obviously thought about the venture you were about to undertake. The more possibilities and contingencies you had planned for, the more successful your new business was likely to be.

Well, in the 2000’s - as many people looked at their folders and spiral bound pages sitting on the shelf, unopened, people began to wonder if there wasn’t a better way. Something they could actually use. And so we started to see a whole bundle of short (sometimes super short) business plans.

It took Lifehacker to show many of us that it didn’t have to be this way, by drawing attention to  Wise Bread’s 4 point business plan. It is still big and messy. But it showed us that a smaller plan could still be useful. And perhaps more useful.

In How Come That Idiot’s Rich and I’m Not (which I can recommend, by the way - get it from Amazon), author Robert Shemen outlines the shortest of these I’ve found - an ultra light business plan that in 5 short stages. He says that he’s used it on every one of his successful businesses, and if it takes you more than an hour to do - you’re putting too much time into it.

These are the basic sections he thinks are important:

A Mission Statement

Robert thinks here you should put down your values, what you stand for. It is also a place for dream or vision, but importantly it is much more than about the money or ‘traditional’ success. Your values and vision will be the fuel that drives you forward - money and other things will follow.

An example:

“I want to make quality t-shirts, treat my customers well, and make an ethical profit.”

The Time Commitment

You might know where you want to go, but if you don’t get there straight away, you might quickly get disappointed. Therefore, he recommends that you write down the amount of time you will give it to succeed. Again, this will fuel you through many months of zero profit - perhaps many years. Don’t be surprised if it takes into your third year for a momentum to build - but things will start falling into your lap and you’ll be glad of the time you put to your dream.

Example:

“I’m, going to give myself 5 years to make this a success”.

Your Financial Goal

You should have some concrete financial goal - but just as importantly - a concrete method to get there.

Example:

“After three years I will be earning $60,000 through 1000 visitors a day to my online store”.

I’m pulling these numbers from the air, but you get the picture.

The Activities You Will Do

Everyone can have ideas - that’s the easy part. Translating it into and through the actual work, effort, and daily slog is where it gets tough. What will help here is a clear plan of what you will do.

Example:

“I’m going to come up with one new T-Shirt design a week. I’m going to get at least one new T-Shirt designer on my site per week. I’m going to spend a day a week publicizing my site, and selling at least twenty products per day.”

Your Schedule

This last part is so important, in the author’s view, that it is given even more detail here. A schedule can hardly be too detailed, in his mind. Robert says every ten minute block should be accounted for, but you might prefer hours or half days instead.

Example:

Personally I’d draw up a visual chart, but written it might look something like this:

One hour every evening, 11:00 - 6:00 Saturday, and 3:00 - 6:00 Friday.

For me, this way of thinking makes sense. I’d maybe juggle the order a little, putting my goal before my time commitment. And I’d flesh out the numbers if I was ever taking it to my bank manager. Also - you might want to have a good think to yourself about your plan first- for instance, in the example above, “Homemade t-shirts” are a competitive and saturated market online. But all in all, I can see myself using this much more than any other type of strategic thinking.

What essentials do you think you need in a business plan? And how lite is too lite?