How to Build a Million-Dollar Business

http://www.trizle.com/topics/1250-how-to-build-a-million-dollar-business

by nate • 17 years ago

21 23 17 years ago

Sounds simple and... it sorta is. If you spend some time learning about sales, you'll recognize the "rejection is good - it's one step closer to the next yes!" theme.

In this vein, I want to recommend "Ready, Fire, Aim" by Michael Masterson. It focuses on the same topic (selling subscriptions to information products) but the ideas can be applied to most product businesses. The focus is on getting those first sales, figuring out how to convert, then fleshing out the product.

edw5192• 17 years ago

This advice may be good for someone selling a commodity, but for software, it doesn't make sense to me.

Basically, OP says to sell a large volume of a commodity product to many customers. Since you only convert 1% of your prospects, you'll have to do a lot of pitching. (100 * a large number = a really large number).

Sounds like you'd be selling all the time with no time left for programming.

I'd suggest exactly the opposite: Spend almost all of your time building a great product, and do one of two things with it:

1. Make it a niche product and sell it to a small number of tightly targeted customers. Your conversion rate should be much higher than 1% and you can charge much more, not needing so many customers.

2. Make it a web-based commodity and leverage technology (SEO, blogging, etc.) to reach a large audience. You don't "pitch" thousands of users, you just reach them and let your product pitch them for you.

I just don't understand how someone who can program (which is the critical path for software products) should be spending all of their time selling.

samography• 17 years ago

"You don't "pitch" thousands of users, you just reach them and let your product pitch them for you."

These are the same thing. Just because you're not taking each potential customer to a steak dinner, it doesn't mean you're not selling them. I don't see how you get customers without showing them the benefits of your product. No matter what the medium is (blogging, advertising, interviews, SEO) - Pitching, selling, it's all the same thing.

edw5192• 17 years ago

From OP:

"I talked to 100 clients last week and got 1 client."

"Let's try for 500 clients this week. 100 clients per day is more than doable," you tell yourself.

"I'll up my calls to 150 per day, and direct mail the rest to reach 2000 contacts this week."

"2000 contacts produces 20 new clients."

I dunno, "talking", "calling", and "direct mailing" in volume sound significantly different (and way more time consuming) than SEO, mass marketing, and word of mouth. Just different enough that a programmer can make time for the latter but not the former.

antidaily• 17 years ago

Mark Cuban says sales solves all problems. I think he's right. The company with the best sales (not the best product, best SEO'd website, most informative blog, etc.) will probably have the most success. Doesn't mean you have to cold call.

jasonlbaptiste• 17 years ago

To boil it down more, it's customer acquisition costs (CAC) and lifetime value of the customer (LVC). Great products help drive down the CAC and increase the lifetime value of the customer. Sales are great and an often overlooked aspect, but just one piece of the puzzle. You can have an awesome close rate, but if the product sucks and they leave, the LVC goes to shit. You can do a ton of sales as well, but if the cost to close those sales and acquire the customer is too large, you become unprofitable.

intellectronica• 17 years ago

Baloney. If growing a business was so predictable there would be absolutely no place for startups. that's the sort of intellectual fraud Taleb refers to in the Black Swan.

northwind• 17 years ago

Three cheers for calling this article what it is!

Quoting from a comment I made previously:

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A good friend of mine described the articles displayed here as a "rat's nest" which does not lead anywhere. At first, I thought he was crazy; then I began critically looking at said articles.

I signed up here looking for what the original post posits providing; what I found were articles about startups, business, marketing, the current/next great gold rush, followed by the token (recently it has been improving) programmer/hacker article. And the articles about startups, business, and marketing were not great on any scale; in fact upon critical review, said articles advocated rather bad strategies. Strategies which amounted to little more than legalized scams, strategies which optimize for the short term, strategies promoting win at any cost, strategies which advocate me first and to hell with the consequences; in short, strategies of which Phineas Taylor Barnum would have been proud.

Before joining the Hacker News community, I was interested in starting my own business. Now that I see what is advocated as "startup culture", I want nothing to do with starting a business in the United States (because my conclusion is the culture and laws of the U.S. have optimized for short term gain, with the resulting push towards the strategies mentioned earlier). What happened to a business (either startup or established business) having integrity in all of their relationships, being a responsible citizen of the business ecosystem it operates within, and providing a legacy beyond the generation within which it was founded?

----------------------------------------

So now here is my dissenting opinion of the linked article: if all you are concerned about is the money, then you have already lost.

evgen• 17 years ago

It is hard to k ow where to begin when addressing all of the delusions about building a successful and worthwhile business that you seem to be suffering from. If you want to create a business that operates with integrity and honesty that lasts for generations you start by creating one that can last for a month. Get feedback from your customers and the environment in which you operate to see if you can make it last for a year. Rinse. Lather. Repeat. No one who creates a worthwhile multi-generational enterprise starts out knowing exactly how it will be accomplished, and most are honest/knowledgible enough to admit this.

It sounds like you are not cut out for entrepreneurship in any culture; I would suggest a return to academia...

atree5• 17 years ago

Hey intellectronica. I'm definitely not claiming that business is predictable; you can do certain things though to hedge your bets (hopefully I mentioned it in my post below, but let me know if I'm still sounding unclear since I tend to to do that).

jhancock• 17 years ago

Its a good reminder that you have to sell, sell, sell.

But his example that your selling an email newsletter with valuable information, leaves you wondering when you have time to create the newsletter. If you actually did have time to talk to 100 prospectives a day, you would have zero time left for anything else.

A better representation might be: say you have what it takes to research and put together a very compelling newsletter that you can charge $25 a month for. Now lets say, your wife is also at home unemployed and you both magically can last a year trying to bootstrap the business. You bust your butt creating the product and your wife makes 100++ phones calls a day. Sell, sell, sell.

Murkin• 17 years ago

Well said !

I am surprised an article of such low quality made it.

The difficult part would be to create a _bi-weekly_ newsletter that people these days will be willing to pay 25$/m for.

What has this to do with startups ? This article is about making infomercials to sell the next AbsShaper.

atree5• 17 years ago

Hi Murkin. I'm not saying it's typical, and I'm probably using a bad example here, but business owners in my experiences dealing with them fall heads over heals for purchases that will help them grow revenue. A solid product that just does that, and pitched well, will make the $25 seem like a pretty good deal for them. 7-page business research reports (e.g. from Forrester, Gartner, etc.), for instance, tend to go for a few hundred dollars, so businesses do spend on investments that give them good returns.

martingordon• 17 years ago

To build a million dollar business, you only have to convert 300K out of 30M, which is only 1%! Unfortunately, there are numbers less than 1%. It's entirely possible to only convert 0.1% or 0.01%. Are you okay living off of $100K? What about $10K (0.01%)?

See: http://sivers.org/1pct

atree5• 17 years ago

Hey sivers. I mentioned it below, but throwing your marketing dollars entirely on the 30M probably won't be the best idea because you don't know your initial conversion ratios. You can try it on a sample size to get the ratios, and then build up gradually as you're hitting your numbers profitably.

dpcan• 17 years ago

Well gosh, that IS easy. Why not simplify it even further then.

Just pitch until you sell to 1 person. That person will tell their friends and create 1 more customer, and so on. Now you can just sit back and wait while the millions roll in. The rest, as they say, is maaaaagggggiiiiic.

synnik• 17 years ago

This article has an underlying assumption -- that you have already created a product for which people are willing to pay $25 a month, if only they hear about it. Which must include testing, revisions, etc, which can only be well done if you receive feedback from a customer base.

In other words, to build a Million dollar business, first you need to... build a million dollar business.

natemartin3• 17 years ago

I love how "make the product" is step one. That's the easy part, right?

I also think the complete premise is off target. This guy is talking about selling a newsletter for $25/month.

Most high-quality magazines go for $25/year, or even less. And most of those magazines have large staffs generating quality (usually) content so that the customer is willing to part with that $25/year.

If this guy wants to sell me a weekly newsletter for $25/month, that better be one hell of a newsletter.

Unless the whole point of this article was describing how to fool people into buying a low-quality product. In which case, why not just go all the way and start pushing fake Viagra? You'll get a lot more than 300 "contacts" a day if you're spamming!

What the hell happened to "Make a quality product, promote that product, sell the product, improve the product, repeat"?

jamesk2• 17 years ago

Yeah, making the product is hard but there are many newsletters that cost way more than $25 month.

Here's a list of investing newsletters that cost more than $25/month.

http://www.marketwatch.com/news/newsletters/newsletters.asp?...

There's even one that is $100 month and I've seen others that are even more.

The difference between these and "high-quality magazines" is that these are extremely targeted to a specific audience with a minimum of advertising.

natemartin3• 17 years ago

Then they probably have a staff working full time generating content for those newsletters?

I'm not doubting that there are newsletters worth $25/month, I'm doubting that creating a newsletter worth that is a one-man job. (And especially a one-man job where that one man spends most of his time making cold calls.)

atree5• 17 years ago

Hey guys. I'm the topic's author.

I think Trizle makes more sense if you read it in context with everything else on there; my total apologies for the ambiguity.

Some points:

1. The typical $1M business has about 5 full-time employees working on it (~$200K in revenue per employee); so while building a business that generates that much by yourself is possible, it's out of the norm. I should've definitely mentioned that.

2. You probably don't want to throw X market dollars at something without understanding your conversion rates first. First, get your average conversion rates (you can do that through statistical inference) from a random sample of your target market, determine if the model is profitable, then gradually expand your reach.

3. The "$25 bi-weekly newsletter" is just one product example; you can replace it with whatever product you're selling, and then use the model to determine your conversion rates to get an idea of how many pitches it'll take with your current model. For instance, selling a $200 product would take 10x less pitches than a $20 product (in terms of revs) to make X.

4. The free market creates incentives to provide as much value to your customers as possible; it's a broken system when you let get-rich-quick folks exploit others and get rich; mechanisms drive society, and that's why the Trizle articles tend to emphasize that providing immense customer value as the sole way to building a solid company for the long-term in a free-market economy.

There are no get-rich-quick-schemes, and any model that tells you that you can consistently earn greater returns than Warren Buffett's annual ROE of 20% is likely suspect. Solid, long-term companies, are built over years/decades.

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BTW, I love Ycombinator's board (pleasantly surprise someones posted the article here); I come back daily to read the stuff you guys/gals post on here. I come from a technical background (EE degree, using Rails daily), so it's always a fun read every time.

How to Build a Million-Dollar Business

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