To get the time and money to have a lifestyle you want, you don’t want to run a business, you want to own a business. You want the business to run itself. The author calls this type of self-sustaining business your “muse.” Note—you’re not trying to create a business that will make a difference to the world or that you can sell for a lot of money. You’re just trying to build something that makes you money without taking up your time.
Muses must:
- Sell a product, whether physical or digital. Other types of businesses, such as customer service or anything that runs on a pay-per-hour system, take up too much time to be muses.
- Be cheap to test. It must cost less than $500 to test the product.
- Lend themselves to automation. You should be able to start stepping away within a month.
- Require little maintenance. Once the business is running, you shouldn’t have to spend any more than a single day a week managing it.
There are three steps to choosing a muse. Don’t manufacture anything until you’ve completed all three steps.
Step #1: Pick a Niche Market With Affordable Built-in Advertising
It’s best to choose a market that you’re a part of or have a good understanding of so you know its needs.
- Think about what groups and organizations you’re part of, either professionally or personally. What products and subscriptions related to your market do you own? For example, when the author started his business, he was a student athlete, so he focused on that demographic.
- Additionally, your target market isn’t necessarily limited to the people who actually fit your demographic, they’re also people who want to fit that demographic. For example, iPod ads feature people in their 20s and 30s, but a lot of people want to feel young and cool, so people of all ages buy the iPod.
It’s important to choose a niche market specifically, because if your market is too broad, there’s a lot of competition and a lot of free information, and it’s expensive to advertise to such a big group. For example, the student athlete market is large and scattered. The author chose to focus on athletes in specific sports, martial artists and powerlifters.
It’s also important that there’s a way for you to reach your market. You’re going to be advertising your product in magazines, so do some research:
- Of the markets you’ve brainstormed, which of them have interest-specific magazines? Look at bookstores or in Writer’s Market to get a sense of the magazine options.
- Call these magazines’ ad departments and ask for their rates, readership, and samples. Look in the back issues for ads by direct-to-consumer sellers. If you find that these sellers often take out ads in this magazine, that means that they’re making money from advertising in this specific magazine, and you can too.
Before moving on to the next step, confirm your chosen market meets the following criteria:
- You’re familiar with it.
- A full-page ad in its magazine costs less than $5,000.
- The magazine has a readership of at least 15,000.
Step #2: Come up With Possible Products—Without Spending Money
There are two sub-steps to step #2: brainstorm product ideas and then evaluate them against criteria.
Sub-Step A: Brainstorm Products
There are three options for finding products and the last option is the one you’re probably going to want to use.
Option #1: Resell Something That Already Exists
Reselling is the easiest of the three options, and it’s quick to set up, but it comes with some disadvantages:
- Reselling isn’t very sustainable because unless you have exclusivity (which is hard to get), you have to compete with other resellers.
- Reselling isn’t very lucrative because when you buy wholesale, you usually only get 40% off retail. You also may need a business tax ID to buy wholesale. To get a tax ID, you’ll have to file for a business structure, which costs between $100-200. The author recommends an LLC structure.
However, reselling is a great option for certain products:
- Back-end products. Back-end products are add-ons to something the customer already owns. For example, if a customer owns a phone, a back-end product is a phone case. Back-end products have no advertising costs.
- Cross-sellable products. Cross-selling is selling someone a related product right after they’ve bought a different product. Again, you already have the customer’s ear, so there’s no advertising cost.
Shortform Extended Example—Edgar: Edgar is an architect. He wants to start a muse to resell hats made in Amsterdam. Edgar’s story will play out through the rest of this summary.
Option #2: License a Product
There are two ways to approach licensing. The first is to invent a product and then charge anyone who wants to sell it. Usually, you earn 3-10% of the wholesale price.
The second is to find someone who’s invented something and the license it from them. You have to give the inventor that 3-10% of the wholesale price, which leaves you with 90-97%.
Licensing involves a lot of legal work and contract negotiation, so the author doesn’t recommend it for your first muse.
Option #3: Come up With a New Product
A new product is the best option for most people. When brainstorming product ideas, keep in mind setup costs, minimum orders, and unit costs. Technology tends to have high costs in these areas so you probably want to avoid it.
There are three ways to create a product, and the third is usually the best:
Way #1: Find a generic product that you can tweak for a specific market.
Get a manufacturer to create the stock product and then put your own custom label on it. (This is called “private labeling.”)
- For example, some health practitioners sell their own line of vitamins, but they’re the exact same product you could buy elsewhere. The only difference is the label.
Way #2: Come up with a brand-new physical product.
You don’t have to handle all the creation personally. If you come up with an idea, you can hire someone else to do a prototype. (Recall the advantages of outsourcing from Chapter 9).
Way #3: Create an information product.
Information products are ideal for several reasons: they can have a 20-50 times markup and they’re cheap and fast to make. Also, they’re a lot of work to imitate. It’s easier to get around a patent than paraphrase a whole information product. (It usually only takes two to four months before exact duplicates of infomercial products start showing up.)
You might think that you need to know a lot about a subject if you’re going to sell an information product. You don’t. You only need to know more about the subject than whoever’s buying the product. And you don’t need to convince everyone to buy the product, only enough people to make you enough money to get the Target Monthly Income required for a dreamline. The author calls this amount of customers the “minimal customer base.” It’s smaller than you might think—if your dreamline requires $2,000 and your product costs $200, you only need 20 people to buy it to make $2,000 (not taking into account business costs). If the readership of the magazine you’re advertising in is 15,000, your chances of attracting the minimal customer base are pretty good.
Additionally, there’s no agreed-upon definition of an “expert.” Therefore, there’s no definitive way to decide who is or isn’t an expert; all anyone can do is get others to see them as an expert. Therefore, building yourself “expert status” isn’t deception, according to the author. It’s “superior positioning.” You can achieve expert status in four weeks by doing the following:
- Read three authoritative books on your subject. Choose the top three off the New York Times bestseller list. Summarize them.
- Collect credibility indicators. Credibility indicators are things like degrees or membership in organizations—basically, letters or attributions after your name.
- Find organizations that work with your topic and join them. Choose ones with official-sounding names and easy membership requirements. For example, you can join the Association for Conflict Resolution simply by signing up and paying a fee online.
- Search for the nearest leading university and offer to give a free seminar. Advertise your seminar with posters. Then give free seminars at two leading companies in the same area. (When pitching yourself to the companies, tell them you’re a member of the organizations you signed up for above and that you’ve given a seminar at the leading university.) Tell the companies you won’t be selling anything and want to speak so you can get practice in a non-academic setting. Record your seminars so you can potentially sell them later.
- Optional: Revisit your list of interest magazines and write a couple articles for them, convincing them of your credibility by mentioning what you’ve done using the steps above. If they don’t think you’re enough of an expert, offer to interview a different expert, because you’ll still get a written credit in the magazine.
- Join ProfNet. ProfNet is a database of experts. When journalists need quotes for articles, they search ProfNet. Use your credibility indicators from above, and do research, so that you can appropriately give quotes. You can get named as an expert in all sorts of publications.
Here are some ideas for creating an information product. You can personally create the content (become an expert), use public domain content (free content anyone can use), or get help from an expert. To hit a price of $50-200, come up with a combination of formats, such as six CDs and a transcription.
- Think of general skills that you could apply specifically to your market.
- For example, building a website is a general skill, but you could apply it specifically to a real estate market, and do a product on real estate broker websites.
- Consider what you could add to something that’s already selling successfully in your market. Think of specifics.
- For example, you might come up with a waterproof version of a product that people like to use on the beach.
- Ask yourself what skills people in your market—including you—want to learn. Learn the skill and then build a product that teaches it.
- Think of an inspirational story from your life. Could you turn this into a how-to product?
- Interview an expert, record the interview, and then sell the recording. Your expert doesn’t have to be the person at the top of their field, just someone who knows more about a topic than most people. For payment, offer the expert a copy of the interview to keep or sell, pay them a fee, or give them a portion of each copy sold.
Shortform Extended Example—Devi: Devi is an entrepreneur. She’s a fitness instructor and dragon boater. She wants to sell a workout program specifically for dragon boaters. Devi’s story will play out throughout the rest of the summary.
Sub-Step B: Evaluate the Product
Your product must meet the following criteria:
- You must be able to explain the point of your product in a single sentence.
- For example, Apple didn’t describe the iPod with a list of specs; instead, they said you could have “1,000 songs in your pocket.”
- You must be able to answer all potential questions about the product with an online FAQ. This cuts down or even eliminates customer questions.
- For example, the author doesn’t recommend ingestibles as a product even though he was successful with them because there are too many unique questions associated with them.
- The retail price should be between $50-200. This has many benefits:
- Most companies set their prices at the midrange, and remember that midrange is where you’ll find the most competition.
- If you price low, someone else will be willing to price lower.
- A higher price will make people think the product is more valuable.
- A higher price means you don’t have to sell as many units to make money. The fewer units you sell, the fewer customers you have, and then you don’t have a huge group of people you’re spending time on.
- Customers that buy more expensive products tend to be lower-maintenance—you won’t have to deal with problems like declined credit cards or returns.
- When your product is more expensive, your profit margin is higher. The author recommends an 8-10 times markup instead of the conventional 5 times. A higher markup helps ensure you’ll still have a good margin once you get distributors and resellers involved, because you’ll have to give them a discount. If you don’t plan for this, you’ll have to later make a new or better version of the product to justify raising the price.
- Downside: if you price too high, people will need to talk to you before deciding that they want to buy the product
- It must take less than a month to manufacture the product, and one to two weeks is ideal. This is to keep costs low and lets you quickly adjust to demand. To figure out how long something takes to make, get in touch with contract manufacturers and ask for a rate card for unit costs of a variety of order sizes. If you have trouble finding contract manufacturers:
- Get in touch with a related manufacturer and ask if they can refer you. For example, if you want a sink cleaner manufacturer, you could ask a sink manufacturer if they know anyone.
- Search for associations and organizations related to your product and ask them for referrals.
- Check advertising in trade magazines—you’ll not only potentially find contract manufacturers, you might also find other services you’ll need later.
- Make sure your manufacturers can meet deadlines. This is more important than getting a product perfect.
Shortform Extended Example—Edgar: Edgar is the architect who wants to resell hats made in Amsterdam. He prices the hats at $50 each. His start-up costs are buying the hats wholesale and shipping, which is about $15 a hat. This isn’t the ideal markup, but he decides to go ahead with it.
Shortform Extended Example—Devi: Devi is the fitness instructor who wants to sell a dragon boating workout. She chooses to format her product as two DVDs and a manual. She prices the package at $100. Her start-up costs will include making the DVD and getting it duplicated.
Step #3: Test Your Products on a Small, Inexpensive Scale
Even people who have a lot of experience in specific industries or good intuition may not be able to foresee what’s going to be successful. Focus groups aren’t any better—it’s easy to say you’d buy something if you don’t actually have to buy it. In this step, you’re going to test your product before spending a lot of money to manufacture it.
There are four sub-steps to step three:
Sub-Step A: Assess the Competition
Your product is going to have to compete against other similar products. To outcompete them, you must come up with a way to make your version different and better than your competitors’. Follow these instructions to research your competition:
- Google the terms you would use to try to find your product.
- Come up with related terms using keyword suggestion tools such as Google’s Keyword Planner or SEOBook Keyword Tool. Google these related terms as well.
- Look at the top three websites that keep coming up in the searches above.
- Figure out how to make your product different. Some options are:
- Make your product/company more authoritative than your competitors.
- Offer a better guarantee than your competitors.
- Provide better selection than your competitors (if relevant).
- Offer better shipping than your competitors.
Shortform Extended Example—Edgar: Edgar’s competitors offer many hats in addition to Amsterdam hats, so it’s hard to find the Amsterdam hat specifically on their websites. He also learns some of the hats are made in the US (so they’re not really Amsterdam hats), and the ones that are made in Amsterdam take two to four weeks to ship.
Shortform Extended Example—Devi: Devi learns that no one else has ever made a fitness for dragon boating DVD.
Sub-Step B: Create Ads
Create ads for your product that include differences between your and your competitors’ versions of the product, testimonials, and photos. Look at your competitors’ ads and ads you’ve been drawn in by as examples.
Shortform Extended Example—Edgar: Edgar gets testimonials by letting his friends try on his hat, and gets photos and ad samples from the hat wholesaler
Shortform Extended Example—Devi: Devi asks her current clients for testimonials
Sub-Step C: Test Your Product
You’re going to test your product by advertising it and estimating how many people will buy it. You’ll use direct response advertising, so that you can track when an ad leads to a sale. This chapter gives two options for testing your product. You can do both if you like:
Option #1: Offer the product on a short eBay auction. This should cost less than $5.
- Shortform Extended Example—Edgar: Edgar sets a minimum price of $50 on an eBay auction and then cancels it at the last minute because he doesn’t actually have a product and wants to avoid legal issues. He receives several bids and the highest one is $75.
Option #2: Create a website and use it to start “selling” your product. Because you don’t actually have a product, you can’t actually sell it to anyone, but you can set up an ordering system that looks like it works. This is legal as long as you don’t collect billing information. To make full use of this option:
- Register a domain name and set up your website. This should cost less than $20.
- Shortform Extended Example—Edgar: Edgar sets up a purchase button and order form on his website. Before the customer can enter their billing details, the website will inform them that the hat is backordered and that the company will let them know when it’s available again.
- Shortform Extended Example—Devi: Devi isn’t comfortable setting up an ordering system without a product, so she gets people to sign up for an email newsletter with tips about fitness for dragon boaters. She estimates that 50% of the people who sign up for the list would have bought the DVD.
- Set up a Google Ads campaign that directs customers to your website. Create ads with different combinations of the search words you researched above. You’re charged every time someone clicks on your ad, so be as specific as possible. That way, the people who click are people who are likely to actually buy. Limit the budget to $50/day. These ads will tell you not only how many people are interested in the product, but also which URLs, search terms, product names, and so on, receive the most traffic. Adjust your settings so that Google rotates all your ads instead of only showing the one its algorithm thinks is most effective. Run the ad for five days, which will cost a maximum of $250.
- Shortform Extended Example—Edgar: Edgar tries two different ad headlines but keeps everything else the same between two ads.
- Shortform Extended Example—Devi: Devi tries two different URLs.
- Use analytic software to track how many people view your site but don’t interact with it
- Shortform Extended Example—Edgar: Edgar uses Google Analytics to look at how many people leave the site before or halfway through ordering.
- Shortform Extended Example—Devi: Devi uses Wufoo to track who signs up for her email newsletter.
Sub-Step D: Tweak and Test Again if Necessary
Based on the test results, assess whether or not your product will be profitable. To keep the math simple, compare how much you spent on ads to how much you would have made if you’d actually sold the product. If you’re not happy with the results, make changes until you have a product and muse you’re happy with.
Shortform Extended Example—Edgar: Edgar spent $100 on ads and made $150. His analytics told him that lots of people viewed his site, but most people left it after viewing the pricing. He thought about what he could change. Instead of dropping the price, he offered a guarantee—if the customers weren’t 100% satisfied with the hats, he’d give them their money back. He retested and the change increased his sales enough to make the product viable.
Shortform Extended Example—Devi: Devi spent $150 on ads and had 20 people sign up for her newsletter. She assumed 50% of those people would buy the DVD, giving ten customers. If she makes $100 on each DVD, she’s made over $1000.
Limiting Options
When people have too many choices, they can become paralyzed by indecision and do nothing. If your product has too many options, people might get overwhelmed while shopping and not buy anything. Options also complicate manufacturing and customer service. If a customer needs options, send them to a reseller. If they’re buying from you, do the following and you can reduce service overhead by a fifth to four-fifths:
- Never have more than two options.
- For example, a watch company hired expert marketer Joseph Sugarman to put together an ad. The company wanted the ad to show nine watches; Sugarman advised them to feature only one. The company insisted, so Sugarman ran both. The single-watch ad was six times more effective than the other one.
- Never have more than one shipping option, and that option should never be overnight or express because you’ll have to deal with a lot of customer inquiries. Offer a single fast method and charge for it.
- Don’t take orders over the phone.
- Don’t ship internationally. This saves you time on customs forms and customer complaints about duty fees.
(Shortform note: The 4-Hour Workweek covers the three-step process over two chapters. We have consolidated into a single chapter for clarity and concision. The “Limiting Options” section was originally in Chapter 11.)