This guest post is authored by Guy Raz (@guyraz), the Michael Phelps of podcasting. Guy is the creator and host of many popular podcasts, including How I Built This, Wisdom from the Top, and The Rewind. Guy is also the co-creator of the acclaimed podcasts TED Radio Hour and Wow in the World, a podcast for children. He’s received the Edward R. Murrow Award, the Daniel Schorr Journalism Prize, the National Headliner Award, the NABJ Award… basically all the awards. 

His brand-new book is titled How I Built This: The Unexpected Paths to Success from the World’s Most Inspiring Entrepreneurs. Past podcast guest Adam Grant has this to say about it: “[This book is] the mother of all entrepreneurship memoirs. It’s a must-read for anyone who wants to start a business, grow a business, or be inspired by those who do.”

What follows is an exclusive chapter — “Go In Through the Side Door” — from How I Built This.

Enter Guy…

A funny thing happens when you start to find success with a new business. You suddenly find yourself face-to-face with a host of people who are none too happy to see you. These people have a name. They’re called competitors. And whether they’ll admit it to you or not, many of them will try to do everything within their power to legally — and sometimes not so legally — shut you out. It’s a strategy deployed by the big fish in every pond once they notice a new, young fish swimming around and getting bigger by gobbling up the scraps they previously considered too small to care about.

In 1997, as the personal computer business approached 100 million units in annual sales and the dot-com bubble began to grow in earnest, Microsoft was one of the biggest fish in a pond that was about to swamp the world. Late that summer, a Microsoft group vice president named Jeff Raikes sent a now-famous email titled “Go Huskers!” to Warren Buffett, a fellow Nebraska native, describing Microsoft’s business in an effort to get him to invest in the company. In the email, Raikes likens the sturdiness and growth potential of Microsoft’s operation to that of Coca-Cola and See’s Candies (which Buffett had owned since 1972), in no small part because Microsoft’s revolutionary flagship product — the Windows operating system — had created a “toll bridge” that every PC maker would have to cross if they expected consumers to buy their machines.

The graphical user interface that made Windows revolutionary also made it wildly popular, which had the additional effect of creating a “moat,” as Raikes described it, between Microsoft and its competitors in the marketplace — one it was able to widen considerably with a 90 percent market share in productivity software applications (Word, Excel, PowerPoint, Access, etc.) that were built on top of Windows and were equally popular. This, in turn, gave Microsoft tremendous “pricing discretion,” not just for its applications software but also for the licensing fees the company charged to other computer makers for Microsoft’s operating system software.

What Raikes did not say in his email, but what Buffett surely understood from his decades of experience, was that the wider the moat and the longer the toll bridge, the more aggressively Microsoft could wield its pricing discretion in order to cement its growing advantage in the software industry. They could use it as a carrot, by lowering the licensing fee for Windows as an incentive to get their browser and applications software preloaded onto as many new PCs as possible. They could use it as a stick, by withholding volume Windows licensing discounts to punish PC makers that refused their sweetheart deal, or by offering their applications software at cost or below in order to drive competitors such as Lotus, Novell, and Corel (remember them?) out of business.

Microsoft employed each of those strategies to great effect. A year after Raikes’s email to Buffett, Microsoft would surpass General Electric as the world’s most valuable company and stay in that position for five consecutive years.

Toll bridge. Moat. Pricing discretion. These are euphemisms for the economic term barriers to entry, which is itself a kind of euphemism for all the ways existing businesses shut out competitors and make it difficult for new businesses to compete in a given industry. These barriers are not just conscious strategies deployed by old guard blue-chippers; they are also natural forces that rise and shift within a market as competitors enter and exit, grow and shrink, evolve and pivot. They can become the biggest obstacles you will face as a new business looking to grab, secure, and expand your foothold in a market, because they are the mechanism by which you will either be crushed (if your competitors see you coming) or ignored (if the market doesn’t).

This is why if, like most new businesses, you aren’t doing something completely novel or you aren’t doing it in a totally new way or new place, you should be thinking long and hard about how else you might enter your market besides knocking on the front door and asking for permission to come in. This is something that female and minority entrepreneurs have long had to contend with, whether it means breaking through glass ceilings or breaking down walls built by prejudice. All of which is to say, figuring out how to sneak in through the side door is not new ground you will have to break. A legion of resourceful geniuses have come before you. And what many of them have discovered is that the side door isn’t just less heavily guarded, it’s often bigger. Or, as Peter Thiel put it in a 2014 lecture at the Stanford Center for Professional Development titled “Competition Is for Losers,” “Don’t always go through the tiny little door that everyone’s trying to rush through. Go around the corner and go through the vast gate that no one’s taking.”

A year earlier, in Chicago, without fully realizing it, this is precisely what Peter Rahal had begun to do with his idea for a minimalist Paleo protein bar. Peter hadn’t started out looking for a side door per se, but he knew that with RXBar he was trying to enter a very busy space. Remember, Peter had already conceded that “the market didn’t need another protein bar.” It was a conclusion that was more or less inescapable when he and his partner, Jared Smith, did their initial fact-finding tour of Whole Foods. If there was one fact they were sure to find, it was that protein bars were among the most crowded sectors in the entire food business. Long gone were the days when only one main brand existed in this segment, as Gary Erickson had found in the early 1990s when he developed Clif Bar to go up against PowerBar. Even a decade later, ample opportunity was there for someone like Lara Merriken in a way that did not exist for Peter in 2013.

Can you imagine what the shelves of that Chicago Whole Foods looked like when he and Jared walked in? How many linear feet of shelf space were choked with multiple flavors from how many different protein bar manufacturers? Can you envision Peter even being able to secure as much as a hello from a Whole Foods regional buyer the way Lara Merriken did? Especially when the buyer learned what Peter was pitching? Yet another protein bar?

Peter knew he wasn’t getting into Whole Foods through the front door. Fortunately, that was never his plan. “From the early days, the whole strategy was to make a product that is for CrossFit and for the Paleo consumer, and build it online,” he said. “We’d build a web store and sell directly to gyms. Consumers would be coming directly to us.” That meant a bar with no grains, no dairy, no peas or bean protein, and no sugar. Nothing quite like it existed.

It was just the kind of advantage that a startup could identify and exploit but a larger competitor couldn’t (or wouldn’t) see. “A lot of people look at niches, or look at a small segment, and it’s not big enough for them,” Peter explained. “But we would rather have a CrossFit customer in California than a local Chicago independent grocery store, because in the grocery store we’re among the sea of competition. Whereas in a CrossFit gym, we were by ourselves. RXBar was literally engineered and designed for that occasion. It was perfect.”

It was his side door. Those niches — CrossFit, Paleo, and direct-to-consumer — which were then on the verge of exploding and truly becoming the kind of vast gate that Peter Thiel was talking about, were the combination that unlocked opportunity for Peter Rahal and allowed RXBar the chance to take root, to stand out, and to grow, before his direct competitors could notice and stamp him out. By that point, those competitors included major multinationals like General Mills and Nestlé, which had acquired Lärabar and PowerBar, respectively, and they could have easily shut him out by erecting any number of barriers to entry into the protein bar market.

For Manoj Bhargava, the founder of 5-hour Energy, his side door into the energy drink market did not take the shape of a small niche, but rather of a small product. In early 2003, a few years removed from his retirement from a plastics business he’d turned around and made profitable, Manoj was attending a natural products trade show outside Los Angeles looking for inventions he might acquire or license in an effort to create a business that would generate an ongoing residual income stream for him in his post-plastics years.

Walking the floor of the show, he stumbled upon a new sixteen-ounce energy drink that produced long-lasting effects he’d never experienced with other energy drinks. “Well, this is amazing,” he said to himself, exhausted from a long morning of meetings and now energized enough to continue walking the trade show floor. “I could sell this,” he thought. The drink’s creators disagreed. They were “science guys with PhDs,” while he was “just a lowly business guy.” They refused to sell their invention to him or even offer him a license on their formula. When they effectively told him to hit the road, Manoj decided to hit the lab instead and to create his own version of the energy drink that had fueled him up and blown him away.

“I looked at their label and said, ‘I can do better than this. How hard can it be? I’ll figure it out,’” Manoj said. With the help of scientists from a company he’d founded for the express purpose of finding inventions just like this one, he had a comparable energy drink formula in a matter of months. It would turn out to be the easiest part of the process.

The hard part would be getting his invention into stores. “If I make another drink,” Manoj said of his thinking at the time, “I’ve got to fight for space in the cooler against Red Bull and Monster [Energy]. I’ve also got to fight Coke, Pepsi, and Budweiser for space. So you’re pretty much dead if you want to try that.”

He was dead because he would be fighting for a finite amount of space in brick-and-mortar stores, against the competition not just in his own niche but in the entire beverage industry, which is dominated by some of the biggest companies in the world. If you own a 7-Eleven, or you’re the general manager of a grocery chain like Kroger or Tesco, are you really going to turn over a Diet Coke, Mountain Dew, or Snapple rack to a new energy drink that no one has ever heard of ? Especially when, in 2003, energy drink sales had yet to really spike and there were already two major players — Red Bull and Monster Energy — in the nascent market. Even if you were inclined to give a little guy like Manoj Bhargava a shot, once the regional sales reps and distributors from Coca-Cola and PepsiCo got wind of your decision, they would likely wield their Microsoftesque price discretion against you like a baseball bat, or just pull their products from your store altogether.

Those were the barriers to entry that Manoj was looking at. If he was going to get into this market, he’d have to find some other way. That’s when it dawned on him. “If I’m tired,” he asked himself, “why am I thirsty also?” By which he meant, why should we have to chug ten to sixteen ounces of a cloyingly sweet liquid in order to get an energy boost? “It would be like Tylenol selling sixteen-ounce bottles,” Manoj explained by way of analogy. “I just want to do it quick. I don’t want to drink this whole thing,” he thought. This is how Manoj arrived at the idea of shrinking his product down from the standard sixteen-ounce drink to a two-ounce shot.

Quickly, everything changed. In less than six months, he’d hired a designer to make his distinctive label, and he’d found a bottler who could produce two-ounce versions of his energy formula. “And at two ounces,” he said, “it’s really not a drink, it’s a delivery system.”

This was 5-hour Energy’s side door. It wasn’t a drink, so it wasn’t an immediate threat to Red Bull or Monster Energy. At two ounces, it also didn’t need to be refrigerated or given a large, dedicated shelf, so retailers didn’t have to worry about space. They understood that the perfect spot for it would be at the cash register, right next to the Slim Jims and pickled eggs!

“It just belonged there,” Manoj said. “You could tell it just looked that way, that it should be there.” Moreover, because the ingredients that went into 5-hour Energy were actually less about energy and more about focus — “vitamins for the brain,” Manoj called them — he could position his product beyond the beverage verticals and outside the grocery or convenience store channels. In fact, the very first place he went with 5-hour Energy in 2004 was the largest vitamin store, GNC, which decided to put the product in a thousand of its stores.

GNC turned out to be a genius side door into the energy “drink” market for a couple reasons. The first is obvious — there was much less competition compared with grocery and convenience stores — but the second is more interesting. “It turns out GNC is always looking for new products, because once a product gets mass distribution, GNC is sort of out of it,” Manoj explained. “If it’s in Walmart, nobody’s going to buy it at GNC.” Essentially, GNC was an easier route to retail distribution than a place like 7-Eleven or Safeway, and thankfully the tolerance for a slow start was higher as well, because in the first week they sold only 200 bottles. “Which was horrible,” Manoj admitted. But they waited it out, manufacturer and retailer together, “and at the end of six months it was selling 10,000 bottles a week.” From there Manoj went to drugstores like Walgreens and Rite Aid, which snapped it up, and now 5-hour Energy is near the cash register in most stores basically everywhere.

Today, RXBar, which was acquired by Kellogg’s in 2017 for $600 million, is one of the fastest-growing brands in the protein bar space, and 5-hour Energy has a 93 percent share of the energy shot business. It is a market dominance that Manoj has enjoyed from nearly the beginning, with only a brief dip to 67 percent when all his competitors — Coca-Cola, PepsiCo, Monster Energy, Red Bull — flooded the market with their own two-ounce-shot offerings . . . and failed. “Whenever people ask me what product are we like, I say we’re WD-40,” Manoj said near the end of our conversation, as we talked about 5-hour Energy’s phenomenal success. “We own the category. We’re the guys.”

This is the great irony of circumventing the barriers to entry that your competition’s apparent monopoly power constructs and then fighting your way in through the side door. If you’re successful, you stand a very good chance of achieving market domination of your own. Of digging and widening your own moat and building the toll bridge that crosses it. Of massive, unbelievable success. For many entrepreneurs, that is the goal.

Four days after Jeff Raikes sent his famous “Go Huskers!” email, Warren Buffett responded. His reply contained the normal conversational pleasantries, glowing commentary on Raikes’s analysis of his position on investing in Microsoft (Buffett wouldn’t), and an envious description of the company’s monopoly power: “It’s as if you were getting paid for every gallon of water starting in a small stream, but with added amounts received as tributaries turned the stream into an Amazon.” At the very beginning of his lecture in 2014, Peter Thiel echoed this sentiment in his own way. “I have a single idée fixe that I am completely obsessed with on the business side,” he said in his characteristic, hitched speaking style, “which is that if you’re the founder-entrepreneur starting a company, you always want to aim for monopoly, and you always want to avoid competition.” You want to be the only one directing traffic and collecting tolls across the widest moat possible.

I mention all this because being really good at going through the side door is an amazing, and sometimes necessary, skill. But it can also be a double-edged sword. It can get you off the ground and set you up for fantastic growth, but it can get you in a lot of trouble, too. Indeed, that tension is present whenever you search for the Raikes-Buffett emails online. They are often held up by aspiring entrepreneurs as brilliant examples of business acumen and strategic analysis, but what many of those people don’t realize is that the entire reason they are able to read those emails at all — most often in the form of pdf versions of a printed-out email chain — is because they are part of the public record, submitted as deposition and trial exhibits in a class action antitrust lawsuit brought against Microsoft in the early 2000s by consumers in multiple American states. This email exchange became a key part of the plaintiffs’ opening statement in that suit, which was settled not long afterward for more than a billion dollars.

All of which is to say, Go through the side door, please! Do everything within your power to find your way into the market where you are likely to have the most success. Just make sure when you get inside and set up shop, you avoid becoming what you fought so hard against in turning your dream of starting your own business into a reality.

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Did you enjoy this post? Check out the rest of the book here.

Excerpted from How I Built This: The Unexpected Paths to Success from the World’s Most Inspiring Entrepreneurs by Guy Raz. Copyright 2020 by Guy Raz. Published and reprinted by permission of Houghton Mifflin Harcourt. All rights reserved.

The post Finding the Side Door: Startup Lessons from RXBar, 5-hour Energy, and More appeared first on The Blog of Author Tim Ferriss.

Many people ask me about startup investing and how to get started.  

This post — while for informational purposes only and not investment advice — is intended to show you how one successful investor approached the early-stage game.

Jason Calacanis (@jason) has made 125 early-stage startup investments and picked 6 “unicorns” (startups to exceed $1B in valuation) — one out of every 21. Based on his AngelList profile, Calacanis’ investments includes: Tumblr, Cozy, Thumbtack, Rapportive, Uber, Chartbeat, Groundcrew, Evernote, Pen.io, Nimble, Crossfader, Signpost, Calm, many many more. He’s accelerating his deployment of capital and plans to invest in an additional 150 startups over the next 30 months.

The following guest post is an exclusive excerpt from his new book, Angel: How to Invest in Technology Startups—Timeless Advice from an Angel Investor Who Turned $100,000 into $100,000,000. Using stories from his own angel investing career, Jason wrote this book as a playbook for aspiring angel investors.

In particular, this post focuses on questions to ask founders before you invest, but it also serves as a tutorial on how to ask better questions in life and in business.

Enter Jason

A THOUSAND FIRST DATES

The life of an angel is all about managing a deal funnel, which includes three distinct steps: sourcing deals, evaluating deals, and, finally, picking which founders you’re going to fund.

Meeting with founders for an hour is the most frequent technique for angels to decide who to invest in, but certainly not the only one. There are some angels whose primary technique for selecting investments is to follow other smart investors, drafting off of their meetings and deal flow.

Another technique is simply to review the core metrics and decide based on those. This can be done by reviewing a deck or by checking public information sources, like the App Store rankings, and traffic monitoring services, like Alexa and Quantcast.

Some investors have a huge Rolodex and simply invest in the founders they already know, a technique that worked extremely well for investors who knew Elon Musk (Zip2 and PayPal before Tesla and SpaceX), Evan Williams (Blogger before Twitter), and Mark Pincus (Freeloader and Tribe before Zynga).

Of course, the “invest in who you know” approach would mean you missed the biggest startups in history: Mark Zuckerberg, Bill Gates, Evan Spiegel, and Larry Page, who all hit the ball out of the park on their first try—at the ages of nineteen, twenty, twenty-one, and twenty-five, respectively.

Meetings are important and free. You should take a lot of them. Ten one-hour meetings a week is a good target for a professional angel. Half that if you’re doing this part-time.

My best advice to you as you start dating is to be promiscuous with meetings—but a prude when it comes to writing checks. Don’t be a tramp like I was.

I’m going to take you through the four most important questions I ask all founders. The goal of asking these questions is not just for you to understand the business but also so you yourself can answer four critical investor questions:

1. Why has this founder chosen this business?
2. How committed is this founder?
3. What are this founder’s chances of succeeding in this business—and in life?
4. What does winning look like in terms of revenue and my return?

HOW TO ASK QUESTIONS

Your job in these meetings is to play Columbo, the unassuming and always underestimated detective from the classic TV show that started in the ’70s and ran for more than three decades. Your job is not to show off or demonstrate how smart you are by explaining to the founder what they’re doing wrong or by bragging about your heroics as an investor or, even worse, as a founder yourself.

You want to have big ears and a small mouth in these meetings. You want to ask concise questions that take no more than a couple of seconds and then listen deeply to the answers, considering them with every fiber of your consciousness as you write your notes on paper—just like Columbo.

Listening like this will serve two virtuous goals, the first being that the founder will feel heard and understood by you.

If people believe they are being deeply listened to, they will talk more.

This is why, when you talk to your therapist about your mom, they say “hmm…” while tilting their head and looking at you with sympathy. Then they add, “Tell me more about your mother,” or “Unpack that some more,” or simply “Your mother…”

There are six words, four words, and two words in those responses. The last one is the most powerful because it just hangs there, inviting you to build on the topic.

You want to be Dr. Melfi, Tony Soprano’s therapist, sitting patiently while the passion and pain pour out from the boss you’re meeting with. If you’re a great listener, you will be a great investor, as well as a great friend, a great parent, and a great human being.

Second, if you are hyper-present in the meeting, thinking deeply about the founder and why they are taking on the irrational pursuit of starting a company, which comes with a greater than 80 percent chance of failure and a 100 percent chance of suffering, then you will be able to make a better decision on whom to invest in.

Basically, if you shut your trap and listen like a detective or a therapist, you’ll be able to uncover the answers to those four questions better than other angel investors.

You’ll have more hits and fewer misses.

QUESTION ZERO

When you are starting a founder meeting, ask one icebreaker question to get your subject warmed up.

How do you know Jane?

If you were introduced to this founder by a mutual connection, you can quickly establish common ground by asking these five simple words. Listen to the answer you are given and construct a follow-up question based on their answer. So, if the founder said that they worked with Jane, your next move is to say, “You worked with Jane? What was that like?”

I have a game where I try to say things with as few words as possible because it reminds me that this meeting is not about me, it’s about them. It also makes me sound wise, like Obi-Wan or a Toshiro Mifune character.

These are the exact four questions I ask every founder. The answers to these questions will give you most of what you need to make your investment decision. We spend the first half of our hour-long meeting exclusively on them. Then we go deeper.

1. What are you working on?

The reason I phrase this question as “What are you working on?,” versus something more company-specific, like “What does Google do?” or “Why should I invest in Google?” or the supremely horrible “Why do you think Google is going to succeed after eleven search engines have already failed?,” is that it celebrates the founder (the “you”) and what founders do (the “work”). It shows that you have deep empathy and you recognize that this isn’t about what the thing does (Google helps you find stuff), but rather it’s about people (Larry and Sergey write software that helps people find information faster).

2. Why are you doing this?

Again, five simple words that are focused on the founder. When I ask these first two questions, I almost universally see founders melt into their chairs. They relax, let their guard down, and feel like I care about them, which I do. Just like Columbo cares deeply about the suspects he’s interviewing when he asks, “So, what do you do here?” when he walks into their office, as opposed to leading with “Where were you on the night of the murder?”

Just like Columbo, I’m looking for killers and I’m trying to eliminate suspects.

There are some really, really bad answers to the question “Why are you doing this?” The worst two answers, which you’ll hear often, are “To make money” and “Because INSERT-SUCCESSFUL-COMPANY-NAME-HERE doesn’t do it.” If folks are building a startup for money, they will eventually quit when they realize there are many better ways to make money faster and with more certainty. If you want to make a lot of money, you’re better off being a world-class programmer on a very esoteric and in-demand vertical and getting Google or Facebook to give you $1 million-plus a year in stock and cash for ten years in a row. You have no downside, you can work a couple of hours a day, and you get unlimited free food.

If you’re building something because another hugely successful company doesn’t already have that feature, well, you’re wildly naive or, more often than not, plain old stupid. For years people pitched me on startups that were supposedly going to be Google search for news, Google search for video, and Google search for books and magazines. We all know how that turned out.

More recently I’ve been pitched hard on “Uber for food,” “Uber for helicopters,” and “Uber for shopping.”

While there have been some successful startups built by running ahead of market leaders, in general, those kinds of startups get crushed or bought for small dollar amounts. Summize was a search engine for Twitter, back when Twitter was so technologically incompetent that they could barely keep the service online. They bought Summize to catch up, as well as TweetDeck, a more advanced client for reading multiple feeds at once, but the return to the investors in Summize and TweetDeck for these acquisitions were minor when compared to the returns of the company that bought them.

The big problem with “founders” who build a feature that a market leader will inevitably get to—and I use quotes here for a reason—is that they lack vision. The act of selecting a feature as their life’s work, as opposed to a full-blown product or a mission, disqualifies them from being a true founder.

Elon Musk didn’t build a battery pack: he built a car and eventually an energy solution that included solar, home batteries, and, perhaps when you read this, a ride-sharing service like Uber.

It’s okay to start small, but it’s not okay to be a small thinker.

The right answers to “Why are you building this?” tend to be personal. Travis Kalanick and Garrett Camp built Uber because they couldn’t get a cab in Paris at a technology conference. Elon Musk built SpaceX because he wanted a backup plan for humanity. Elon’s earlier idea, that no one knows about, was to put a series of greenhouses in space to back up the biosphere— just like the Bruce Dern movie Silent Running—which, as an interesting aside, came out five years before Star Wars and featured drones that were an inspiration for R2-D2.

Zuckerberg was awkward with the ladies, so he built a social network that would show him their relationship statuses.

Think about that for a second: Is there anything more important than procreation? Not according to Darwin or Freud, so Zuck’s lack of game led to the fastest-growing consumer product in the history of humanity, largely based on people needing to find a mate or to connect with previous lovers (as demonstrated by the number of divorces that mention Facebook in their filings).

3. Why now?

This question has been floating around the Valley for a while, and the first time I heard it was from my friend, Sequoia Capital’s Roelof Botha—the venture capitalist who convinced me to become a “Scout” for their firm, which led to my two greatest investments to date: Uber and Thumbtack.

If you unpack this question, you’re really asking, “Why will this idea succeed now?”

For Uber it was simple: mobile phones were becoming ubiquitous and they had GPS. In fact, another company had already tried to help you order a cab via SMS messages a year before Uber came on the scene. Their “why now” was simply “text messaging,” but that, frankly, wasn’t enough. Without advanced mobile CPUs (central processing units) to power big beautiful touch screens with military precision GPS (global positioning system), there would be no Uber.

For YouTube, which had Roelof Botha as its first investor, the “Why now?” was a confluence of factors and breakout successes that tend to be born during these perfect storms. First, bandwidth costs plummeted after the dot-com crash. Second, storage costs were dropping due to this new thing called cloud computing. Third, blogging was taking off. Millions of folks were writing tens of millions of posts every week and YouTube offered a clever way to embed their videos on other people’s sites—reaching a massive audience for free.

There were dozens of video companies before YouTube, but they all charged people for bandwidth and storage, which meant that if you wanted to post a video on the internet, your reward for going viral was a ten-thousand-dollar server bill. Instead, YouTube sends you a thousand-dollar check from the ads they run on your hit video.

Dropbox, which launched onstage at the first year of my LAUNCH Festival and was also funded by Sequoia Capital, had the same “Why now?” as YouTube: plummeting bandwidth and storage costs.

Founders tend to have these “Why now?” insights without recognizing how profound they are. When I started my blogging company, Weblogs, Inc., in 2004, I had a very simple thesis: I believed that great new writers publishing five short, unfiltered posts a day would get more readers than established journalists writing one story, edited by a half dozen people, once a week.

When I had this realization, it was perfectly clear to me, but even the New York Times journalists didn’t see it. I remember running into legendary tech journalist John Markoff at the Consumer Electronics Show in Vegas when our blog Engadget was covering it for the first time. He asked me how many people we had at the show and I said fifteen. His jaw dropped and he asked me how often they were filing, and I said four times.

He replied, “You’re going to do sixty stories at CES?”

I said, “Actually they’re posting four times a day. So sixty stories . . . per day. How often is your team filing?”

He said they had three journalists at the show and they would do two or three pieces each over the next month. So, they were doing six stories and we were doing sixty a day for five days— three hundred total.

In some ways, “Why now?” is the most important question about the business you can ask because there are so many folks constantly trying the same ideas over and over again in our business.

Google was the twelfth search engine. Facebook was the tenth social network. iPad was the twentieth tablet. It’s not who gets there first. It’s who gets there first when the market’s ready.

4. What’s your unfair advantage?

Founders with breakout startups often have an unfair advantage. Google had their Stanford connections, filled with talented algorithm-writing engineering geniuses. Facebook launched while Zuckerberg was still a student at Harvard, and they used their understanding of campus culture and directories to figure out the dynamics of building online social networks that scale. Mark Pincus launched Zynga with a multi-year cross-promotion deal with Facebook, which allowed Zynga to tag along with Facebook as it grew at an astounding rate. Mary Gates was on the board of United Way with the CEO of IBM, which led directly to IBM hiring her son Bill’s new company, Microsoft, to build the operating system for their first personal computer.

Said another way, this question is asking, in just four words, “What makes you uniquely qualified to pursue this business? What secrets do you know that will help you beat both the incumbents and your fast followers?”

Sometimes, founders will not have an answer for this question. And that’s okay. This is one you often end up answering while looking in the rearview mirror.

WHAT HAVE WE LEARNED?

After asking these four founder questions, which in total are sixteen words, you should have an excellent idea of what this person is building and why.

These four founder questions give you a great starting point for answering the four investor questions every angel needs to ask themselves before investing. Remember, we want to figure out:

1. Why has this founder chosen this business?
2. How committed is this founder?
3. What are this founder’s chances of succeeding in this business—and in life?
4. What does winning look like in terms of revenue and my return?

After thirty minutes and four questions, you’re going to have a strong sense of why the founder picked this business, why it might work right now, and, of course, what they are building.

What you probably won’t know are the tactical details of how they plan on executing on their vision, including their go-to-market strategy, what kind of team they have, the competitive landscape, and the nuances of their business model.

You are going to find out the answers to those questions in the second half of your meeting. But this is the foundation.

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To learn more about Jason’s approach to investing, and the stories behind his greatest wins, check out Angel: How to Invest in Technology Startups—Timeless Advice from an Angel Investor Who Turned $100,000 into $100,000,000.

The post Finding "Unicorns:" Questions to Ask Before You Invest in a Startup appeared first on The Blog of Author Tim Ferriss.

Note from the editor: The following is a guest post by Ryan Holiday. Ryan (FB/IG/TW: @RyanHoliday) is the bestselling author of six books, including The Obstacle Is the Way, Ego Is the Enemy and The Daily Stoic. His books are used by many NFL teams, including the Seahawks and Patriots, and was read by members of the Warriors on their way to NBA championship in 2017. His work has been translated into twenty-eight languages and has appeared everywhere from the Columbia Journalism Review to Fast Company. His company, Brass Check, has advised companies such as Google, TASER, and Complex, as well as multiplatinum musicians and some of the biggest authors in the world.

His latest book, Perennial Seller: The Art of Making and Marketing Work that Lasts is a meditation on the ingredients required to create classic books, businesses, and art that does more than just disappear.  

Nobody sits down to make something they hope will be immediately or quickly forgotten. Elon Musk compares starting a business to “eating glass and staring into the abyss of death,” and no one would willingly do all that if they thought their efforts were going to disappear with the wind.

The vast majority of creative work, sadly, is not only forgotten, it never had a chance to be anything but forgettable. In the United States alone some 300,000 books are published on average per year. Roughly 300 hours of video are uploaded to YouTube every minute. Since it launched in 1985, some 6,000 films have appeared at Sundance. How many of these products endured for years or decades? Not many.

But some people do figure it out. The publishing industry, the music industry, the movie industry, despite what you read in the newspapers, are successful not because of the hits that come out each week, but because of their library of content—what insiders call “perennial sellers.”

Perennial sellers are movies like the Shawshank Redemption, artists like Iron Maiden, startups like Craigslist, books like the 48 Laws of Power, (and The 4-Hour Workweek, which is 10 years old and still sells more than 100,000 copies per year in the U.S. alone). Look at Craigslist, now 20 years old, which makes annual profits of over half a billion by monetizing just 2-3 categories of listings. These are the kind of products that customers return to more than once, and recommend to others, even if they’re no longer trendy or brand new. In this way, they are often timeless and unsung moneymakers, paying like annuities to their owners. Like gold or land, they increase in value over time because they are always of value to someone, somewhere.

All my life (and career) I have been studying these kinds of perennial sellers. Not just because it’s what I do for a living as an advisor to writers, musicians and entrepreneurs, but to incorporate them in my own writing. What follows in this post are some of the lessons we can learn from the creators who have made things that last—not for months but for years. I’ve split them into two distinct buckets, how to make something that lasts and the kind of marketing required to develop a loyal audience that lasts.

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The Work Is What Matters

It was the great Cyril Connolly who would tell writers that, “the true function of a writer is to produce a masterpiece and that no other task is of any consequence.” This is true of anyone setting out to produce a perennial seller in any space in any era. Phil Libin, the founder of Evernote, has a quote I like to share: “People [who are] thinking about things other than making the best product never make the best product.” The legendary investor and Y Combinator founder Paul Graham explains why, “The best way to increase a startup’s growth rate is to make the product so good people recommend it to their friends.”

The point is: The first and most essential step of a perennial seller is creating something truly great. As my mentor Robert Greene put it, “It starts by wanting to create a classic.” If you’re sitting down to make something and thinking about how famous it’s going to make you, how rich you’re going to get, how fun it’s going to be, or all the people you’re going to prove wrong, you are thinking about the wrong thing.

Frank Darabont, the director and writer of The Shawshank Redemption, was offered $2.5 million to sell the rights so that Harrison Ford and Tom Cruise could be cast as the stars. He turned it down because he felt this was his “chance to do something really great” with his screenplay and the actors of his choosing. Turning down that kind of money couldn’t have been easy, but that’s the difference between what might have been a forgettable mid-level blockbuster to one of the most enduring and popular movies of all time.

Think Long Term, Don’t Chase Trends — What Doesn’t Change?

Darabont’s decision probably seemed crazy at the time. Hollywood says “We want to give you a bunch of money to put these two movie stars in your film,” and he rejects it? Why? He didn’t want to make a movie dependent on big names. He wanted to make a movie that captured the essences of Stephen King’s book, a movie that wasn’t about flash and marketing but rooted in something deeper.

Consider Amazon, now arguably the most valuable company in the world. Jeff Bezos’ dictum to his employees is not to focus on what will make the most money right now, he’s not rushing to capture every fad or opportunity. Instead, he has this surprising command: “Focus on the things that don’t change.”  

Bezos isn’t rushed, and he is thinking long term. He knows that customers will, always prefer cheap prices, fast shipping and reliable service. That’s what he is optimizing for, not what’s trendy right now. The great writer Stefan Zweig once recounted a youthful conversation with an older and wiser friend. The friend was encouraging him to travel, believing that the experience would broaden and deepen Zweig’s writing. Zweig believed he had to write right now and he needed to finish his book as quickly as possible. “Literature is a wonderful profession,” the friend explained patiently, “because haste is no part of it. Whether a really good book is finished a year earlier or a year later makes no difference.”

It doesn’t make a difference because really good stuff is timeless. It doesn’t need to be rushed.  

Who was rushed? All the people who started “businesses” right before the first dot-com bust, or apps for Myspace pages. Or Groupon clones. Or QR codes. Or gourmet cupcakes. Or published adult coloring books. Or people selling fidget spinners.

Take the Star Wars franchise. In one sense, the films were undoubtedly futuristic and took advantage of then cutting-edge special effects. But George Lucas borrowed far and wide…and new and old. He acknowledged that his initial conception of the movie was for a modern take on the Flash Gordon franchise, going as far as trying to buy the rights in order to do so. He also borrowed heavily from the 1958 Japanese movie The Hidden Fortress for the bickering relationship between R2‑D2 and C‑3PO. Yet for all these contemporary influences, Lucas’s most profound source material was the work of a then relatively obscure mythologist named Joseph Campbell and his concept of a “hero’s journey.” Despite the special effects, the story of Luke Skywalker is rooted in the same epic principles of Gilgamesh, of Homer, even the story of Jesus Christ. Lucas has referred to Campbell as “my Yoda” for the way he helped him tell “an old myth in a new way.” When you think about it, it’s those epic themes of humanity that are left when the newness of the special effects fall away. Why else would ten-year-olds—who weren’t even born when the second set of three movies were made, let alone the original trilogy—still be captivated by these films?

As Rick Rubin said on Tim’s podcast, he urges his bands not to listen to the radio while producing an album. He doesn’t want them thinking about what’s popular right now. “If you listen to the greatest music ever made, that would be a better way,” he says, “to find your own voice to matter today than listening to what’s on the radio and thinking: ‘I want to compete with this.’ It’s stepping back and looking at a bigger picture than what’s going on at the moment.” He also urges them not to constrain themselves simply to their medium for inspiration—you might be better off drawing inspiration from the world’s greatest museums than, say, finding it in the current Billboard charts.

As you are deciding what to make, it’s essential that you root it in what is timeless. Otherwise, it doesn’t matter how great it is in the moment—it won’t last.

Seek Out A Blue Ocean

Creators gravitate towards competition because it seems safe. If pop punk is popular, they re-tool their band because they think that’s what labels and fans are looking for. If venture capitalists are funding VR or drones, that’s the company they start. Unfortunately, this makes it harder to break through the noise.

As famed investor Peter Thiel has said, “competition is for losers.”

An essential part of making perennial, lasting work is making sure that you’re pursuing the best of your ideas and that they are ideas that only you can have (otherwise, you’re dealing with a commodity and not a classic). Not only will this process be more creatively satisfying, it will be better for business. In 2005, business professors W. Chan Kim and Renée Mauborgne described a new concept that they called Blue Ocean Strategy. Instead of battling numerous competitors in a contested “red ocean,” their studies revealed that it was far better to seek fresh, uncontested “blue” water. Can you redefine or create a category, rather than compete in one?

To tell another Rick Rubin story: In 1986, he was signed on to produce the first major label album for Slayer, then a notoriously heavy but obscure metal band. The natural impulse for many would be to help the band make something more mainstream, more accessible. But Rubin knew that would be a bad choice both artistically and commercially. Instead, he helped them create their heaviest album ever—maybe one of the heaviest albums of all time: Reign in Blood.

As he recounted later, “I didn’t want to water down. The idea of watering things down for a mainstream audience, I don’t think it applies. People want things that are really passionate. Often the best version is not for everybody. The best art divides the audience. If you put out a record and half the people who hear it absolutely love it and half the people who hear it absolutely hate it, you’ve done well. Because it is pushing that boundary.”

In the short term, this choice almost certainly cost them some radio play. But when Rubin says that the best art divides the audience, he means that it divides the audience between people who don’t like it and people who really like it. Ultimately, it was the polarizing approach that turned Reign in Blood into a metal classic—an underground album that spent eighteen weeks on the charts and has sold well over two million copies to date.

When I decided to write a modern book that relied heavily on Stoic philosophy, I knew I didn’t want it to be like other books on the subject. First off, the originals like Seneca and Marcus Aurelius are so good that they are essentially impossible to beat. It would have been suicide to compete with them. Many of the subsequent books about stoicism seemed to be content to retread what these great thinkers had said and thus only reached a small niche of hardcore philosophy fans. I decided to take a different route entirely—I would illustrate Stoic principles through historical and business stories. This has angered many fundamentalists in the academic Stoic community—but that’s OK. They weren’t who I was trying to reach anyway. By creating something fresh and new I was able to find an audience that had never considered philosophy.

In the last three years, The Obstacle is the Way has sold more than 300,000 copies and is translated in more than a dozen languages. It sold more copies in 2017 than it did in 2016, and more in 2016 than it did in 2015 and 2014. That’s what can happen when you sidestep competition and create something new—while still basing it on timeless principles and ideas.

Know Your Audience

It’s important to “scratch your own itch” as the saying does, but are you actually sure people share your itch? I know you’re not going to be satisfied selling just one copy. Whatever you’re making is not for “everyone” either—not even the Bible is for everyone.

Paul Graham of startup incubator Y Combinator, which has funded over a thousand startups including Dropbox, Airbnb, and Reddit, says that “having no specific user in mind” is one of the eighteen major mistakes that kills startups: “A surprising number of founders seem willing to assume that someone—they’re not sure exactly who—will want what they’re building. Do the founders want it? No, they’re not the target market. Who is? Teenagers. People interested in local events (that one is a perennial tar pit). Or ‘business’ users. What business users? Gas stations? Movie studios? Defense contractors?”

It pays to be specific.

Think of Herb Kelleher of Southwest Airlines, who has an incredibly clear mission statement illustrated via one question: Will this help us be the lowest-cost airline? As he put it, “I can teach you the secret to running this airline in thirty seconds. This is it: We are THE low-cost airline. Once you understand that fact, you can make any decision about this company`s future as well as I can.” Because of this, his employees knew who their customers were and what those customers needed.

What to Expect When You’re Expecting is for soon-to-be parents. The person who sat down to write the song Happy Birthday was creating something for people at birthday parties (and created an incredibly valuable copyright in the process). When Susan Cain published her book about introversion, she had a very specific audience in mind: introverts. (Which has since sold over a million copies and launched a massive TED talk.) The Left Behind series is obviously for Christians. Its films, novels, graphic novels, video games, and albums are preaching with a very specific choir in mind.

The famous music promoter and later movie producer Jerry Weintraub (The Karate Kid and the Ocean’s series) has a good story in his memoir When I Stop Talking, You’ll Know I’m Dead. He once proposed renting out Yankee Stadium for a celebrity softball game with Elvis. On a day the stadium wasn’t in use, the owner of the Yankees took Weintraub out onto the field and forced him to look at all the empty seats—each one symbolizing someone who would have to be marketed to, sold, and serviced. It was a formative lesson, he said. “Whenever I am considering an idea, I picture the seats rising from second base at Yankee Stadium. Can I sell that many tickets? Half that many? Twice that many?”

What if you can identify a perennial problem and solve it? If you can create something for an audience that renews itself each year (like college grads or people turning 50)? Then you’ll have something that can last and sell by word of mouth.

The more important and perennial a problem (or, in the case of art, the more clearly it expresses some essential part of the human experience), the better chance the products that address it will be important and perennial. As Albert Brooks put it, “The subject of dying and getting old never gets old.” The filmmaker Jon Favreau, who created Swingers and Elf and directed Iron Man, has said that he aims to touch upon timeless problems and myths for specific groups of people in his work, and that all great filmmakers do as well. “The ones who get the closest to it,” he said, “last the longest.”

If You Don’t Care Enough To Market Your Work, Why Should An Audience Buy It?

Let’s stipulate that you have made something amazing. In some ways, now you have an even harder job ahead of you—because now you have to make people care. Art is a kind of a marathon where, when you cross the finish line, instead of a getting a medal placed around your neck, the volunteers roughly grab you by the shoulders and walk you over to the starting line of another marathon: marketing.

In a recent interview, the novelist Ian McEwan complained lightheartedly about what it was like to go out and market a book after spending all that time creating it: “I feel like the wretched employee of my former self. My former self, being the happily engaged novelist who now sends me, a kind of brush salesman or double glazing salesman, out on the road to hawk this book. He got all the fun writing it. I’m the poor bastard who has to go sell it.”

Fortunately, this is a learnable skill, and there is a process that greatly increases your likelihood of success. I’ve used this process with dozens of New York Times bestsellers, musicians whose work has been downloaded millions of times, and products and brands that have grossed hundreds of millions in sales.

Now, the bad news: no one “trick” will do the job. Marketing isn’t about hacks.

As renowned venture capitalist Ben Horowitz says: “There is no silver bullet. We’re going to have to use a whole lot of lead ones.”

What Do We Have To Work With?

The first thing you should do at the launch of any product is to sit down and look at your assets, and ask: What are we working with here? The first thing anyone planning a launch has to do is sit down and take inventory of everything they have at their disposal that might be used to get this product in people’s hands.

This asset assessment can also be used to make great products, and the process is similar, so let’s begin with an example. This was director Robert Rodriguez’s approach—now famous as the “Rodriguez List” approach—to making his award-winning movie El Mariachi. As he told Tim on their podcast together, “I just took stock of what I had. My friend Carlos, he’s got a ranch in Mexico. Okay, that’ll be where the bad guy is. His cousin owns a bar. The bar is where there’s going to be the first, initial shootout. It’s where all the bad guys hang out. His other cousin owns a bus line. Okay, there will be an action scene with the bus at some point, just a big action scene in the middle of the movie with a bus. He’s got a pitbull. Okay, he’s in the movie. His other friend had a turtle he found. Okay, the turtle’s in the movie because people will think we had an animal wrangler, and that will suddenly raise production value. I wrote everything around what we had, so you never had to go search, and you never had to spend anything on the movie. The movie cost, really, nothing.”

The point is: Not every launch is the same and every launch should be tailored around your specific needs. For instance, when we launched The 4-Hour Chef, Tim was looking at a tough retail situation because the book was published with Amazon. We put our heads together and thought about who we knew who could help. Matt Mason, then the CMO of Bittorrent was an old friend of mine. I connected him with Tim and bam—the first Bittorrent author bundle was born and was downloaded more than 2 million times. (Also see the “free” section below for more on this kind of approach.)

Without that brainstorming, one of the single best marketing strategies of that campaign never would have come together. So kick things off by doing a deep dive into:

• Relationships (personal, professional, familial, or otherwise)
• Media contacts
• Research or information from past launches of similar products (what worked, what didn’t, what to do, what not to do.) (Ramit Sethi’s Growth Lab had an excellent post recommending that you pick a competitive product to yours and track all the places they got press, all the things they did to move units and use that to form the basis of your campaign. No need to learn by trial and error if someone has already done some of it for you.)
• Favors you’re owed (if nobody owes you favors then you should pause your launch and go help other people. Build up debt you can call in to help promote your stuff. Adam Grant’s book Give and Take describes this well.)
• Potential advertising budget
• Resources or allies (“This blogger is really passionate about [insert some theme or connection related to what you’re launching].” And if you don’t know who the influencers and gatekeepers in your space are? That’s a bad sign! Don’t leap into a pool you haven’t familiarized yourself with first. Study the terrain.)

It is essential to take the time to sit down and make a list of everything you have and are willing to bring to bear on the marketing of a project.

Aside from racking your own brain, one of my favorite strategies to kick off this process is simply: ask your world. I call this the “Call to Arms”—a summons to your fans and friends to prepare for action (see Platform, later in this post). I create a quick online form and I post it on my blog as well as on my personal Facebook page and other social media accounts. In a previous era, different tools would have been used (a physical Rolodex?), just as there will doubtlessly be newer, different tools in the future. Regardless of the tools used, though, what you’re saying is the same:

“Hey, as many of you know I have been working on ______ for a long time. It’s a ______ that does ______ for ______. I could really use your help. If you’re in the media or have an audience or you have any ideas or connections or assets that might be valuable when I launch this thing, I would be eternally grateful. Just tell me who you are, what you’re willing to offer, what it might be good for, and how to be in touch.”

Eric Barker, author of Barking Up The Wrong Tree, sent a similar note to his 300,000 person email list prior to his launch. He replied to each offer to help—but there was so many he actually got temporarily blocked from his his own gmail account! Yet this process unearthed a number of podcasts, book clubs, speaking opportunities and interviews that helped the book debut on the national bestseller list. Depending on the size of your platform, the number of messages you get might range from a few dozen to a few thousand, but there will almost always be something of use in there.

Free Is One Of The Best Ways To Get Fans

How much does the thing you’re selling cost? Twenty dollars? Fifty dollars? A thousand dollars? Whatever the price, that is not the full price. In addition to the actual dollar cost, there’s also the cost of buyers’ time to consume the product—there are all the things they’re missing out on by choosing to consume your product (what economists call opportunity costs). I can’t ever get two hours of my life back if the movie isn’t good. Life is short, and we can read only so many books—by choosing one, I’m choosing explicitly to not read another. That weighs heavy on consumers.

There’s another cost that creators tend to miss too: How much does it cost for people to find your work? To read the reviews or read an article about it? How much time does it cost to download, wait for it to arrive, or set up? These costs—discovery and transaction costs—exist even when your work is free! Think of the free concerts you haven’t attended, the samples you didn’t bother to walk over and try, the products you didn’t buy even though they were 100 percent risk-free, love it or get your money back, no money down. When you think about it this way, it’s really amazing that people buy or try anything at all!

Tim has posed an interesting related question: “If TED charged for their videos from the beginning, where would they be now?” The answer is probably closer to “obscurity” than ubiquity—they’ve racked up billions and billions of views since the first videos went up. Why should our work be any different?

When we say, “Hey, check this out,” we’re really asking for a lot from people (time, attention, opportunity costs,etc.). Especially when we are first-time creators. Hugh Howey, author of the wildly popular Wool series and one of the first big creators in the self-publishing era, has said that it’s essential for debut authors to give away at least some of their material, even if only temporarily. “They’ve gotta do something to get an audience,” he’s said. “Free and cheap helps.” So does making the entire process as easy and seamless as possible. The more you reduce the cost of consumption, the more people will be likely to try your product. Which means price, distribution, and other variables are essential marketing decisions.

Why do you think Steven Pressfield gave away nearly 20,000 copies of a special edition of his book The Warrior Ethos to soldiers? Because he knew they were his target audience and he knew that if a small percentage of the millions of vets and soldiers in the US Army read his book, it would spread by word of mouth from there (first month it sold 37 copies, five months in it was selling 500 copies per month and now it sells 1,000-1,500 copies per month five years post launch.)

Sure, free is an easier strategy for some products than others. The indie musician Derek Vincent Smith aka Pretty Lights did this so often and so prolifically, it not only built him a huge audience for live shows, but also earned him a Grammy nomination. Starting with his first album in 2006, Pretty Lights has given all eight of his albums and EPs away for free on his website. “I knew I’d probably have to support myself and my music through live performance, so I wanted to get it through as many speakers as possible,” he told Fast Company.

Starting in 2008, his music was available for paid download on iTunes and Amazon, while still being free for anyone to download from his website. This gave his fans a choice of supporting him financially while still growing his audience through free downloads. By 2014, Smith was averaging, per month, 3,000 paid album downloads, 21,500 single downloads, and three million paid streams on platforms like Spotify. His album A Color Map of the Sun was nominated for a Grammy in 2014, after being downloaded free more than a hundred thousand times in its first week of release.

Of course, you don’t have to do “free” to succeed, but it’s worth considering how you would if you had to.

Find Your Champions

When the New York Times profiled me and my book The Daily Stoic, it took the book to about #1,500 on Amazon. When Tim posted a picture of the first page of The Daily Stoic on January 1st on his Instagram, it took the book to #44. Below is a chart of The Daily Stoic’s weekly book sales:

When he shared a photo of the “memento mori” coin that DailyStoic.com produced, we were seeing orders come in practically every minute for most of the day. When a real person, a real human being that many others trust says, “This is good,” it has an effect that no brand, no ad, no faceless institution can match.

Marc Ecko built his clothing brand Ecko Unltd into a billion-dollar company and a staple of streetwear and music by perfecting what he called the “swag bomb”—a perfectly tailored and targeted package to the person he was trying to impress. His first influencer was a popular New York City DJ named Kool DJ Red Alert. Marc was addicted to his weekly show, which often featured the latest and coolest trends in hip-hop. To get attention for his company, Marc would camp out in Kinko’s and fax in special drawings he made to Red Alert’s station fax machine. Then he started sending airbrushed hats and jackets and T‑shirts. He never asked for anything—he just made great work and sent it to select influencers he knew might appreciate it. Eventually, he got his first shout-out on the air, and the brand was officially born.

Marc wasn’t just sending out random stuff to random people—he knew who mattered and he knew what they liked. When Spike Lee directed the movie Malcolm X, Marc “sent him a sweatshirt with a meticulously painted portrait of Malcolm X on it.” The sweatshirt took two days of work to make—even though there was no guarantee Spike would even see it. It turned out that Spike loved the gift and sent Marc back a signed letter. Two decades later, Spike Lee and Marc Ecko are still working together.

The story of John Fante, one of my favorite writers, is a heartbreaking one. A great novelist’s career was partly ruined by Hitler—and the world was deprived of many great books. Yet there is another wrinkle in that story that gives it a somewhat happy ending. After fifty years of languishing in obscurity, Ask the Dust was discovered in the Los Angeles Public Library by the writer Charles Bukowski. Bukowski was blown away and began to rave about Fante to everyone he knew—including his editor. What ensued was a resurgence of Fante’s work. He spent his dying days finishing one last novel, and today there is a public square in downtown Los Angeles named after him—a man who was nearly forgotten by history.

I heard about Fante from another one of his champions, the writer Neil Strauss, who had called Ask the Dust his favorite novel in an interview. I picked it up because of that recommendation. In turn, I have become a champion of Fante and helped sell thousands of copies of his work to my own fans. I tell this story to illustrate the power of champions—it can bring art back from the dead.

Some networking strategies from I’ve learned from Tim that I think help with influencer relationships:

Never dismiss anyone — You never know who might help you one day with your work. Tim’s rule was to treat everyone like they could put you on the front page of The New York Times . . . because someday you might meet that person.

Play the long game — It’s not about finding someone who can help you right this second. It’s about establishing a relationship that can one day benefit both of you.

Focus on “pre-VIPs” — The people who aren’t well known but should be and will be. It’s not about who has the biggest megaphone. A great example for me was meeting Tim in early 2007 before The 4-Hour Workweek was published. He hadn’t sold millions of books then and didn’t have a huge platform. Now he does and I am writing this post.

In my experience, one of the most effective use of influencer attention is not simply in driving people to check you out, but instead as a display of social proof. A blurb on the back of a book isn’t bringing new fans to the book; it’s there to convince an interested reader, “Hey, this thing is legit.” Katz’s Deli has photos of the owner with all the celebrities who’ve eaten there—but they’re hanging inside the restaurant. It’s to reaffirm to the customers: You’re in a special place. Special people eat here. In the middle of the restaurant there’s also a sign hanging from the ceiling that reads, Where Harry Met Sally . . . Hope You Have What She Had!

Social proof sells. The perennial seller acquires it by being legit, and then comes up with interesting ways to use it to their advantage.

Fun Ways To Get Media Attention

One of my previous guest posts on Tim’s site dealt with the process of getting media so I won’t repeat it all here, but I do want to give some some high level thoughts on the subject:

• Media is a seller’s market — It might not seem that way, but trust me, no reporter has ever complained that there are too many good stories out there. They want to write about you…if you’re interesting and cool and nice.
• One size does not fit all — If you’re sending press releases or standardized pitches, you’ve already lost. You’re just contributing to the noise. Really study the work of the people you want to write about you. Don’t pitch people who don’t cover what you do. Build a relationship (before you ask for anything). Be a human being.
• Focus on what’s unique and special — Remember, competition is for losers. Whatever is most special about you, lean into it with your pitch.
• Don’t be afraid of controversy — As Elizabeth Wurtzel put it, “Either you’re controversial, or nothing at all is happening.” Not all press is good press, but most of it is.
• Take advantage of the cycle — Almost every day Google gets press for its Google Doodles—because they celebrate a theme, or a historical event, a famous person’s birthday. If there is a big story about cybersecurity in the news and that’s what your product does, jump into the fray. My third biggest week ever for my first book Trust Me I’m Lying came 4+ years after release because I wrote an article about the violent protests in Berkeley (see: David Meerman Scott’s newsjacking.)
• Start small — In 2015, I appeared on a small podcast to discuss The Obstacle is the Way’s impact in professional sports. That led to this piece on PatriotsGab.com which led to a Sports Illustrated piece headlined: “How a book on stoicism became wildly popular at every level of the NFL.” It sold so many books the publisher ran out of stock—but that wouldn’t have happened had I pitched SI. The story had to be traded up the chain.

Now, I’ll now touch on two other things: paid media (advertising) and publicity stunts.

The most important thing to remember if you have a budget for your work: Advertising can add fuel to a fire, but rarely is it sufficient to start one. F. Scott Fitzgerald’s editor Maxwell Perkins once wrote to one of his authors the following, comparing advertising a product to a man attempting to move a car,

“If he can get it to move, the more he pushes the faster it will move and the more easily. But if he cannot get it to move, he can push till he drops dead and it will stand still.”

That’s how you should think about advertising. It’s not how you launch your product—it’s how you keep it going once it has already broken through. Ian Fleming, the commercially minded creator of the James Bond franchise, advised his publisher to advertise for his books after they’d begun to sell well, not only offering to share the costs (£60 for every £140 the publisher put in), but even submitting some of his own ad copy:

Ian Fleming has written 4 books in 4 years. They have sold over one million copies in the English language. They have been translated into a dozen languages, including Chinese and URDU. No. 5 is called FROM RUSSIA WITH LOVE.

As for getting media attention, my strategy is this: If you want to be in the news, make news. Reporters sit around all day hoping to find good stuff, anxious to beat their (many) competitors in getting to it. In this way, the modern media is really a seller’s market. Reporters want stuff, but you have to catch their attention.

A fun example: I was working with a band called Zeds Dead and I saw an article about a woman who had worn a Fitbit while having sex. The article blew up online. So we had Zeds Dead put heart rate monitors on their fans during a show. The subsequent piece from BoingBoing, the biggest blog in the world, did great. One of the things we did when James Altucher launched Choose Yourself! was to announce that James was accepting Bitcoin payments for the book. He was one of the first authors to do it, and even though James only had about ten readers actually take him up on offer, the stunt got him on CNBC to talk about that and the book itself. This certainly moved a lot more units. But again, neither of these stunts would have mattered without a great product to back them up.

There are lots of cool stunts you can do with advertising even. Look at Tim’s decisions to buy actual billboards featuring answers to his famous podcast question: “What would you put on a billboard?” It resulted in a video that did close to 80,000 views and all sorts of social media impact. Neil Strauss bought a billboard on the Sunset Strip for his book The Truth that said, “ON BEHALF OF ALL MEN, I APOLOGIZE.” American Apparel’s controversial advertising got it all sorts of publicity, and that publicity, in turn, introduced lots of people to the brand.

If you’re interesting and provocative enough, the pitch is easy: just email reporters and tell them what you’re doing.

Keep Your Platform in Mind

After the comedian Kevin Hart experienced several disappointing career failures in a row, he was at a crossroads. The movies he’d expected to make him a star hadn’t hit; his television deal hadn’t panned out. So he did what comedians do best—he hit the road. But unlike many successful comedians, he didn’t just go to the cities where he could sell the most seats. Instead, he went everywhere—often deliberately performing in small clubs in cities where he did not have a large fan base. At each and every show, an assistant would put a business card on each seat at every table that said, “Kevin Hart needs to know who you are,” and asked for their e‑mail address. After the show, his team would collect the cards and enter the names into a spreadsheet organized by location. For four years he toured the country this way, building an enormous database of loyal fans and drawing more and more people to every subsequent show.

As his name grew, Hart began to take television gigs that he thought would allow him to grow his platform. In 2011, he hosted the MTV Music Awards and snagged, by his count, more than 250,000 Twitter followers in one swoop. Across social media and e‑mail, Hart’s fan-by-fan ground game—in his words, “years of me building and building and building and reaching out to my fans on the personal level”—built up a platform of more than fifty million people, people he can launch each of his products too.

The problem is people want to have a platform, they don’t want to build one. How many bestselling books came out in 2007? Many, but few took the time to build a blog around their book, featuring other writers no less, but it was Tim’s decision to do that that was instrumental in the book continuing to sell over time.

You’re probably familiar with Kevin Kelly’s theory of 1,000 True Fans: “A creator, such as an artist, musician, photographer, craftsperson, performer, animator, designer, videomaker, or author—in other words, anyone producing works of art—needs to acquire only 1,000 True Fans to make a living.”

Look at a band like Iron Maiden—they haven’t been on the radio in decades, but they built a platform of loyal fans. As Bruce Dickinson, their lead singer, would say, “we have our field and we’ve got to plough it and that’s it. What’s going on in the next field is of no interest to us; we can only plough one field at a time. We are unashamedly a niche band. Admittedly our niche is quite big.”

With one thousand true fans—people “who will purchase anything and everything you produce”—you’re more or less guaranteed a livable income provided that you continue to produce consistently great work. It’s a small empire and one that must be kept up, but an empire nonetheless.

And if I could give a prospective creative only one piece of advice, it would be this: Build a list.

Specifically, an e-mail list. It’s the most durable of platforms and it’s the most direct. Sure, that could change, but I think email (over four decades old) is a safer bet than Facebook or Twitter (just one decade old). With my book The Daily Stoic, we built a 40,000 person email list by sending out one additional free meditation every single morning. This is an incredible amount of work—basically, one additional book written per year—and I do it totally free. BUT—it helped the book spend 5 weeks on the Wall Street Journal list and without really any other marketing, the book now sells 1,000-1,200 copies per week.

Launches Matter But Keep Going Past Them

History shows that good work eventually finds its audience, but, as John Maynard Keynes so accurately expressed it, the market “can remain irrational longer than you can remain solvent.” If an artist starves to death before the world comes around to appreciating her genius, it doesn’t help the artist much. Launches are about getting attention sooner rather than later. Robert Greene’s 48 Laws of Power took a decade to start to hit bestseller lists, but with some slight shifts in his approach, we were able to get Mastery to debut at #1 on New York Times (and 4 years later it is regularly ranked sub-1000 on Amazon.)

Record labels know that the more times you hear a song, the more likely it is to be a hit. That’s why they hold tracks back until they get a threshold number of stations committed to playing it. It’s the same thing with the marketing of any product. You’re doing the work in advance so that to the public it feels like you’re suddenly everywhere.

At the same time, it’s worth remembering that Star Wars was beaten at the box office by Smokey and the Bandit. A launch is important, but we must bear in mind what Kafka’s publisher wrote to his author after poor sales: “You and we know that it is generally just the best and most valuable things that do not find their echo immediately.” In other words, it is far better to measure your campaign over a period of years, not months. If you don’t have the patience for that, at least months over weeks or days. I’ve seen this play out with my own launches. Looking at my 5 previous books, all have sold more than 90% of their total sales in the weeks AFTER launch week. For my most successful book, The Obstacle Is The Way, over 98% of sales have happened since launch week.

I remember early on I asked my agent Stephen Hanselman what separated his bestselling clients from his smaller ones. He said, “Ryan, success almost always requires an unstoppable author.” Throughout my career, I’ve seen this played out not just in books but in all products.

As I see it, not everyone who publishes a book is an author. They’re just someone who has published a book. The best way to become an author is to write more books, just as a true entrepreneur starts more than one business. The best way to become a true comedian, filmmaker, designer, or entrepreneur is to never stop, to keep going. They hustle, they keep creating. Very few of us can afford to abandoning our gift after our first attempt, convinced that our legacy is secured. Nor should we. We should prove to the world and to ourselves that we do it again…and again.

I’ll leave you with one last thought related to that and it’s from Craig Newmark. I asked him what it felt like to know that he had created something used by millions of people, something that’s still going strong after twenty years, his answer was the perfect note to end this post on: “It feels nice for a moment, then surreal, then back to work.”

The post How to Create a Perennial Bestseller appeared first on The Blog of Author Tim Ferriss.

When Reid Hoffman — who is rightly called “the Oracle of Silicon Valley” by many tech giants — returned to the podcast, I figured it would be popular, but it exploded.

Many of you have asked for the transcript of our conversation, so you can find it below. More accurately, it’s a draft script, so all words from Reid and other CEOs are accurate, but mine were modified substantially in the audio version. I added a lot of stories on the spot (maybe 20 minutes) that are likewise omitted.

The new 6-10 questions from me to Reid (e.g. “What book have you have reread the most?”) are not included below, but you can find them here.

Enjoy the notes and links!

Commandment 1

TIM FERRISS: Expect rejection. But learn from every “No.” As a founder you have to be resilient, you have to learn to weather rejection. It is a universal experience.  And this clip, from the Masters of Scale episode “Beauty of A Bad Idea” brings that to life. It also gives you a taste for the show’s sense of humor.

KATHRYN MINSHEW: I had been turned down 148 times.

REID HOFFMAN: That’s Kathryn Minshew, co-founder and CEO of The Muse, a career development website that she pitched to investors 148 times—not that she was counting.

MINSHEW: There were literally days where I had a “no” over breakfast, and “no” over a 10:30 AM coffee, a “no” over lunch. Disinterest at 2:00 pm, somebody who left a meeting early at 4:00. And then I would go to drinks and feel like I was being laughed out of the room.

And when we finally raised our seed round, I went back and counted. It was both painful and gratifying at the same time, looking at all those names, and thinking, “I remember that ‘no,’ I remember that ‘no,’ I remember that ‘no’”—and they sting; every one stings.

HOFFMAN: Today, the Muse serves users in the millions. Kathryn raised $16 million last year—and her tale is the origin story of most great startups. So if you’re hearing a chorus of “no”s, you should look for other signs that you’re onto something. I believe the best ideas often appear laughable at first glance.

FERRISS: Most entrepreneurs hear a chorus of “Nos” as they get started.  You have to expect it. And Reid says it’s actually a good thing. You don’t WANT everyone to say yes. Here’s why:

HOFFMAN: The first truth of entrepreneurship and investing is that the very big ideas are contrarian because the contrarian is part of the reason why a bunch of large companies and competitors haven’t already done it, why a bunch of other entrepreneurs haven’t already succeeded at it. And so that leaves the space for the creation of something—and to create something big, you have to have that initial space.  For example, in the early stages of Google, search was a terrible way of making money in advertising, because advertising is time-on-site. And what does search do? It shuffles you off the site as fast as you can go. That’s not a good business model. So at Airbnb it’s like, “Someone’s going to rent a couch or a room from someone else? Who are the freaks on both sides of that transaction?” So all of these things have this kind of similar quality—very smart people will tell you, there’s no there, there.

FERRISS: So it’s actually a good thing to hear a lot of “Nos.” But how do you interpret them? Reid has a great way of describing the kind of “no” you want. Apparently, you want a “squirmy” no. He explains this with help from Tristan Walker. Tristan’s company produces the Bevel razor, which is designed for men with coarse and curly hair.

HOFFMAN: So how can you tell a truly bad idea from a bad-sounding idea? How can you be sure your ugly duckling could become a swan? This is the key: You have to pay attention to the quality, not the quantity of rejections. You want to see at least a teeny minority of investors squirm. You don’t have to get them to a “yes,” but you should detect some friction, as they reason their way to a “no.”

Tristan has a keen ear for this quality in his conversations. He can pinpoint, down to the PowerPoint slide number, the moment his audience stops paying attention.

WALKER: I had a slide in there—I think it was like slide 14—where I talked about Proactiv—the acne system—as a good analogy to what we’re trying to do. It’s the difference between Gillette and Bevel, as Neutrogena and ProActiv—it’s a system that solves a very important issue. And this VC looked at me—and I’ll never forget this—he said, “Tristan, I’m not sure issues related to razor bumps, shaving or irritation are as profound and big an issue for people as acne.”

At which point, I said, “I kind of understand what you’re saying, but all you had to do was get on the phone with 10 black men, and eight of them would have said, ‘This is a permanent thing I have to deal with.’ All you had to do is get on the phone with 10 white men, four of them would have said the same thing. Could have done it for women too, and you would get the same ratios.” So it wasn’t that it was a bad idea, or not as important—it’s just that that person was unwilling to acquire the context necessary to understand what we’re working on. That’s just laziness—and at that point, I can’t fix that. So I just move on until I find somebody who understood it.

HOFFMAN: Notice how quickly Tristan’s mind moves on to the next investor. When the quality of the questions drops, he knows, mid-pitch, that the conversation is over—the rest is noise. Those half-hearted questions are like the elevator music of the pitch process. It’s meant to pacify entrepreneurs. In fact, it grates at them. It also wastes their time. Tristan will tell you he prefers a hard “no” to a comforting “maybe.”

WALKER: Silicon Valley investors will tell you all the time, “We want to invest in people who can execute with some semblance of pedigree, chasing a significant white space and a big opportunity.” For us, it was like “Check, check, check, check”—and we heard 99 percent “no”s. How much is bullshit, right? And you’re just trying to say something that I want to hear, as opposed to telling the truth. And I wish that Silicon Valley would tell the truth a little bit more.

HOFFMAN: Tristan raises a really interesting question here. How much of this investor hemming and hawing is, well, bullshit? What’s really going through their heads?

As a partner at Greylock, I want to share what happens after an entrepreneur leaves the room, and an investor is left to mull over a crazy idea. It begins with the debrief of the investor’s partners.

If I’m presenting an idea to my partners at Greylock, and they all go, “That’s great! We should do that.” I’m like, “Shit. Here’s a bunch of hyper-smart people and no one’s saying, ‘Oh, watch out for this, or watch out for that.’” It’s too easy. The idea is so obviously good, I can already hear the stampede of competitors trampling over our hopeful little startup. On the other hand, you don’t want every person in the room to say, “Reid, you’re out of your fucking mind,” because then you’re wondering, “Hmmm, am I drinking the Kool-Aid in a very bad way?”

What you want is some people going, “You guys are out of your minds,” and some people going, “I see it.” You want a polarized reaction.

So take my decision to invest in Airbnb as an example. David Sze told me during the Airbnb de-brief:

Narrator: David Sze is a partner at Greylock Investment.

HOFFMAN: “Well, every venture capitalist has to have a deal that doesn’t work that they learn from. Airbnb can be yours.” And David Sze is a super smart VC; he invested in LinkedIn. He invested in Facebook. He invested in Pandora. He personally returned two-and-a-half billion dollars to Greylock’s funds. He’s as smart as smart money gets—and believe me, I weigh his objections carefully. If someone as smart as David disagrees with me, I worry.

But I also get excited—it’s an emotional roller coaster. And as this sort of emotional turmoil plays out in the background discussion, it’s hard to give an entrepreneur a hard “no.” The best ideas make you want to say “yes” and “no” in the same breath.

FERRISS: So you want to hear a “squirmy no.” Those are the kinds of “nos” that mean you’re on to something. But let’s be real: It’s never easy to hear “no”. In fact, it sucks. So Reid also asked a few entrepreneurs to talk about how they deal with rejection, and how they learn from rejection. This is from the Masters of Scale episode “Beauty of A Bad Idea.”

HOFFMAN: So you have to gird yourself for a string of rejections. Some entrepreneurs simply develop a thick skin. Others treat it like a normal part of their workday. You know, wake up, brush your teeth, listen to people crush your dreams. It’s a living.

But there’s another, more hopeful approach. Our producer, Dan Kedmey, talked with a number of entrepreneurs who pitched seemingly laughable ideas in all kinds of industries. Like Abby Falik, founder and CEO of Global Citizen Year. Her not-for-profit sends students abroad for a year of international service between high school and college. Back in 2008, she was struggling to get funding, and she turned to a leadership coach for advice. We asked her to share that advice.

ABBY FALIK: The “no”s are actually a gift.

HOFFMAN: You heard that right, a gift.   

FALIK: And he said between now and when we talk two weeks from now, I want you to go out into the world and gather as many “no”s as you possibly can. It is your homework to be rejected over and over and over and over, and come back and report on it. And it ended up being the most important thing I could have ever done, and the most important advice I could have been given at that point.

HOFFMAN: The most successful entrepreneurs listen closely to the “no”s. They mine their rejections for clues. Kathryn Minshew, the founder of The Muse, got her share of rejections over the course of 148 “no”s she shared at the top of this episode. We asked her for the reasons that investors turned her down.

MINSHEW: “It’s a bit too early for us, but keep in touch.” “Once you hit 100,000 monthly active users, give me a call.”  “This is a fool’s errand. It’s expensive. It doesn’t scale.” “That’s not very tech, that’s not a scalable platform.” “Aren’t you worried that you’re going to lose all your users once they turn 30 and have babies?” Or, “I get that women in New York and San Francisco love this product, but I think you’re going to really have a hard time finding women who care about their careers once you go outside of the coasts.” And I just remember looking at these people and thinking, “Do you know a lot of women?”

HOFFMAN: Kathryn is right to ask this question. She knows more about women than most investors, and she also knows more about her business. Entrepreneurs have to learn how to hold on to what they know through the arduous pitch process.

Commandment 2

FERRISS: Hire like your life depends on it. It does. Hiring the right people can make or break a company. And this is a theme that comes up again and again with the founders on Masters of Scale.

FERRISS: Airbnb’s Brian Chesky personally interviewed the company’s first 500 employees. It was time-consuming, painstaking work, but Brian wouldn’t have had it any other way. Patience, he says, pays dividends.

CHESKY: And one of the most important decisions a startup can make is who they hire. Because who they hire becomes them. And so we interviewed people for core values. What this ended up, and that meant we spent like four or five months to hire our first engineer. Back then a lot of people thought we were crazy because time is of the essence when you’re a startup. You’ve said it’s like jumping off a cliff and assembling the airplane on the way down. Imagine jumping off the cliff, trying to assemble the airplane on the way down, and someone’s there to help you with the airplane, and you spend five months debating whether they’ll fit the culture.

Meanwhile, the ground is coming. That takes like real patience and some courage. The reason we did that though was because we thought in the high-class event we are successful, do I want to work with 100 more people like this? Because if I hire someone, they are going to interview the new people. And so we thought of hiring as this mechanism where, do I want to, if I could hire anyone in the world, would I hire the person sitting across me, and do I want 10 or 100 more people like them?

FERRISS: But if you launch a truly successful company, eventually, the hiring process has to scale. Eric Schmidt had a lot to say about hiring quickly, but not hastily. When he was CEO of Google, the company quadrupled in size each year, while maintaining super-high standards. He told Reid how he did it:

SCHMIDT: So the company was getting very large, very quickly. And I had suggested to Larry and Sergey that there was a problem with what I called “glue people.” And glue people are very nice people who sit between functions, and help either side, but don’t themselves add a lot of value. And I thought, “These are nice people, but we don’t really need them. We can have these groups talking directly.” And Larry looked at me and says, “We could solve this problem, if you would just review all the hiring.” And I said, “Larry, we can’t look at all the hiring.” He said, “Sure we can.”

So the company, of course, invented a number of hiring algorithms, which are used throughout the industry today. Many of them include pretty aggressive hiring interviews from peers, asking people to do work, and so forth. Ultimately, the judgment has a lot to do with whether the person is interesting or not. And so we would, for example, take a position that we want to hire rocket scientists because rocket scientists are inherently interesting. And in sales, we love to hire Olympians. Or Super Bowl winners, or football players—because of the discipline that they had in their lives as young people—men and women—to get to that point indicated that an extra set of discipline.

HOFFMAN: I want to acknowledge that most companies don’t have the option of hiring rocket scientists, Olympic athletes, and Super Bowl winners. But Eric does have more pragmatic advice for companies that can’t set the bar at Himalayan heights.

SCHMIDT: So today I would suggest that—and this has since been confirmed by many studies—that persistence is the single biggest predictor of future success. And so we would look for persistence. And the second thing was curiosity. What do you care about? The combination of persistence and curiosity is a very good predictor of employee success in a knowledge economy.

FERRISS: So persistence plus curiosity is one formula for hiring success. Mark Zuckerberg, the CEO of Facebook has another. Here’s what he told Reid:

ZUCKERBERG: So the single most important thing is to get the best people you can around you. When I look at my friends who were running other good companies, the single biggest difference that I see in whether the companies end up becoming really great and reaching their potential, or just pretty good, is whether they’re comfortable and really self-confident enough to have people who are stronger than them around them. I’ve adopted this hiring rule, which is that you should never hire someone to work for you, unless you would work for them in an alternate universe.

Which doesn’t mean that you should give them your job, but just if the tables were turned and you were looking for a job, would you be comfortable working for this person? I basically think that if the answer to that is “no,” then you’re doing something expedient by hiring them, but you’re not doing as well as you can on that.

There are all these things that Sheryl, for example, is just much stronger than me and that makes me better and makes Facebook better. And I am not afraid or threatened by that—I value that. That’s what makes Facebook good.

FERRISS: Of course Mark is talking about Sheryl Sandberg, COO of Facebook. And she has her own take on this rule …

SANDBERG: The lesson everyone talks about, but I really mean, is you really do want to hire people who are better than you are, and who are different than you are. This is where we talk about diversity. I don’t just mean racial, national, age, gender. All of that diversity is super important. In addition to that cognitive diversity, which you get from all those backgrounds, but also just personality diversity.

If you are a white male who likes to code and sci-fi movies, you probably don’t want your whole team to be that. I think about David Fischer. David Fischer and I have worked together at Treasury, at Google, and at Facebook. Personality types were just very different. I’m much more up and down. I will get nervous something’s not moving fast enough. I will be exuberant, and I will be down. Not David. David is absolutely calm. Over decades of working together, that balance has really been important, because sometimes I’ll look at David and say, “This is an emergency.” He’ll say, “No it’s not Sheryl, calm down.”

And sometimes I’ll say, “David, you’re not moving fast enough,” and he’ll say, “You’re right.” I think Mark and I have that too. We are very different. We are separated by—obviously, gender, 15 years, he’s my boss, he’s 15 years younger. Completely different personalities, completely different working styles—and I think’s that served Facebook well.

Commandment 3

FERRISS: In order to scale, you have to do things that don’t scale. It may sound counter-intuitive. But in order to scale, you have to get your hands dirty. Hand-craft the core experience. Serve your customers one-by-one. And don’t stop until you know exactly what they want. That’s what Airbnb CEO Brian Chesky did.

On the first episode of Masters of Scale, Brian took Reid back to his lean years — when he went door-to-door, meeting Airbnb hosts in person. This clip we’re going to hear starts with Brian recalling a conversation he had in 2009 with Paul Graham, the founder of Y Combinator, who gave him some perplexing advice….

CHESKY: And he asked us, “Where’s your business?” And I go, “What do you mean?” “Where’s your traction?” And I go “We don’t have a lot of traction.” He goes, “People must be using it.” I said, “There are a few people in New York using it.” And he said something I’ll never forget.  He said, “So your users are in New York and you’re still in Mountain View.” I said, “Yeah.” And he said, “What are you still doing here?” And I go, “What do you mean?” He said, “Go to your users. Get to know them. Get your customers one by one.” And I said, “But that won’t scale. If we’re huge and we have millions of customers we can’t meet every customer.” And he said, “That’s exactly why you should do it now because this is the only time you’ll ever be small enough that you can meet all your customers, get to know them, and make something directly for them.”  

HOFFMAN: Brian and his co-founders followed his advice to the letter.

CHESKY: We literally commuted to New York from Mountain View. So we would be in Y Combinator for Tuesday night dinners and then Wednesday Joe and I would go to New York. We literally would knock on the doors of all of our hosts. We had their addresses and we say, “Knock knock. Hello. Hey, this is Brian, Joe, we’re founders and we just want to meet you.”

HOFFMAN: Now, it’s a little creepy to just knock on the door unannounced.

CHESKY: We needed an excuse to get into their home.

HOFFMAN: So they come up with an offer that hosts couldn’t refuse.

CHESKY: We’d send a professional photographer to your home and photograph your home. Of course, we didn’t have any money and we couldn’t employ photographers. So Joe and I, we’d show up at their door and they’re like “Wow. This company is pretty small.”

HOFFMAN: These home visits became Airbnb’s secret weapon. It’s how they learned what people loved.

CHESKY: It’s really hard to get even 10 people to love anything but it’s not hard if you spend a ton of time with them. If I want to make something amazing, I just spend time with you. And I’m like, “Well what if I did this, what if I did this, what if I did this?”

HOFFMAN: From those questions, a handcrafted experience is born.

CHESKY: We’d find out “Hey, I don’t feel comfortable with the guest. I don’t know who they are.” “Well what if we had profiles?” “Great!” “Well what do you want in your profile?” “Well I want a photo.”  “Great. What else?”  “I want to know where they work, where they went to school.” “OK.” So you add that stuff. And then you literally start designing touchpoint by touchpoint. The creation of the peer review system, customer support, all these things came from us literally—we didn’t just meet our users, we lived with them. And I used to joke that when you bought an iPhone Steve Jobs didn’t come sleep on your couch, but I did.

HOFFMAN: [laughs] Yes. Was there a particular experience that really stuck in your mind?

CHESKY: I remember we met with a couple hosts. It’s winter. It’s snowing outside and we’re in snow boots. We walk up to the apartment and we went there to photograph the home. And we’re like, “I’ll upload your photos to the website. Do you have any other feedback?” He comes back with a book, it’s a binder and he’s got dozens of pages of notes. He ends up creating a product roadmap for us, we should have this, this, this, this and this, and we’re like, “Oh my god this is our roadmap because he’s the customer.” I think that always stuck in our mind as, the roadmap often exists in the minds of the users you’re designing things for.

FERRISS: As Airbnb grew, Brian never stopped hand-crafting the user experience. At one point, to envision what Airbnb could become, he and his team imagined what he calls an “11-star check-in experience.” Only part of what follows was heard on Masters of Scale. For this show they gave us the complete, un-cut version of Brian’s thought experiment. 

CHESKY: The core thesis is if you want to build a massively successful company, you need to build something that people love so much they tell each other. Which means that you must build something worth talking about. If you want to build something we’re talking about, you have to go back to things that don’t scale, and imagine like what a five-star experience would be. And presumably if somebody likes it, they’ll leave five stars out of five stars in the app. They’re satisfied to tell other people. The problem is that today if you leave five stars in the app like for your food or something you might not tell everyone you know.

If you want to build something that’s truly viral you have to create a total mindfuck experience that you tell everyone about. We basically took one part of our product and we extrapolated what would a five star experience be. Then we went crazy. So a one, two, or three star experience is you get to your Airbnb and no one’s there. You knock on the door. They don’t open. That’s a one star. Maybe it’s a three star if they don’t open, you have to wait 20 minutes. If they never show up and you’re pissed and you need to get your money back, that’s a one-star experience. You’re never using us again.

So a five-star experience is you knock on the door, they open the door, they let you in. Great. That’s not a big deal. You’re not going tell every friend about it. You might say, “I used Airbnb. It worked.” So we thought, “What would a six-star experience be?” A six-star experience: You knock on the door, the host opens. “Hey, I’m Reid. Welcome to my house.” You’re the host in this case. You would show them around. On the table would be a welcome gift. It would be a bottle of wine, maybe some candy. You’d open the fridge. There’s water. You go to the bathroom, there are toiletries. The whole thing is great. That’s a six-star experience. You’d say, “Wow I love this more than a hotel. I’m definitely going to use Airbnb again. It worked. Better than I expected.”

What’s a seven-star experience? You knock on the door. Reid Hoffman opens. Get in. “Welcome. Here’s my full kitchen. I know you like surfing. There’s a surfboard waiting for you. I’ve booked lessons for you. It’s going to be an amazing experience. By the way here’s my car. You can use my car. And I also want to surprise you. There’s this best restaurant in the city of San Francisco. I got you a table there.” And you’re like, “Whoa. This is way beyond.”

So what would an eight-star start check in be? An eight-star check-in, I would land at the airport. I would show up and there would be a limousine waiting for me. The limousine would be like, know all my preferences. It would take me to the house and it would be like a total surprise. So would a nine-star check-in be? A nine star check in, I would show up to the airport and there’d be a parade in my honor. And I would probably have an elephant you know waiting for me as the traditional Indian ceremony. I would ride on the elephant and there’d be this parade taking me to the to the house.  

So what would a ten-star check in be? A ten-star check in would be The Beatles check in. In 1964. I’d get off the plane and there’d be 5,000 high school kids cheering my name with cars welcoming me to the country. I’d get to the front yard of your house and there’d be a press conference for me, and it would be just a mindfuck experience. So what would an 11 star experience be? I would show up at the airport and you’d be there with Elon Musk and you’re saying, “You’re going to space.”

The point of the process is that maybe 9, 10, 11 are not feasible. But if you go through the crazy exercise of keep going, there’s some sweet spot between they showed up and they opened the door and I went to space. That’s the sweet spot. You have to almost design the extreme to come backwards. Suddenly, doesn’t knowing my preferences and having a surfboard in the house seem not crazy and reasonable? It’s actually kind of crazy logistically, but this is the kind of stuff that creates great experience.

FERRISS: Sam Altman, President of Y Combinator, considers this so-called 11-star experience as a prerequisite to scale. Suppose you try to scale a sub-par experience — the sort of product that gets only lukewarm approval from users? He offers a cautionary tale in this never-before-heard clip .

SAM ALTMAN: The first thing you have to do is build a product that is so good, people spontaneously want to use it and tell their friends about it. And if you can do that you still have to blitz scale but it’s the easy kind it’s you have too much demand. The hard kind of blitz scaling is where you try to start scaling up before the product is really great. And then most of your effort in scaling is to generate demand. So I think the number one most important insight about how to Blitz scale is that the good kind of blitz scale is when you are not having to generate demand as you go but that you first got the product right.

And in many of these cases — Stripe, Dropbox, AirBnB — it took a long time to get the product right but they were obsessed with that. And then when they did all their effort is okay we have so much demand that without much more effort. We know this is going to keep growing 20, 30 percent a month for years. That’s a real problem. It’s a high-cost problem, but it’s still a real problem. How do we build that? So that is the kind of scaling that works and it has generated Facebook Google I mean a lot of it. It’s the same playbook. I think the kind of blitz scaling that we have seen go badly is.

We have a mediocre product. We have raised hundreds of millions of dollars and our VC is beating down our throats to hire more sales people to grow faster.

HOFFMAN: Any particular examples?

ALTMAN: I don’t want to name names. There’s so many to pick from. Thankfully most them are not YC. one thing that is pretty good. And again a few exceptions to this. We try to beat that idea out of people at YC and thus most of the mistakes in Silicon Valley of that sort in the last decade have not been ours. 

Commandment 4

FERRISS: Raise more money than you think you need — potentially a LOT more. Reid argues that entrepreneurs should always, always raise more money than they think they need because as an entrepreneur, you’ll run into a minefield of unexpected expenses. He explains this particular point with a story. One that involves Mariam Naficy, CEO of Minted and then the CEO of EVE.com …

[Phone rings]

YOUNG GIRL: Hello? Who is this?

NAFICY: It is a five-year-old girl, Eve Rogers.

YOUNG GIRL: This is Eve.

NAFICY: …who gets on the phone. And so I think, “What on earth am I going to say to this 5-year-old?” So I said, “Hello.”

YOUNG GIRL: Hi.

NAFICY: “Could I buy your domain name?” And she was just saying to me, “What? I don’t really understand.”

YOUNG GIRL: Um, what?

NAFICY: And I’m sure Eve’s mom, on the other line, was laughing her head off. I mean, “This is a great joke to play on this silly entrepreneur from California who’s calling. I’m just going to watch her be tortured by my five-year-old for a while.”

HOFFMAN: Mariam then turns this risky negotiation over to her lead investor, the legendary start-up whisperer, Bill Gross.

NAFICY: So he gets on the phone with her mom, and he negotiated the purchase. And it was equity in the company, a board seat for her daughter—an observer board seat—trips to Idealab to see Bill several times a year.

HOFFMAN: You had a five-year-old observer on your board? [Laughing]

NAFICY: Yes. She didn’t actually show up for the board meetings, but she did occasionally come by and visit. Disneyland, software, educational software—it was a very large package that was negotiated.

HOFFMAN: If you were going to call your younger self, how would you have handled this negotiation differently?

NAFICY: I would probably throw in the Disneyland almost immediately, because now I know what a five-year-old girl wants. I have a daughter. And I would have said, “How many times a year do you want to go to Disneyland?”

HOFFMAN: Once a year? Twice a year?

YOUNG GIRL: Maybe about 100 times a year.

NAFICY: Exactly.

HOFFMAN: [Amused] $50,000 plus Disneyland trips may seem like crazy expenses. But in my experience? Every successful founder has a story like that.

FERRISS: Reid is right. So you need enough capital to cover unexpected expenses, sure. But you also need to be ready for unexpected opportunities. We’ll fast forward here to Mariam Naficy’s new company, Minted, which she originally thought would be an online stationery store with cards from brand-name companies. But she also side experiment where unknown artists could submit designs to an online competition. She told Reid what happened next:

NAFICY: I open the doors. There’s not a sale for an entire month. Nobody wants the branded stationery products that we’d spent most of our two-and-a-half million launching—because again, being conservative, I’d said, “I know, I’ll do an Eve.com, I’ll put all these brands online, sign them up exclusively.” We had exclusive distribution rights. Nobody wanted to buy them at all.

Instead, the teeny-weeny assortment that I had sourced through this one competition I had run, one transaction a week. Then the next week, there were two. We had sourced 60 designs through our competition, and I’d saved a tiny bit of money to build what I really wanted to build.

Out of the two-and-a-half million, I probably spent like $100,000 on what really became Minted. It was like this little side thing, and there was a programmer up in Oregon, and he and I were working at night on building the first competition. And that is the only place where we saw any sales movement.

HOFFMAN: Mariam stumbled onto the power of crowdsourcing—the idea that ordinary people, when they come together in large numbers, can do work once reserved only for experts. Etsy is an example of this. Kickstarter as well. But at this point, in 2008, it wasn’t understood very well. It was something Silicon Valley was just getting its head around.

NAFICY: I realized that this crowdsourcing thing was way different, and I’d uncovered something that was more of a massive social, cultural change going on in the US—and maybe in the world—versus some small-business idea. Because what was happening, that I didn’t realize, was that who’s considered a creative out there is actually changing a lot right now, due to technology and exposure. And so people are emerging as creatives who haven’t gone to school. They haven’t gone to design school, they haven’t gone to art school, and they’re massively disrupting art and design right now. And there is a true meritocracy that you can actually build and unleash.

HOFFMAN: Here, Mariam runs into another reason you need to raise more money than you think you need: unexpected opportunities. Mariam’s plan to start a lifestyle business just didn’t pan out. She didn’t have enough funding to cover her Plan B—or her “Plans B” as I like to say. Opportunities may arise later than you hoped, and you want the capital to carry you in new directions. So she reluctantly pitched her idea and secured another round of funding. And if that weren’t risky enough, she’s about to encounter one more familiar source of uncertainty…a stock market crash.

NAFICY: And we raised our venture around two weeks before Lehman failed, because this investor of mine had said to me, “I feel something really bad is going to happen, you should go raise.” So we just went out in August—”Who’s in town? Anybody? Is anyone in town in August?” So we went and raised money, and closed it literally right before Lehman [Brothers] failed.

[Sounds of various news reports, chronicling the stock market crash]

HOFFMAN: Believe it or not, Mariam launched her wildly risky, experimental business idea into the heart of the worst economic crisis since the Great Depression: the collapse of the U.S. housing market in 2008. Suppose she had waited until, say, September to raise that money. Lehman collapses, panic grips investors and no one in their right mind gives cash to a bold little experiment in crowdsourcing. Like that, Minted closes for business. Which is another reason you should always take money whenever and wherever you can get it. You know never know when it will dry up. As it is, Mariam did raise the money.

Commandment 5

FERRISS: Release your products early enough that they can still embarrass you. Imperfect is perfect. The fifth commandment is actually one of Reid’s more famous recommendations. He believes that if you’re not embarrassed by your first product release, you’ve released too late. Imperfect IS perfect.

This is the classic Silicon Valley approach of pushing imperfect things out, testing them and improving them with user feedback — instead of waiting until you think you have something perfect. Mark Zuckerberg of Facebook is probably the Silicon Valley entrepreneur who most embodies this commandment. And Reid talked to him about it. They started way back in Mark’s college days. 

HOFFMAN: My friend Mark Zuckerberg is the perfect person to talk to about this. He has no qualms about rushing out an imperfect product. In fact, his famous mantra is “Move fast and break things”—and I’d argue that it’s the foundation of Facebook’s success. If Mark cares about anything, it’s making sure his team moves with the swiftness of a teen hacker, releasing products that are anything but perfect, so their audience can improve them.

ZUCKERBERG: I think the strategy of Facebook is to learn as quickly as possible what our community wants us to do—and that requires a culture that encourages people to try things and test things and fail.

HOFFMAN: But how did he get Facebook’s 17,000-plus employees to shed their perfectionist streaks? You’re about to find out. We’ll start Mark’s story when he was an undergraduate at Harvard. By this time, he was in the habit of slapping together programs on the fly. He couldn’t help himself.

ZUCKERBERG: I took this class, “Rome of Augustus.” And the final exam—they were going to show some piece of art from the Augustan period in Rome, and you had to write an essay on the historical significance. And I was actually coding the first version of Facebook when I should have been studying for that, so a couple of days before the exam, I was like, “Alright, I’m kind of screwed.” This isn’t something like math, where you could just show up, and figure out how to do the problem on the exam. You actually need to know the context of this, or else you can’t write these essays.

HOFFMAN: Wait a second, rewind.

ZUCKERBERG: This isn’t something like math, where you could just show up, and figure out how to do the problem on the exam.

HOFFMAN: Who does that? In any case, with the exam fast approaching, you might expect Mark to cut back on the coding. Instead, he doubled down on it.

ZUCKERBERG: I built this service where basically anyone in the class could go to it, and it showed you a random piece of art, and you could type in whatever context you thought was important. And then after that, it would show you everything that everyone else in the class had put in. So it was a study tool, but it kind of crowd-sourced exactly what people needed to know for each piece of art. And the professor ended up telling me after that, that the grades on the final were higher than they’d ever been before. And I ended up passing that class.

HOFFMAN: Imagine, for a moment, what would have happened if Mark was a little less hacker and a little more perfectionist. What if he took his time to get the “Random Piece of Art” program just-so? It might have looked nicer. It might have had more features. But he would have missed the opportunity to put it in front of his classmates when they needed it, and more importantly, would have missed the learning about how they used it.

But many of us—and I’m guessing most of Mark’s Harvard classmates—have a tough time rushing things out. High-achieving people have a tendency to be perfectionists. And the same instincts that make us good students, can make us lousy entrepreneurs.

FERRISS: So you have to un-learn how to be a perfectionist. And you also have to un-learn the habit of listening to everything your users tell you. Reid will tell you: You have to be selective in the user feedback you take…

HOFFMAN: Success has a funny way of sneaking up on the best entrepreneurs. They devote themselves to understanding and serving a teeny cohort of users. They don’t always recognize that this intimate link is precisely what enables their product to evolve for the mass market. That’s one reason I encourage entrepreneurs to release a product earlier than they’d like. Release, observe, react—over and over again.

It isn’t just about speed, and it certainly isn’t about sloppiness, but rather a precise dance between Facebook’s tiny team and its growing user base. The users normally take the lead—but not always. Sometimes Mark had to break the choreography and give the users a twirl.

That’s because you have to discern what users actually want. And Mark received an early education in the gap between what users say and what they do—particularly as he expanded the social network to new campuses.

ZUCKERBERG: We’d seen this funny dynamic where—we talked about how we started it at Harvard, and then we’d launch at Yale, and then all the people at Harvard would be like, “Oh, come on. Them?” And then it’s at every step along the way. You go from Yale, and you launch at Columbia, and the people at Yale are like, “Aw really? Those guys?” We’re at Indiana University, and Indiana State launches, and the people at Indiana University are like, “Come on.” So we were used to this dynamic of people assuming that a change is like, “Why are you doing this?” but then coming around pretty quickly.

HOFFMAN: Notice the lesson Mark is learning here—he’s learning how to listen. Each college said they didn’t want another college to join—and then, as each new college joined, the network got stronger, and people liked it more. This is a great example of how entrepreneurs need to both listen to what users say, and selectively ignore them. People can’t always accurately predict their own tastes or even their own interests.

For example, a baseline for Facebook is: other people are going to upload pictures about you, other people are going to tag them, and when those other people tag them, your friends are going to see them, possibly before you. Do you want that product, yes or no? Most people, described that way, would say “I don’t want that product! No, no, no! I don’t want that product.” And yet everyone’s super happy with that product. People systemically are very poor at predicting their own reactions to new things.  

FERRISS: The core idea here is that you have to experiment if you’re going to effectively innovate. And this gets harder and harder as you grow. Mark shared some details on Masters of Scale about exactly how Facebook succeeds in innovating on a massive scale, and how they’ve had to change their mantra a bit over time. Reid Explains:

HOFFMAN: For Mark and his growing team at Facebook, the mantra of “move fast and break things” served as a rallying cry, and the philosophy made a lot of sense when they were a fledgling startup. But when you have thousands of employees moving fast and breaking things, someone has to clean up their messes. As Facebook grew, Mark became aware of a growing tension between his hacker ethos—to move fast—and his responsibility as CEO to avoid breaking things on such a massive scale. Thus a new mantra was born: “Move fast…with stable infrastructure”

ZUCKERBERG: Well, it’s less catchy.

HOFFMAN: But the best mantras do more than just sound good. They give you the resolve to make tough decisions.

ZUCKERBERG: So “move fast,” I think, is interesting, because you actually have to be willing to give something up to get it. And the question is, “What are you willing to give up?” And early on, the trade was, “Move fast and break things.” The idea was, we will tolerate some amount of bugs and flaws in the service of moving faster and learning what our community wants faster. But we got to a point where it was taking us more time to go back and fix the bugs and issues that we were creating than the speed that we were gaining by going faster.

So we’re like, “OK, we need a new strategy to enable us to move fast.” And what we came up with was: we’re going to do this by building the best infrastructure. So an engineer who comes from any company is going to be able to ship their product faster here—and test it better, and move faster, and all these things—at Facebook, than anywhere else in the world. So that’s what we mean by “Move fast with stable infrastructure.” But again, we don’t get it for free—we invest a huge amount in building infrastructure. So I think these values always come down to, what are you willing to give up to get something? Because they’re not free—nothing is.

HOFFMAN: Mark concedes that “Move fast with stable infrastructure” is a clunky mantra. It doesn’t have the snappy appeal of “Move fast and break things,” but it adds guardrails to protect the company in its new phase. You can still release something bold and half-baked. You can still break things. Just don’t break the infrastructure. Because the infrastructure is too slow to repair, and if you break the infrastructure, it will ultimately slow you down.

And with that new rule in mind, Mark laid the groundwork for mass experimentation on Facebook. How does it work exactly? One thing you should know about Facebook: It has many faces.

ZUCKERBERG: At any given point in time, there isn’t just one version of Facebook running, there are probably 10,000. Any engineer at the company can basically decide that they want to test something. There are some rules on sensitive things, but in general, an engineer can test something, and they can launch a version of Facebook not to the whole community, but maybe to 10,000 people or 50,000 people—whatever is necessary to get a good test of an experience. And then, they get a readout of how that affected all of the different metrics and things that we care about. How were people connecting? How were people sharing? Do people have more friends in this version? Of course, business metrics, like how does this cost the efficiency of running the service, how much revenue are we making?

It can even kick off qualitative studies and ask people how happy they are with this version. And then at the end of that, the engineer can come to their manager, and say, “Hey, here’s what I built, these are the results. Do we want to explore this further and do this?” And giving people the tools to be able to go get that data without having to argue whether their idea’s good through layers of management before testing something, frees people up to move quicker. If the thing doesn’t work, then we add that to our documentation of all the lessons that we’ve learned over time. If it does work, then we can incorporate those small changes into the base of what Facebook is—that now everyone else who is trying to build an improvement, that’s the new baseline that they need to get against.

FERRISS: There are interesting questions for any CEO. When is it OK to experiment? And when is the cost too high? Mark sets a pretty high bar.

ZUCKERBERG: On a day-to-day basis, a lot of the decisions that I’m making are like, “OK, is this going to destroy the company?” Because if not, then let them test it. If the cost of the test isn’t going to be super high, then, in general, we’re going to learn a lot more by experimenting and by letting the teams go and explore the things that they think are worth exploring than by having a heavy hand in that.

FERRISS: And Reid holds — more or less — to his theory that you should be embarrassed by your first product release.

HOFFMAN: The word “embarrassment” plays a key role here. Over the years, some people have interpreted my theory as permission to cut corners, act recklessly, or proceed without a clear plan.

But notice: I said, “If you’re not embarrassed by your product.” I didn’t say “If you’re not indicted” or “If you’re not deeply ashamed by your product.” Indeed, if you launched so fast that your product generates lawsuits, alienates users, or burns through capital without any apparent gain, you did in fact launch too soon.

Commandment 6

FERRISS: Decide. Decide. Decide. Every founder has to learn how to make decisions. It’s better to make a wrong decision than no decision. And this is something Eric Schmidt, former CEO of Google, learned when he was taking flying lessons:

SCHMIDT: In aviation, they teach you to make rapid decisions, and they, over and over again: “Decide, decide, decide.” It’s better to make a decision and just accept the consequences. And that discipline helped me in the hard times when I was at Novell in a real hard core turnaround.

FERRISS: It’s also served him well in the free-wheeling, idea-generating climate he cultivated at Google. In fact, he might argue it was the secret to their success. With all those ideas brewing, you must have disciplined decision-making in order to thrive.

SCHMIDT: The most important thing to do is to have quick decisions—and you’ll make some mistakes, but you need decision-making. We ultimately adopted a model of a staff meeting on Monday, a business meeting on Wednesday, and a product meeting on Friday, and this was organized so that people could travel in the right ways. And the agenda was, everybody knew which meeting the decisions were made at—and so as long as you could wait a week, you knew you would get a hearing on your deal.

I cannot tell you how many people have told me that at Google, decisions are made today quickly, in almost every case, even at our current scale. And that’s a legacy of that decision. Most large corporations have too many lawyers, too many decision-makers, unclear owners, and things congeal—they occur very slowly. But some of the greatest things happen very quickly. We made the decision to purchase YouTube in about 10 days—incredibly historic decision—because we were ready, people were focused, we had a board meeting—we wanted to get it done.

HOFFMAN: We have a word for these kinds of evasive maneuvers here in Silicon Valley. We call it an OODA loop. That’s a fighter pilot term. It stands for observe, orient, decide, act. The fighter pilot who has the fastest OODA loop wins. The other one dies. If you’ve ever watched the movie Top Gun, you’ll have a basic understanding of how an OODA loop works.

Tom Cruise’s character, Maverick, has a few bad guys on his tail. In a split second, he orients himself to the enemy’s formation. Then he decides to perform a crazy aerial maneuver—he acts, and he confounds everyone. Score one for the free world. Now I’m not suggesting that tech executives secretly want to blast each other out of the sky. What they do want is to perform slightly crazy, super-fast maneuvers, again and again.         

You’ll often hear founders asking: What is the OODA loop of an organization or an individual? Because speed matters in combat, and also in fast-moving industries.

Commandment 7

FERRISS: Be prepared to both make and break plans. In a fast-growing organization, leaders have to be ready to pivot. Every day, there are new competitors, new threats, new opportunities. Everything has to be subject to change. In the episode Lead, Lead Again, Reid talks about this concept with Facebook’s Sheryl Sandberg.

HOFFMAN: The path to scale always, unfortunately, includes some broken promises, as Sheryl would soon find out. Everything—from interviews to office space—changes as you grow.  And even a small take-back can matter to a team.

SANDBERG: I’ll give you another silly example that I don’t think is silly—birthdays. We celebrated everyone’s birthday that day. Then it became that week. Eventually, we had a huge sheet cake with quarterly birthdays. My team was 4,000 when I left, and everyone’s name is on it. Now it sounds like that wouldn’t matter, but it did—because if you started out and we celebrated everyone’s birthday, and we took that away, that was a problem. Now I’m not saying, “Be mean and don’t celebrate birthdays.” I’m saying, “Figure out what your systems are going to look like later, and do it now.”

FERRISS: Sandberg’s ability to recognize when a once-functional system has stopped serving the team’s culture and productivity keeps Facebook on track. Founders have to be able to cut their losses when programs or projects no longer make sense. Zynga’s Founder Mark Pincus can also be a ruthless self-editor:

HOFFMAN: By the time Mark launched Zynga, he was acutely aware of the dangers of stubbornly sticking to his ideas. He started to draw the distinction between his usually-great instincts and his not-always-great ideas.

PINCUS: I’ll try anything, and I’ll kill anything, and I’ll kill it quickly. And I’m not going to let killing an idea kill a winning instinct. And so that was a really core idea that I’m still thinking about, and learning as an entrepreneur. And I can see it playing out so often in people’s companies.

HOFFMAN: Mark separates specific ideas—which must be killed when they don’t work—from underlying instincts. And this willingness to kill ideas is essential to making innovation work.

FERRISS: So you have to be willing to pivot, and you have to make firm decisions. But there’s one more thing: You have to keep your team together, through the twists and turns. Margaret Heffernan, former CEO of 5 tech companies, shared a story with Reid about a company that got this right.

HEFFERNAN: What I think is important is that when the decision is made, everybody gets behind it. And I think the most sensational example of this I’ve ever come across—I’ve spent a lot of time hanging out with and writing about Ocean Spray, the cranberry company. They’re one of the biggest cooperatives in the United States, an extraordinary business.

At one point, Pepsi tried very hard to buy them. And of course, the company is owned by the cranberry farmers. So this was a really passionate, passionate debate, you could never have resolved it by who cared most, because everybody cared totally. It ended up the vote was 49.9% in favor of selling, 50.1% in favor of staying an independent cooperative.

What made the company what it is today, which is very successful, global, multi-billion dollar business, is that after the vote, everybody got behind it. There was no question. That’s the vote. That’s the outcome. Now we all work together to make it successful.

Commandment 8

FERRISS: Don’t tell your employees how to innovate. Manage the chaos. Many creative people find that leading an innovative company actually means a lot less of producing your own great ideas, and a lot more of shepherding your employees’ great ideas to fruition. Eric Schmidt thought a lot about this when he was the CEO of Google.

SCHMIDT: I think a fair statement is that the founders built the company in the image of what they saw at Stanford graduate school. So the offices for example, if you had them, would have four people in them—which is the number of graduate students that are in an office. And of course, everyone’s very crowded, and it’s very casual. And of course there’s free food, and everyone is sort of hanging out all day. And that graduate student culture—that sense that somehow we’re about to discover something new—permeated the decision making. So the culture of food and benefits and being quirky came from the founders trying to recreate that feeling.

HOFFMAN: Amid this creative ferment, his job was simple. He just had to give employees a slight nudge to deliver on their promising ideas.

SCHMIDT: The first thing I did was I went to the staff meeting. And the staff meetings were long, and they were like being in graduate school. “What do you think of this? What do you think of that?” But a real lack of business procedures, and that kind of thing, which were easily remedied.

HOFFMAN: When you’re surrounded by bright young minds, you don’t have to push too hard for interesting ideas. They tend to tumble out of conversations or shared challenges, and take you in unpredictable directions. But not every manager is comfortable with this type of chaos. It requires a particular kind of leader who can embrace both humility—the uncomfortable notion that you don’t have all of the best ideas yourself—and uncertainty—because you can’t always schedule innovation on a predictable timeline.

FERRISS: Google’s certainly not the first organization to embrace the chaos, but they do lean into it in a way that’s rare – even for Silicon Valley.

HOFFMAN: Eric took some radical steps to keep ideas flowing in the organization. This meant empowering engineers, and keeping management in check. For instance, product leaders can draw in as many engineers as they’d like on any given project, so long as they can convince engineers to join their team.

SCHMIDT: I’ve talked to other managers at Google who are frustrated with this because they argue: “We agree that my project is strategic. Why don’t you just assign some engineers to me?” And the answer is “No, no you have to persuade the engineers that your project’s a good one to work on. And then, by the way, you can have all of the engineers that you can persuade to work on that project.” And that’s central to Google’s culture for making progress.

HOFFMAN: Eric took this idea one step further. He granted employees the freedom not only to choose their projects, but openly defy their managers along the way. Google famously instituted a rule that any employee could devote 20% of their work week to any project they’d like. The 20 percent time was in some ways a logical extension of Google’s graduate school culture. Managers, like research advisors, can set timetables and budgets for experimentation. But the staff, like the “students,” pick the research agenda.

SCHMIDT: Many, many initiatives in the company have come out of 20 percent time ideas. Much of the mapping work, many of the search ideas, many of the advertising, many of now the AI work, have come from people working and practicing in new areas.

HOFFMAN: As Eric says, many of the products people know best — Gmail, Google Earth, Google Maps — grew out of ideas generated by employees, during this 20% time. But WHY exactly, does it work?

SCHMIDT: And while the rule says you can do anything you want to with your 20 percent time, these people are computer scientists and engineers, they’re not going to veer too far away from their core business and that is the genius of 20 percent time.

HOFFMAN: The tendency of high-performing employees to use their 20% time productively is the well-documented genius of the program. But there’s also a hidden genius of 20 percent time. It allows reasonable employees to defy unreasonable managers. And this institutionalized defiance can help balance the power and keep high-performing employees engaged during challenging times.

SCHMIDT: So the interesting thing about 20 percent time is although it’s reported as you get to spend one day doing whatever you want, what it really served was a check and balance on the power of the engineering management over the subject. So if an employee is under pressure, the manager says you’ve got to work harder you’ve got to give me everything you have. That employee can legitimately look that boss in the eye and say I’ll give you 100 percent of my 80 percent time. And that simple principle, which never really happens in practice but it’s understood, empowers the employee with both dignity but also some choices.

Commandment 9

FERRISS: To create a winning company culture, make sure every employee owns it. This commandment is very often overlooked, especially at the startup stage. Many founders, especially inexperienced ones, downplay the role of culture in their success, or simply don’t know where to start.  

Reed Hastings, the founder & CEO of Netflix has strong feelings about company culture. His first startup, Pure Software, sold for $750 Million, so it was successful from an objective standpoint. But he shared with Reed Hoffman that it failed when it came to company culture.  And when he started NetFlix he wanted to correct that mistake. Here’s how Reed Hoffman would sum it up:

HOFFMAN: So Reed made a very typical mistake in his first company. He thought he could solve his company’s problems just by working harder. But hard work isn’t enough; and more work is never the real answer. To succeed as you scale, you have to leverage every person in the organization. And to do that, you have to be very intentional about how you craft the culture. This was exactly the lesson Reed took from Pure Software. Their management decisions had created a culture that rewarded the wrong behavior and retained the wrong employees.

HASTINGS: Well the mistakes in Pure was that every time we had a significant error, sales call didn’t go well, a bug in the code. We tried to think about in terms of what process could we put in place to ensure that this doesn’t happen again and thereby improving the company. And what we failed to understand is by dummy proofing all the systems that we would have a system where only dummies wanted to work there, which was exactly what happened. And so the average intellectual level fell and then the market changed as it inevitably does, in that case, it was C++ to Java but it could be anything. And we were unable to adapt to it because we had a bunch of people who valued following the process rather than the first principle thinking.

HOFFMAN: Notice Reed’s double insight here. Pure software couldn’t adapt because they had the wrong employees. And they had the wrong employees because of management decisions that explicitly selected for those employees. It was an insight that catapulted him.

FERRISS: What Reed Hastings learned from his first company was that culture directly impacted both who worked in a company, and how well they performed. At NetFlix, he knew he’d need people who could adapt with the times as technology changed, and they went from a company that mailed DVDs to a company with streaming video and original content. The whole story is worth hearing on an upcoming episode of Masters of Scale, but here we’ll stay focused on how this realization affected NetFlix culture and hiring practices. When Reed Hastings thought about growing the Netflix team, he already had a very clear idea of who he needed. Here’s Reid Hoffman to explain what Reed Hastings did next:

HOFFMAN: Reed’s knowledge of history, the changing nature of technology and the historical moment he was in, led to the understanding that he would need people to change with the times. People who can rip up a process and return to the first principles of delivering entertainment by any means necessary, whether it’s horseback, mail, fiberoptic cable — or maybe in the future Elon Musk’s neural lace. Regardless, you need people who can change the business model, fast.

So how did Reed identify those candidates? It started with a now legendary document at Netflix: a collection of more than 100 slides known as the “culture deck.” These slides defined exactly what the Netflix culture stands for, and who they’re trying to hire, and what they can expect.

HASTINGS : The culture deck started about 10 years ago. So first couple of years we were just focused on survival and then we got public in 2002. Cash flow positive and it was clear we were going to survive. So we then started really thinking about the culture, what we wanted to be, how we wanted to operate. And so over successive years, I improved this deck which I would go through with new employees. And sometimes those new employees would love it sometimes they were like oh my god why didn’t you tell me this before I started. That doesn’t make sense to me. And so we realized we should give it to every candidate. And so then about 2007, 2008 we did that by posting it on SlideShare    And that provided a great vehicle for sharing that but again it was really just to be able to send a link to the candidates and then you know and it’s not very pretty, it’s not very highly designed, doesn’t look like it’s a external marketing piece but that authenticity really people liked in the outside world and now it’s you know over you know 10 million views on SlideShare and continues to be studied around the world.

HOFFMAN: And what were the unexpected benefits of having published it?

HASTINGS: Well let’s see the core benefit which we did expect was that candidates were very aware of the culture. The unexpected benefit was many people became candidates for us because they loved that what we described in terms of freedom and responsibility that might not have otherwise thought about us.

FERRISS: Now when you read Netflix culture deck, which many people have, you’ll see they have a very specific way of describing themselves — as a “sports team”, not a “family.” They use internal collaboration to drive external competitiveness.

HASTINGS: Well in team sports that really succeed there often is a lot of warmth between the players. And so it’s emphasizing those aspects and demonstrating that when people come in everyone tries to help them but ultimately it is about performance. Unlike a family which is really about unconditional love you know even if your brother you know does something awful and goes to jail your love doesn’t stop ok and that’s it just a different and important part of society. But that’s not what we’re about. What we’re about is you know collectively changing the world in the areas of Internet television and that takes incredible performance at every level. We’re also about really honest feedback all the time. So you can learn and be the best that you can be.

FERRISS: Most CEOs would agree that a  successful company culture is one that that lets team members be the best that they can be.  And as you consider the best way to do that for your company and your team, you’ll want to pay particular attention to how people compete. This is where a lot of company cultures go wrong. Margaret Heffernan, former CEO of five tech companies, says this:

HEFFERNAN: There is often a belief among very successful, very competitive, people that the thing you want to do in a company is get everybody to compete with each other that if it’s everybody is racing against everybody you’ll have this kind of a white heat of brilliance and creativity. And I think pretty much everything about that’s wrong. And that’s not to say that I’m not competitive, I’m deeply competitive with myself in the sense that I really want to do a better job today than I did yesterday. But I don’t want you to fail.

And I have seen more companies and organizations go wrong. Because of what I think of as negative competitiveness. I do want you to fail or I want your department to fail or I want your product to fail because that will make me shine. I’ve seen more damage and destruction and waste from that mentality than probably from any other misunderstanding. If you can build an environment in which people really want to help each other, full of people who are generous you will do infinitely better than creating something kind of Olympic sport within the company.

But I see it especially I have to say among young men and this belief that at one level you know if everybody’s is competing everybody will get faster. I think it’s a catastrophe. And I see it bring down really tremendous companies that get so lost in the fight they forgot why they were there in the first place.

HOFFMAN: I totally agree and I actually think one of the key things that companies do at scale in order to try to set against this because there’s always that kind of the how do I win this kind of a culture is to say that part of the dialogue in performance reviews and culture and compensation is: How did you help other people and in particular how did you help other people outside of the specific team you’re in, right. And I think that’s actually I’m really glad to I asked you that question because I think that what you just said is really critical.

HEFFERNAN: Well it’s really interesting. I remember speaking at a conference and on this subject in the Q&A someone said well you know how would you find people like that when you’re interviewing them for jobs. And I said, well I’d ask them who helped them in their career because you know if they can’t remember anybody. That’s a pretty bad sign you know. Anyway, the next person speaking at this conference was the chief technology officer from somewhere. And in his Q&A somebody asked him who helped you in the course of your career. And he couldn’t think of anybody. And there was this sort of stunned horrified silence. You know and the truth is that all of us I’m sure this is true of you too,  all of us got help from so many people.  And you can’t remember one of them? And of course singing the praises of people who’ve helped you is absolutely joyous task.

COMMANDMENT 10

FERRISS: Stick with the hero’s journey. So the first nine commandments from Masters of Scale cover just about everything you need to succeed as a startup founder.  Hiring and funding, managing and innovating, making decisions fast and testing products early. The final commandment makes all the rest possible. To succeed, entrepreneurs need a good idea, sufficient resources, good timing, a certain amount of luck. But they also need to follow Commandment 10: have grit and stay on your hero’s journey.

REID: Some people mistake grit for sheer persistence. Charging up the same hill, again and again. But that’s not quite what I mean by the word “grit.” The sort of grit you need to scale a business is less reliant on brute force. It’s actually one part determination, one part ingenuity, and one part laziness. Yes, laziness.

You want to conserve your energy. You want to minimize friction and find the most effective, most efficient way forward. You might actually have more grit if you treat your energy as a precious commodity. So forget the tired cliche of running a marathon. You want to be more like Indiana Jones, somersaulting under blades, racing a few steps ahead of a rolling boulder and swinging your whip until you reach your holy grail.

FERRISS: Of course, the hardest time to show grit is when you need it the most. When the situation seems dire, when the odds are against you. Reid sees these life-and-death moments a lot in the companies he’s built and advised. Here’s how he thinks you should do when you find yourself in one.

HOFFMAN: These are the critical junctures that determine whether you fold or scale your business. You might win big, and you might lose big. And grit is the stick-to-it-ness that kicks in when you actually understand the risks — and know you might die — but move ahead anyway. In fact, I have a prepared speech for these pivotal moments.

I have a given a version of this speech at some point on every single board that I’ve been on, which is the heroic possibility. Which is that the road in front of you is super fucking hard, that is not a given that you’re going to win it. But if you win it you’re going to be a hero. And so the question for you is: Are you a hero? Right. And most people then they kind of hear that speech they go, “Yeah,” because that’s what they want to be. That’s why they’re doing this. They want to be a hero. So you’re giving them a frame to do it. And you might lose, right?. You might be dead on the battlefield. This is why it’s a hero’s journey. This is why you will be heroes if you do this, right. And by the way the people who don’t resonate with that?  You want them off the boat.

Bonus Commandment

FERRISS: Pay it Forward. The first nine commandments from Masters of Scale covered just about everything you need to succeed as a startup founder.  The final commandment kicks in after you succeed. Because Reid will tell you, the long-term success of any company, anywhere in the world — depends on the ecosystem around it. And to create an ecosystem like Silicon Valley — where startups thrive and scale-ups are possible — successful entrepreneurs have to follow Commandment 10 and pay it forward. They have to invest in the other companies around them.

In this next clip, Linda Rottenberg explains how she sees this. She’s the CEO of Endeavor and her passion is in supporting entrepreneurs around the world. She says the willingness of successful entrepreneurs to pay it forward is THE determining factor of whether a startup scene thrives or not.

ROTTENBERG: many cultures have one or two or three successful business people that create companies. But if they don’t pay it forward and if they don’t reinvest in the ecosystem becoming mentors becoming angel investors inspiring their employees to start companies then it stops. Right. And so what, what Endeavor tries to do is create that that ecosystem foundation where the successful entrepreneurs go on and pay it forward. And then that’s when you see a multiplier effect.  

FERRISS: Linda has a great story about this …

ROTTENBERG: But then it was really in 2000 when I got called into a room by Pedro Asprey the former finance minister of Mexico who was then leading the largest private equity firm. And he had gathered a group of about 12 individuals. And before I walked in the room someone said to me Linda, do you know what percentage of Mexico’s GDP is in this room? And I said no and I don’t think I want to. So I was asked by it was Lorenzo Zambrano of the Cemex, Carlos Slim of you know all the telecom, Emilio Azcarraga of the media, etc.

And one of the people in the room said well why are all these entrepreneurs coming out of Chile and Argentina and Brazil even Uruguay, like what’s wrong with Mexico. So in my oh politically astute way, Chica Loca says to this group of men, “well here in Mexico you’re the big fish. And think of entrepreneurs as the little fish. And here the big fish tend to eat the little fish. So if you want something like Endeavor. Think of us like an aquarium where you learn to feed the little fish.

And the fact that they actually didn’t throw me out of the room. My life is about not being thrown out of rooms I guess. And they all signed up. And in fact a decade later Emilio Azarraga’s, one of his magazines had a study on, survey on entrepreneurship in the country and the headline was big fish feeding the little fish.

FERRISS: If you follow these commandments you’ll be on your way to startup success, as well as your hero’s journey. But there’s always more to learn. If you liked the advice, you might want to subscribe to Masters of Scale.  And if you liked this remix, let me know and we’ll do another one next season.

The post Transcript: The 10 Commandments of Startup Success with Reid Hoffman appeared first on The Blog of Author Tim Ferriss.

Dr. Peter Diamandis (@PeterDiamandis) has been named one of “The World’s 50 Greatest Leaders” by Fortune magazine. In the field of innovation, Diamandis is Chairman and CEO of the XPRIZE Foundation, best known for its $10 million Ansari XPRIZE for private spaceflight. Today the XPRIZE leads the world in designing and operating large-scale global competitions to solve market failures.

Peter has been a guest on the podcast twice (once with Tony Robbins, and again solo), and in this guest post, he shares information he’s never discussed before. Specifically, Diamandis looks back at his XPRIZE experience and the strategic decisions that allowed the foundation to become a success.

Peter knows how to think and play big, and he can show you how to do the same. Enjoy!

Enter Peter

The XPRIZE – which launched the private spaceflight industry – was an “overnight success” after 10 years of hard work.

During those 10 years, I recorded a number of “go-to” lessons that I learned and used over and over to help me succeed.

In all, I came up with a list of 28 of those lessons, and they became known as “Peter’s Laws.”

But 9 of them are my favorite, and in this post, I’ll outline them and detail the key takeaways. If you want to learn about all of the lessons, they are highlighted in the book, How To Make A Spaceship, written by Julian Guthrie, with a foreword by Richard Branson and an afterword by Steven Hawking.

One thing is clear from my XPRIZE story: attitude is the ball game. Mindset matters. It’s everything. It might be cliché, but whether you think you can or you can’t—well, you’re right.

Your mindset is more important than anything.  It’s even more important than technology or income. I hope that these will clarify your vision and be useful to you.

Rule #1: When given a choice…take both!

Society teaches us that when you’re given a choice, you have to choose one. Why? Why do you have to choose?

But you should be asking, “Why choose?”

All throughout graduate school, I was told, “Go to school or start a company.”

For me, the answer was both. In fact, I started three companies while in grad school. Steve Jobs did the same with Apple and Pixar. Elon Musk is running Tesla and SpaceX; he’s also chairman of SolarCity. And Branson — well, Branson’s Virgin Group has started over 300 Virgin companies and built eight different billion-dollar companies in eight different industries.

So, I challenge you: When someone says choose vanilla or chocolate, say, “I’ll have them both, please.”  Multiple projects lead to multiple successes.

Rule #2: “No” simply means begin again at one level higher.

When someone says “no” to your request, often it’s because that person isn’t empowered to say “yes,” and the only person who can say “yes” is the person at the top of the food chain.

This is one of the reasons it took me 10 years to get Zero Gravity Corporation, my commercial parabolic flight company, started. I had to battle an entire FAA bureaucracy that insisted it was not possible to operate large-scale zero gravity flight operations for the public, despite the fact that NASA had been doing it for 40 years.

Ultimately, because there was some risk, none of the mid-level bureaucrats had the power to say “yes.” At last, my request made it all the way up to the FAA Administrator, an amazing woman who told me, “Of course, you should be able to do this – let’s figure out how.”

Rule #3: Patience is a virtue, but persistence is a blessing.

If I had to name my superpower, it would be persistence – not giving up, even when everyone tells me it isn’t going to work.

My most important successes (companies like the Zero Gravity Corporation, XPRIZE, and Planetary Resources) have taken me 10 years or more to implement.

What good is patience without persistence?  Doing anything big and bold in life is hard work, and learning to persist is fundamental to your success.

Another name for this superpower is ‘grit.’ This is your will to keep pushing, iterating, and taking the next step in the face of hardship.

Remember that failure is only inevitable when you give up.

Rule #4: The squeaky wheel gets replaced.

In this age of abundance, where you can access whatever you need, whenever you need it… don’t settle. Demand the best.

It used to be that the supply of talent, technology or treasure (i.e. money) was scarce. That is no longer the case.

If someone or something in your organization is a squeaky wheel, rather than tolerating or greasing them, you’re probably better off finding someone who fits your team’s ethos, vision and mindset.

Would you rather spend your time with your best performers helping them grow and get even better, or spend time with your squeakiest wheels dealing with their issues?

Your time as a leader is limited – use it to build an incredible team.

Rule #5: The best way to predict the future is to create it yourself.

The future is not written. It’s not preordained. It unfolds as a result of our actions… the choices we make and the risks we take.

This is actually the model for my life. I wanted to predict a future in which there would be private commercial spaceflight, so I launched the $10 million XPRIZE. Private spaceflight simply didn’t exist.

I’ve predicted a future in which we’ll have asteroid mining, so I cofounded Planetary Resources. I want to live a long and healthy life, so I cofounded Human Longevity, Inc.

Ultimately, isn’t this exactly what it means to be an entrepreneur? An entrepreneur clearly envisions the future and becomes so enamored with it that they turn their thoughts into reality and will the future they desire into existence.

Rule #6: An expert opinion is not the final word. 

When I announced the XPRIZE, many of the “experts” in the aerospace industry explained to me why I was naive and wouldn’t succeed.

In 1714, when the Longitude Board (composed of the world’s greatest Royal Astronomers) saw a working clock built by watchmaker John Harrison meet all of the requirements of the Longitude Prize, they refused to pay him the purse because they were absolutely sure it would be won by an astronomer.

In a rather perverse twist, an expert is massively disincentivized to promote someone else’s radical and disruptive solution. This is because new inventions that result in wholesale change cause a shift where “experts” can be transformed into “has-beens.”

Some experts are therefore inspired and committed to keeping things exactly the way they are. That’s why it’s important to always think in terms of what can be done.

Rule #7: Most breakthroughs begin as a crazy idea.

I first heard a variation of this concept from Burt Rutan, the man who designed and built SpaceShipOne, the brilliant launch vehicle that won the $10M Ansari XPRIZE.

As Rutan explained it to me – as described in How to Make a Spaceship – a small incremental improvement is not a breakthrough.

For example, a computer that is 50% faster than last year’s model is predictable and expected. But going from computers based on vacuum tubes to computation based on silicon wafers is a breakthrough.

So my question to you is: Where in your organization do you allow for crazy ideas to be tried and tested? How are you creating space for yourself to imagine and experiment with crazy ideas?

If you don’t try this — if you are risk adverse and stick with safe, proven steps — then you’re ultimately stuck with incremental progress, not breakthroughs.

One more thing: Burt Rutan also likes to say he finds breakthroughs where others see nonsense. It’s no surprise that he has six first-of-a-kind planes in the Smithsonian Air and Space Museum.

Rule #8. If it were easy, it would have been done already.

Doing anything big and bold is hard work.

Going after an easy, quick win either means you’re not trying to change the world or you’ve got a false grip on reality.

With five billion connected people with access to Google and Amazon Web Services, you can expect that the easy stuff has been tried and conquered.

If you’re working on something you truly care about solving, it’s hard to do and you don’t see anyone else trying, that’s a pretty good indication that you’re on a path to solve something significant and worth pursuing.

Don’t fear hard work. Celebrate it as a measure of the size of the dent you are making in the universe!

Rule #9: The world’s most precious resource is a passionate mind.

I’m often struck by the ability of a single individual to change the world.

Think Thomas Edison, Henry Ford, Elon Musk, Larry Page, Richard Branson, Martin Luther King and Mahatma Gandhi, to name a few. They each started with no money or technological advantage, just passion and perseverance.

Ultimately, three things make anything possible: People, technology, and money. If you have the right people and enough money, you can create the technology — that’s called innovation. If you have the right people and the right technology, you can attract the funding — that’s called venture capital.

But money and technology alone, without the persistent and passionate human mind driving you forward, will never change the world.

Doing something big and bold — taking risks that benefit you and can benefit society — means overcoming extraordinary hurdles.

It means attacking a challenge with all of your energy and focus, and many times remaining motivated for a decade or more.

Such passion and commitment can only come when you are emotionally committed with all of your heart and soul. And this level of commitment only materializes when your goal is powered by intense emotional energy.

There is nothing more powerful in your life than a cause you would willingly die for, whether it is your family or a belief you hold fundamental to your existence.

Following this passion is how you create a world worth living, a life that wakes you up in the morning and gets you excited.

I was lucky to find one of my abiding passions in childhood. I watched the landing of Apollo 11 in July 1969 and knew I had to get to space and get my friends there too. Listen to your heart, and don’t let those dreams die.

For more on these lessons and others, check out How To Make A Spaceship.

The post Peter Diamandis's 9 Rules For Building A Successful Business appeared first on The Blog of Author Tim Ferriss.

This is my first public exploration of the business and art of podcasting. I still have much to improve, but I’m ready to share a few lessons learned. It’s my hope that they’ll save you a ton of time.

I’m still flabbergasted by how this experiment took on a life of its own.  It started with too much booze with Kevin Rose, and I expected it to die a quiet death after six episodes.

That said, here are a few quick stats on The Tim Ferriss Show after 150 episodes of mucking about, screwing up, and refining (as of this writing):

• Nearly 70,000,000 downloads as of April 2016 [Update: As of January 2023, more than 900M]
• More than 2,500 reviews on Apple Podcasts, 2,100+ 5-star reviews
• Selected for “Best of iTunes” in 2014 and 2015
• Out of 300,000+ podcasts on iTunes, it’s generally the #1 business podcast and an overall top-25 podcast
• Won “Podcast of the Year” in 2015 for the Jamie Foxx episode (via Product Hunt)

I’ve certainly stumbled a lot, but that’s how you figure things out.

I’ll share the first batch of big lessons in this post. If you like it, there’s a whole lot more to divulge (e.g. exactly how I get guests, etc.). If the response is a collective “meh,” I’ll play with my dog instead.

I’ve formatted this little ditty as a Q&A, based on the most common questions from readers, podcasters, and journalists.

Hope you find it useful!

The overarching principles explored apply to a whole lot more than podcasting…

###

QUESTION: Why did you start the podcast? How has it evolved over 150 episodes?

The podcast was never intended to be a business.

I was burned out after The 4-Hour Chef, which was nearly 700 pages, and I wanted a casual but creative break from big projects. Since I enjoyed being interviewed by Joe Rogan, Marc Maron, Nerdist, and other podcasting heavies who really move the needle, I decided to try long-form audio for six episodes. If I didn’t enjoy it, I would throw in the towel and walk.

My rationale: Worst-case scenario, the experience would help me improve my interviewing, which would help later book projects. This is a great example of what Scott Adams, creator of Dilbert, would call “systems” (win even if you lose) thinking. He discusses this at length with me here.

Flash forward to the current day, the podcast has found a nest in my “business,” but there is a clear hierarchy. Here are the pieces, in descending order of importance:

1) E-mail newsletter and 5-Bullet Friday — Unlike, say, Facebook or Twitter, I own this communication directly and it’s less subject to the whims of algorithm changes (e.g. “Oops! Now you only reach 10% of your audience.”). Some people insist that e-mail is dead for younger generations, and they’re right… until those young people get jobs. E-mail will stick around for a while, despite attempts to kill it.

It’s still the most reliable delivery mechanism, although mobile push notifications are increasingly interesting to me. Though I use Slack for internal team communication, email is still #1 for external.

2) Blog and website — Based on WordPress VIP, ditto for the above. Even if Automattic goes out of business (disclosure: I’m an advisor, so I think this unlikely), WordPress is open source and I’ll survive. Video and audio are fantastic, but few things travel as well as text. Unlike video and audio, I feel there is a greater appreciation of page value with solid long-form, evergreen text content. The vast majority of my most popular posts are years old (e.g. Hacking Kickstarter: How to Raise $100,000 in 10 Days, Scientific Speed Reading). The best SEO is good, non-newsy content that remains relevant for years.

3) Podcast — This is the fastest growing piece of the puzzle, and I’m heavily investing here. Unlike the above two, audio can be a secondary activity. In other words, people can listen to my podcast when they commute, cook, walk the dog, work, etc. There’s also no degradation of experience when moving from laptop to mobile. Last but not least, I’m currently having the most fun with audio.

All that said, I put “business” in quotation marks in this answer because I don’t rely on my writing, etc. for money.

The majority of my finances come from early-stage startup investing, which I started in 2007 (portfolio) and stopped about six months ago. For this reason, I don’t feel pressured to monetize, per se. I put out what I want to put out, when I want to put it out, and that’s it.

Paradoxically, this seemingly lax approach appears to generate more revenue than if I focused on pushing product. My fan dedication (and occasional conversion) is high precisely because I don’t constantly bombard them with sales pitches and calls to action. Sure, I could make $5-10M additional per year for 1-3 years until I burned my audience out, but these people (you!) are worth far more to me than that. They’re a high-calibre bunch, people I want to be friends with rather than irritate.

Your network is your net-worth, and there are many ways to build it. Content is definitely one tool.

QUESTION: Does the podcast make any money directly, though?

Yes. If I wanted to fully monetize the show at my current rates, I could make between $2-4M per year, depending on how many episodes (“eps”) and spots I offer.

So why “if I wanted to fully monetize?” Because “fully monetizing”–bleeding the stone for all it’s worth–is nearly always a mistake, in my opinion.

I want to convert casual listeners into die-hard, fervent listeners, and I want to convert casual sponsors into die-hard, fervent sponsors. This requires two things: 1) Playing the long game, and 2) Strategically leaving some chips on the table. As a mentor once told me, “You can shear a sheep many times, but you can skin him only once.”

So, don’t skin your fuckin’ sheep, kids. In practical terms…

The podcast over-delivers for sponsors (here’s one example), partially because I deliberately undersell downloads. If I hypothetically get 1M downloads per episode, I might only guarantee (and charge for) 750K downloads.  This has attracted and kept sponsors ranging from Audible and Wealthfront to MeUndies and 99Designs.

I don’t have any sophisticated “funnel” or loss-leader campaign. I charge each sponsor per thousand downloads/listens that I guarantee. This cost per thousand (e.g. downloads, impressions, delivered email, etc.) is abbreviated as “CPM,” and the amount you charge per M (“thousand” in Roman numerals) is your “CPM rate.”

I’m not going to give my exact rates in this post, but I’ll give you something better: the bigger picture.

Premium podcasts tend to charge between $25-100 CPM. By “premium,” I mean high-converting, (often) single-host (due to Oprah-like sales impact), iTunes top-50 podcasts.

Let’s look at some numbers. If you can hypothetically guarantee 100,000 downloads per episode, as measured at six weeks post-publication (which seems standard for some odd reason), here is how the math shakes out at different CPM rates:

$50 CPM x 100,000 = 50 x 100 = $5,000 per sponsor per episode

$75 CPM x 100,000 = $7,500 per sponsor per episode

$100 CPM x 100,000 = $10,000 per sponsor per episode

Now, if a podcaster can guarantee 500,000 or 1M downloads/listens, you can see how the numbers add up.

To put these rates in context with other advertising, consider banner ads and email newsletters targeting high HHI (household income) demographics.

On the cheaper end, display/banner ads often cost less than $10 CPM, but a high-converting email newsletter can sell ads/sponsorship at $200-250+ CPM (with no guarantee of opening, only delivery). Premium podcasts currently fall in the middle.

Some podcasts charge $100 CPM or more and are worth it, but… I like setting numbers I can easily beat.

Any marginal short-term loss is made up for by repeat sponsors and larger, long-term purchase orders.  I also rig the game to tilt ROI for sponsors by including blog posts (~2.5M uniques/month), e-mail newsletter (500K-1,000,000+ with sharing), and social (2M+) in the podcast sponsorship versus charging separately a la carte. That might change, but it currently guarantees that 90%+ of my sponsorships clobber competitors, as the cumulative CPM is probably 50% below market.

(Related: If you spend at least $100K per year in marketing and are interested in test sponsoring the podcast, click here for more. Minimum test spend is, at least, $50K-$100K. Seriously inquiries only, please, and pricing is non-negotiable.)

Note to everyone asking “How do I get sponsors?”:  It’s critical to realize that I didn’t accept advertisers for the podcast until I had 100,000+ downloads per episode, as measured six weeks after publication.

Novice podcasters (which I was) and bloggers get too distracted in nascent stages with monetization. In the first 3-9 months, you should be honing your craft and putting out increasingly better work. Option A: you can waste 30-50% of your time to persuade a few small sponsors to commit early and stall at 30,000 downloads per episode because you’re neglecting creative. Option B: you can play the long game, wait 6-12 months until you have a critical mass, then you get to 300,000 downloads per ep and make 10x+ per ep with much larger brands. If you can afford it, don’t be in a rush. Haste makes waste; in this case, it can make the difference between $50,000 per year and $1,000,000+ per year. To reiterate a phrase more often used for blogging: “Good content is the best SEO.” Read The 22 Immutable Laws of Marketing to be different, not just incrementally better.

But…all this advertising talk is important to consider in the context of higher-level strategies. In podcasting, it’s easy to get stuck in the CPM and what-preamp-do-I-need? weeds. Decide on your larger framework and philosophy first.

Example — In general and across the board, I split my content in a very binary fashion: free or ultra-premium.

“Free” means that 99% of what I do is free to the world (e.g. podcast, blog) or nearly free (books). I write on topics A) that I enjoy and want to learn more about, and B) that I think will attract intelligent, driven, and/or accomplished people. This is what allows “ultra-premium.”

“Ultra-premium” means:

• Once in a blue moon, I offer a high-priced and very limited product or opportunity, such as an event with 200 seats at $7,500-$10,000 per seat. I can sell out a scarce, ultra-premium opp within 48 hours with a single blog post.
• I use the network and contacts I’ve built through “free” to find excellent non-content opportunities. I already mentioned one example: my early-stage tech investing. This came from the first book, blog, and social. I found Shopify, for instance, via my fans on Twitter while updating The 4-Hour Workweek. I started advising Shopify when they had ~10 employees. Now they have 1,000+ and are a publicly traded company (SHOP).

An openness to indirect paths means I don’t obsess over selling my content, and I never have. If the podcast sponsorship stuff turns into a headache, I’ll just drop it. Not to beat a dead horse, but let’s restate the most important takeaway — my network, built through writing, is my net worth. That travels with me. If you’d like more practice thinking laterally, try the work of Edward de Bono as an introduction.

Back to the money…

Whenever possible, I avoid what I consider the “blood-bath zone” — products or services priced from $20-100. This is where your customers will be at least 1/3 high-maintenance and cost-sensitive. For my minimalist preferences and operation, that’s too much customer service headache for the ROI, unless it’s automated like my book club with Audible.

[Afterword: I asked my Managing Editor to proofread this post, and he gave me the below comment. I’ve decided to simply copy and paste it.]

*** Tim: I think you should dig in more on just how much money you actually pass up. Including:

1) You don’t do more than 2 sponsors per ep (you could).

2) You vet [and use] all products and turn down >80% of advertisers.

3) You turn down sponsors that want you to do ridiculous reads. I’ve seen it multiple times where advertisers are like, “We need this to be longer” and you tell them to fuck off. This is important. You value your listener waaaaaaay more than they ever realize, and do it to the tune of legitimately millions “lost.” It’s not lost, but is worth mentioning and understanding.

4) You want the ads–like the content–to add value. You’re hoping when you hear it for the first time that you think it’s cool, new, different, or interesting. Otherwise, you wouldn’t share. When you hear it the 4th time, are you tired of it? Maybe. But your fourth time might be someone else’s first. It’s like complaining about shared content on social media. Just because you’ve experienced something before, that doesn’t mean everyone has, and your job is to best serve the audience. You do pre/post roll [instead of mid-roll] to make avoiding this easy: if you don’t like it, they can simply fast forward.

QUESTION: What’s your long-term revenue strategy with the podcast?

There is no long-term revenue strategy. I focus solely on making it as fun as possible for me to do. But — perhaps this itself is a solid strategy, not a lack of one. Simple can be effective. At least 50% of the venture capitalists I’ve met over the years laughed at my simplistic “scratch my own itch” investing approach. Net-net, I’ve now beaten most of their IRR. (Don’t get me wrong; many investors perennially kick my ass.)

For me, the moral of the story is this: Revenue opportunities often present themselves if you focus on creating something you’d pay for yourself.  If you can easily sell it to 10 friends and do some basic market research on top of that, the odds improve.

Of course, “scratching your own itch” doesn’t always work, but I think of it as necessary but not sufficient. If you have enough at-bats, and if you know how to limit losses (knowing when to fold ’em and walk away, like my six-episode commitment), you’ll eventually hit the ball.

The recipe is straightforward — Study the craft like it’s your job (e.g. Find people like master interviewer Cal Fussman), make yourself smile, don’t rush, don’t whore yourself, test a lot of wacky ideas, and think laterally. If you want to increase your income 10x instead of 10%, the best opportunities are often seemingly out of left field (e.g. books → startups).

Just remember that, even in a golden age, podcasting is a squirrely opportunity and not a panacea on a silver platter. Even if you work smart, you still have to do the work and take your lumps.

Amelia Boone, the world’s top female obstacle racer, said on my podcast that she’d put the following on a billboard: “No one owes you anything.” I think that’s a good mantra for life.

Try your best, take notes, and do better the next time.

QUESTION: What gear do you use for the podcast?

The recording gear is better and cheaper every year. It’s extremely easy for me to travel with a small recording studio in my backpack. If you’re on a budget, even an iPhone will do, but–bang for the buck–the ATR-2100 is hard to beat.

My mantra for gear is borrowed from my podcast with Morgan Spurlock: “Once you get fancy, fancy gets broken.”  Keep it simple.

For post-production and editing, I used Garageband for the first 30-40 episodes, but I now outsource to people who use primarily Ableton and Hindenburg. The simplicity of the latter is very appealing to me, but as a pure editor, it doesn’t include sound effects, transitions, etc. as a Garageband does.

Pat Flynn, a seasoned podcaster who’s helped me a ton, made a great and free podcast-editing tutorial for you all. This covers nearly everything you need to know for basic post-production.

For free options, Audacity is also popular. My suggestion: use the simplest editing software you can, or pay someone to do it for you. If Garageband appears too amateur for your first 1-3 episodes, I’d bet money you quit before episode 5. Keep it simple.

Regarding consumption and promotion — I love Marco Arment’s Overcast, both as a listener (smart speed) and podcaster (can link to specific time stamps). My wish and ask for them: to embed a small player on my blog instead of having to link out.

QUESTION: Is it too late to start a podcast? Don’t you feel pressured by all the competition? it seems like thousands launch every week.

Competition makes you better.

Everyone should try podcasting for at least 3-6 episodes, even if just to get better at asking questions and eliminating verbal tics. Those gains transfer everywhere.

If someone ends up better than me (or ranking better than me), they deserve to beat me. I’ll be the first person to buy them a beer. Remember that podcasting isn’t a zero-sum game, and a rising tide raises all ships (Check out the “Serial effect”). There’s plenty of room for more good shows, and the pie is expanding. Bring your A game and the cream will rise to the top.

Of course, you don’t need to be perfect (and you won’t be), but you need to try your best.  As Michael Gerber, author of The E-Myth Revisited, told me over coffee before I wrote The 4-Hour Workweek: “If you’re going to write a book, write a fucking book.”

If you start out bad but are incrementally improving towards awesome, that’s totally fine. If you’re half-assing it and coasting, find something else you can whole-ass.

QUESTION: How much time do you put into the podcast? Aren’t you The 4-Hour Workweek guy?

The 4-Hour Workweek is, first and foremost, about 10x’ing your per-hour output. I have no problem with hard work, as long as it’s applied to the right things, and I never have.

This is partially why The 4-Hour Workweek and the podcast have attracted some of the world’s most successful hedge fund managers and start-up founders. They might work 80+ hours per week, but they value efficient and elegant solutions.

The objective is to control your time — a non-renewable resource — and apply it where you have the highest leverage or enjoyment. For me right now, the Archimedes lever is clearly the podcast. I get to interview the most fascinating people I can find, including Rick Rubin, Jamie Foxx, Maria Popova, General McChrystal, Tony Robbins, and dozens of others. I would pay a small fortune to do this. Instead, I somehow get paid. For the time invested, especially when batching (e.g. I try and record eps on Mondays and Fridays, two weeks a month), it has the most disproportionate hours-to-ROI imaginable.

I don’t want my readers to be idle. Mini-retirements are wonderful (here’s a month-long example), but I’m not going to spend my entire life on the sidelines. This is all covered in the “Filling the Void” chapter of 4HWW, but it bears repeating.

For those curious, here’s what one of my days looks like. No two are quite alike.

QUESTION: But–for God’s sake–I don’t have bestselling books or a big blog! You had an unfair advantage. What can I do?

Get started.

Remember Amelia Boone, the most successful female obstacle racer in history? No one owes you anything. So… gird your loins and fucking get amongst it. Prepare to bloody your knees and learn a lot.

Yes, I came into podcasting with a text-loving audience, but guess what?

#1) Like everyone else, at one point, I had zero readers and zero listeners. We all start out naked and afraid. Then your mom starts checking out your stuff, or perhaps a few friends give a mercy-listen, and the fragile snowball grows from there. Here are a few ugly first versions of popular blogs. Mine was incredibly unpopular and hideous.

#2) Coming to the party with a pre-existing audience isn’t enough. Celebrities, YouTube icons, and bestselling authors start podcasts every week that get abandoned three weeks later.

Fortunately, the most common pitfalls are easy to avoid.

Here are a few things I found helpful that might help you:

1) Upload at least 2-3 pre-recorded episodes when you launch your podcast (real-world example). This appears to help with iTunes ranking, which — like bestseller lists — can be self-propagating. The higher you rank, the more people see you, the higher you continue to rank, etc.

2) Keep the format simple. Most would-be blockbuster podcasters quit because they get overwhelmed with gear and editing. Much like Joe Rogan, I decided to record and publish entire conversations (minimizing post-production), not solely highlights. I also use a tremendously simple gear setup and favored Skype interviews for the first 20 or so interviews, as the process is easier to handle when you can look at questions and prep notes in Evernote or a notebook.

As Tony Robbins would say: complexity is the enemy of execution. You do NOT need concert hall-quality audio; most people will be listening in the subway or car anyway, and they’ll forgive you if recordings are rough around the edges. Audio engineers will never be fully satisfied with your audio, but 99.9% of listeners will be happy if you’re intelligible and loud enough.

3) Don’t pursue or even think about sponsors until you have a critical mass. I discussed this earlier. It’s a distraction. Play the long game.

4) Get transcripts and send highlights with pitch ideas to print/text journalists. I have done this with several outlets, and it’s resulted in some outstanding original pieces like this one from Business Insider, who came up with the story angle on their own. I suspect this type of coverage also helped the Jamie Foxx episode win “Podcast Episode of the Year” on Product Hunt.

5) If you use blog posts, utilize graphics to increase podcast downloads/listens for your target platform. This is a tip I got from podcasting veteran John Lee Dumas. Here is one example of mine, where the iTunes button is exceptionally clear.

6) Experiment constantly. I have tested conversations in a sauna (Rick Rubin), solo Q&As based on reddit submissions (e.g. Maria Popova, Round Two), drunk dialing fans via Skype, audiobook excerpts (e.g. Tim Kreider), and more. It’s easy to assume that labor-intensive, polished episodes get the most downloads. Luckily, sometimes the opposite is true—the easy, low-labor stuff kills. This experimentation also keeps things fun for me. Podcasting isn’t radio, and there aren’t any hard-and-fast rules. Go nuts and let the world tell you what works.

A Few Closing Thoughts

There is no reason to bore your listeners (or yourself) because you’re slavishly following someone else’s playbook.

This post explains a few things I’ve found useful, but they’re guidelines at best, not rules.

Borrow, be ridiculous on occasion, and be yourself. This is one medium where it can pay 100-fold to simply be you: warts, weirdness, and all.

How about throwing chimpanzee screeches in the middle of an episode? Fuck it, sure. Making weird Mogwai noises during the intros with no explanation whatsoever? If I’ve had enough wine, definitely.  Recording last-minute guest bios in an airplane bathroom? Done it.

If you make yourself laugh every once in a while, at least you will have fun.

And that is perhaps the best strategy of all.

###

Last but certainly not least, I want to thank a few smart people who generously spent many hours educating me on the details, tech, and craft of podcasting. In alphabetical order by first name (and if I forgot anyone, please let me know!):

Jason DeFillippo of Grumpy Old Geeks

John Lee Dumas of Entrepreneur on Fire

Jordan Harbinger of The Jordan Harbinger Show

Lewis Howes of The School of Greatness

Matt Lieber and Alex Blumberg of Gimlet Media

Pat Flynn of Smart Passive Income

Rob Walch of Libsyn

You can find the most popular episodes from 2021 here, from 2020 here, from 2019 here, and some earlier popular episodes here.

If you enjoyed this and would like more on podcasting, please let me know in the comments, and I’ll write more. Specifically, what would you most like to know?

The post How I Built a #1-Ranked Podcast With 60M+ Downloads appeared first on The Blog of Author Tim Ferriss.

Ramit built his personal finance blog up to more than 1 million+ readers per month, and has turned it into a revenue generating monster and a growing business with more than 30 employees.

I asked Ramit to dig into the specific details of his most recent success: a $5 million week. Here’s the blueprint he used to make it happen. Enjoy!

Real-World Blueprint for a $5-Million Week

In April 2014, our business generated $5,524,714 over the span of 6 days.

In this post, I’ll show you the launch formula and strategies I used to grow a blog from $0 in revenue to a multi-million-dollar business.

Quick caveat: I had no idea that my blog — which I started from my dorm room in 2004 as a hobby — would ever turn into a “real” business.

Notice the horrible design and lack of any business model. It was just a hobby!

Along the way, I learned that you can create a business using your own rules.

Tim has already invited other great entrepreneurs to explain how to find your first business idea, how to gather 100,000 emails in a weekend, raise $100,000 on Kickstarter, or even travel the world while building your business.

These are the lessons you won’t learn in any MBA program, but they can be the difference between launching a product that struggles…and one that generates millions of dollars, year after year.

This is the deeper side of business that’s not often talked about. Most of the advice I found when I started my business focused on tools and “hacks,” like A/B tests on headlines…but very little about what happens at higher levels of business. That’s why I decided to write up what I’ve learned.

Since I never expected this to become a real business, I experienced the journey with a blank canvas, in a sense. Everything was new. I didn’t know what I was “supposed” to do, so I tried it all. Over 11 years, we made some unconventional decisions in our business. Some were big mistakes. Others paid off.

Now let me show you how we got to a $5 million week.

*     *     *

“It’s Not Magic, it’s Math”

I used to look at other entrepreneurs who seemed to intuitively “know” what products to create, how much to charge, etc. Years later, I learned they actually used sophisticated models to help them make decisions. (Weird how they failed to mention that.)

Over time, I learned that it’s not magic — it’s math.

Let me show you a simple version of these models, which can help you understand where to spend your time and where to not waste it.

Take a look at what it takes to generate $1 million over five years:

Let’s ignore what the product actually is. We can figure that out later. For now, just focus on the numbers.

Here are a few things to notice and consider:

• Isn’t it surprising how you can sell 30x more of the $50 product, but the $2,000 product still generates more revenue? (Of course, it’s much harder to sell a $2,000 product than a $50 product.)
• These estimates are conservative: I chose 15 sales/month because anybody can achieve that with a little bit of work. I chose 5 years because — who knows? — maybe you’ll decide to move on and do something else. I like to be conservative in my projections.
• QUESTION: Based on what you just read, would you create a $50 product or a $2,000 product? (Hint: There are successful businesses at either price point. Each has trade-offs. For instance, you could create a $50 product in a month or two, offer it for sale, and get market feedback FAST. A $2,000 product will take considerably longer — months, if not years. But the long-term rewards can be worth millions.)

Now here’s how we might get to $5 million:

Things to note:

• Here, we have the exact same 3 products, but a higher number of sales. If you want more sales, there are two primary ways to do it: more traffic or higher conversions. Simple and straightforward.
• If someone buys from you once and likes what they get, they are far more likely to buy again. In our own analysis, a customer is 2,300% more likely to buy from us than a non-customer.
• QUESTION: Should you optimize for more customers or more revenue? Based on the numbers above, if you had to choose, what would you do? For instance, with a lower-priced product, you’ll need a lot of customers to make substantial revenue (the “McDonald’s model”). Alternatively, you could sell a higher-price product and profit from fewer customers — but those take longer to build and test (the “Rolls Royce model”).

Now let’s get even more sophisticated: Let’s say we wake up and realize that selling a $50 product is a lot of work for a small return, so we decide to add a subscription product.

This is starting to get really interesting.

• Subscription revenue is considered “high-quality” revenue since it’s recurring. In other words, it really adds up, which is why businesses like Netflix are so amazing.
• QUESTION: Can you spot which factors we’re leaving out to keep the model simple? (For example, retention, refund rates, cost of marketing, taxes…) That’s intentional. If this simplified model shows that you can’t realistically make a profit, none of that stuff matters. You only need to pay attention to these details if the model says the opportunity is worth pursuing.

What do you take away from the 3 examples above?

For me, seeing these numbers raised a lot of questions. Can an entrepreneur really survive selling a $5 or even $20 product? If you’re Procter & Gamble, sure. If you’re Alex The New Entrepreneur, that’s going to be tough. (Especially since low-price customers are lower quality, ask for refunds more often, and often make your life a living hell.)

Now let’s go one level deeper. Instead of just asking ourselves how many sales we need to make, we wanted to “stress test” our idea to see if it’s even realistic:

I don’t know about you, but I have no damn clue how to get 100,000,000 to visit my website. But I knew I could find a way to get 250,000 to find me.

By the way, this isn’t all-or-nothing. If you can’t find 250,000 visitors, you can start with 50,000 or even 5,000.

Let’s say instead of 250,000 visitors (which takes a lot of time to get) you have just 1,000 email subscribers. Also, instead of creating a $2,000 product (also tough when you’re starting out) you build a $250 product.

Using the same math above — a 1% conversion rate — you could earn $2,500 per month from just those 1,000 people.

Kevin Kelly calls this the 1,000 True Fans approach, where even 1,000 true fans can fund you for life:

A creator, such as an artist, musician, photographer, craftsperson, performer, animator, designer, videomaker, or author – in other words, anyone producing works of art – needs to acquire only 1,000 True Fans to make a living.

This is pretty amazing if you want to create something with impact. It means you don’t always need venture capital fundraising. It also means that 1,000 “true” fans are worth more than 100,000 vaguely interested readers.

We actually have data to support the “1,000 True Fans” idea. Take a look at the difference between a dedicated group of “true” fans vs. a larger group of onlookers.

Here, we got virtually identical sales from a small group of 10,422 customers vs. a larger group of 178,111 subscribers

We got more sales from a much smaller, focused list than a huge list of 178,711 subscribers! You don’t need everyone — you just need the right people.

Unlike building an audience of 250,000, you can get 1,000 true fans from a single guest post. On Tim’s podcast, we talked about how one blog post can be “life-changing”(skip to 23:35).

And just like you don’t need 250,000 people on day one, you don’t need all 1,000 True Fans on day one. If I were starting from scratch today, here’s how I’d frame it:

“Yes, 1,000 fans would be amazing, but I can start with 1 fan. And if I can get 1 fan, I know I can get 10 fans. Then 100. And once I have 100, I know I’m onto something.”

Nobody builds a massive audience overnight. I wish I could go back in time and shake myself to stop comparing myself to people who’d been in business for years and years. Trust your models, put in the work, and your business will grow.

I used these simple models that told me some basic things:

• How much could a $50 product generate vs. a $2,000 one
• You don’t need $10 million in venture capital to start a business
• In the beginning, you just need a few fans who love you instead of aiming for tons of people.

Were these models perfect? No. Later, when my business grew, I showed these models to more sophisticated entrepreneurs. They laughed.

But you don’t always need the fanciest tools to grow. These models were good enough to take me from idea, to launch, to sales. Leave perfection to losers. “Good enough” is the motto of every entrepreneur who lives to fight another day.

Once I started generating a little revenue, I noticed something I wouldn’t have expected.

The World Wants You to be Vanilla

Have you ever noticed how the minute you start trying something new, the entire damn world tells you what you should do?

This happened when my business started growing:

• “Ramit, you really need to get on Facebook”
• “LOL $99? Maybe I’d buy it if were $0.25 and had a 30-year-guarantee” (I hate these people)
• “So you’re just one of those scammy ebook guys who writes those long sales pages?”

If you’re ever tried to change your diet, you know what happens: Your boss, your aunt, and your garbage man all start giving you their advice.

I got this a lot. People would laugh at the name of my book (Tim and I both joke that we have the scammiest sounding book titles of all time). They told me my headshot sucked. And they had all kinds of tips for places I needed to advertise, including buying random people McDonald’s meals and talking to them about personal finance. Never ask the general public for marketing advice.

Here’s an unexpected lesson I learned: The world wants you to be vanilla. They want you to be the same as everyone else. But the minute you are, they abandon you.

They’ll try to get you to charge less. They’ll critique your design. But as soon as you conform…you look like everyone else. And in a world full of websites and ebooks and apps, if you look like everyone else, you’re dead.

When I started growing business, I realized something: I could choose. This was MY business. I didn’t have to follow someone else’s formula to be successful.

This chart should surprise you — not at all the things we did, but at all the things we chose not to do. If you listen to the advice of internet pundits, they’ll tell you how you “need to” use podcasts, SEO, SEM, marketing automation, email marketing, webinars, and on and on. Ignore them. The worst thing in the world is to be mediocre at 15 different platforms.

We’re very selective about what we pursue and when. For example, it makes no sense to split test until you have enough traffic for statistically significant results.

Sometimes the stakes are even higher. Here’s a type of marketing funnel that’s been effective for us:

You see a lot of people on the internet trying to launch on day 1 with funnels like this. The truth is not so simple.

When I was in 4th grade, they separated the boys and girls into separate rooms and taught us a sex-ed class. I’ll never forget my teacher, Mr. Binning, giving us a serious warning:

“Guys, avoid shaving for as long as possible. Once you start, you can never stop.”

I think about his advice a lot. For instance, we used to use Aweber, a simple email service provider. As we grew, we kept hearing people tell us we “needed” to switch to a more sophisticated platform. The world wants you to be vanilla — why don’t you buy a new car? Why don’t you upgrade your software? Come on, dude.

I resisted for years because I knew that once we switched, we’d need more and more staff to support it. Finally, after we were bulging at the seams with over 150,000 subscribers, we switched to a more sophisticated email platform. Now I don’t even know how to send an email! We have an entire staff dedicated just to running the new platform! Be careful of when you choose to upgrade — you can never go back down.

“Get a real marketing automation platform. Run Facebook ads! You definitely need SEO.”

The world wants you to be vanilla.

Another example: there’s a great sushi restaurant in San Francisco where it’s almost impossible to get reservations. If you try to walk in after 7:30pm, sorry — you’re out of luck. When I finally got inside, like a true weirdo, the first thing I did was start analyzing how much revenue they were leaving on the table.

I’m sure they could generate 25% more revenue by squeezing more tables in. But they just don’t care. They run their business the way they want to, and they have a line out the door every day. That attitude inspires me — to be able to run my business the way I want, and to be able to choose the customers I want to work with. To sacrifice short-term revenue to create a business I am proud of.

Most entrepreneurs don’t explicitly decide what kind of business they want to run. I’m challenging you to think about it. Do you want a business like McDonald’s or Louis Vuitton? There are no wrong answers, but your decision will have profound effects as you go from $10,000 a year, to $10,000 a month, to $10,000 a day, and even $2 million in one day, as we did on 4/4/14.

Just think about the way Louis Vuitton sells its items. How do you expect to be treated when you walk into their store? How much merchandise is on the shelves? How is it displayed? What does the staff member look like? How do they treat you?

Now compare that to McDonald’s or Home Depot. Totally different. Not better or worse. Different. Different prices, brands, scalability, etc.

How to Draw the Line in Your Business

Years ago, we made a decision not to play in the $50 sandbox. I’d rather give away 98% of my material for free and charge premium prices for top-tier material for elite students. Once you make a decision to play at the top of the market, that narrows your audience, the channels you use, and your marketing strategies. That’s exactly what you want to do — make a decision, then focus.

For example, here are a few decisions we made that makes us starkly different from most businesses in our space:

• We spend millions of dollars testing, refining, and perfecting our products before they ever see the light of day.
• We make it difficult to join our courses and actively encourage people not to join. We consider student selection a strategic decision
• We send long, meaty emails — even though the “experts” say you should get straight to the point because “nobody has time anymore”

You can do some of this, all of this, or none of this. The point is that it’s up to you.

We chose to operate in a premium market. Now let me show you how selling works at the $2,000+ level.

Sales Strategies to Generate $5 million+ in 6 Days

Selling a $2,000 product is nothing like selling a $100 product. Think how the Four Seasons is marketed vs. Holiday Inn.

By the way, I keep reading posts where nutcases (usually Silicon Valley engineers) rant about enterprise software businesses that don’t show the prices on their website. “What a waste of time,” they say, “I would never buy from this site.” They are right. They are not the customer. Instead of trying to understand the real business model, they dismiss the companies as stupid.

These companies are not dumb. They just know their customer, and it’s not the person who wants to comparison shop on price.

Here’s an example of how we sell one of our flagship courses, Zero To Launch, a course on creating your own online business:

This is the sales funnel for the product, consisting of emails, blog posts, and webinars. Certain marketing elements are obvious, but others are not.

First, we aren’t reinventing the wheel in places we don’t have to. Just like Tim wrote in The 4-Hour Workweek, “I don’t walk down the street on my hands just because everyone else walks on their feet.”

Similarly, much of the structure of this sales funnel is quite standard:

• We sent 3-5 emails per week (ignore people who say that’s emailing too much — people actually love getting emails as long as they’re good)
• We did a webinar to introduce our sales week
• We used case studies and money-back guarantee elements to provide “risk reversal”

We also used a variety of tools to power the launch:

• Email Delivery: Keap (Ed. note: formerly Infusionsoft—updated 2021) & Maropost
• A/B Testing: Visual Website Optimizer & KISSmetrics
• Webinar Hosting: Ustream
• Landing Page Platform: Leadpages
• Live Chat: ZopIM
• Customer Support: Zendesk

So far, none of this is out of the ordinary. Many entrepreneurs have used the exact strategies and tools above to generate a 6-figure launch. But I didn’t want the typical 6-figure launch.

It turns out that the real decisions that drove $5 million in sales were not the tools I used nor the pricing tier we chose. In fact, many of the most important decisions contradict the “rules” we’ve all been taught.

The real decisions that drove $5 million in sales were made years before we ever launched this product.

$5 Million Lesson #1: We’re Selective About Who We Serve

We’ve all heard about “niching it down,” or choosing your customer. When I learned more about that sushi restaurant in San Francisco, I started to admire how they lived and breathed this.

If you weren’t there early enough, sorry. If you asked for substitutions, you should probably try another place down the street. Of course, they had to have the best sushi to set these rules, which made their restaurant even more interesting to me.

Over time, we’ve learned to be very selective about who we allow to join us. Notice we use the word “allow” — not to be arrogant, but because we spend millions of dollars developing and testing our material, we consider it a privilege to allow someone to join.

That means we don’t allow anyone with credit card debt to join our flagship programs, a decision that costs us more than $2 million dollars per year. We use the carrot-and-stick approach:

• The carrot: If you’re in credit card debt, we don’t want your money until you’re financially comfortable. We believe you should be focused on paying your debt off, not joining a $2,000+ course. So we send them a free copy of my book chapter on paying off debt and tell them to email us when they’re debt-free. We’ll be here to welcome them in.
• The stick: We also tell them that if they join with credit card debt, we’ll refund their money and ban them for life. We take this seriously and maintain a “DNS” — Do Not Sell — list.

We also make it intentionally difficult to join our courses. One of the first things you’ll notice when you visit GrowthLab is that you cannot buy anything from it. We strategically and intentionally only allow you to buy from our email list, so we can first build a relationship and show you how our material is different.

And even then, courses only open for a few select windows throughout the year, then close days later. They remain closed for months or even years.

We’re looking for decisive students who are ready to take action. (When students miss a deadline, we get predictable requests to let them in. We always say no.)

Perhaps, it would be easier to simply post a list of our products with a link to buy, and if our courses were $100, we would take a very different approach. But that’s not the customer we want, just as a high-end handbag store does not run 70%-off sales.

In fact, we have actual data showing the difference in quality between prospects (non-buyers) vs. students (buyers). Remember how we generated 649 sales from 10,422 people — and just 619 sales from over 15x as many people?

Tim often writes about 80/20 analysis. When you focus on your true customers — the ones who are ready to take action, the ones for whom price is a mere triviality — you can counterintuitively spend more time and more money serving them.

This is why every single student who joins one of our courses receives a live phone call from a trained representative.

It’s why we continue to send high-quality material and free updates years after they’ve joined a course.

And it’s why we’re able to extend 12-month payment plans when our competition typically only offers up to 3 months.

How to Find Your Rabid Fans

I’m going to show you the first step to attracting diehard, lifelong fans who buy from you and tell their friends.

First, just for fun, let’s assume you’re creating a product about careers. Right off the bat, we can answer some important questions:

• Who are you targeting? Based on what we covered today, do you want to target (1) college students who have never had a job, (2) unemployed people, or (3) people who already have jobs but want to make a change? You could choose any option, but let’s pick #3, people who already have jobs but want to change.
• What’s going through the mind of people who want to change their careers? If you went to the bar with a friend, what actual words would he use to describe it? Maybe it’s “I don’t want to be chained to this desk for the next 40 years.”
• Why haven’t these people already taken action? Do they say things like “I know I need to network, but I’m an introvert and I hate selling myself?”

Here’s a tool to get even more specific about who your customer really is:

This is called a Customer Desire Map. Here, you write down the pains and fears, hopes and dreams, barriers and uncertainties of your best customer. This tool has helped us nail down the positioning for million-dollar product launches in multiple industries.

Now you try it: Pretend you’re building a fitness product. Using the same format above, paint the perfect customer for a fitness product using the same phrases they would.

For instance, your map might include phrases like this:

• “I try so hard, and nothing works.”
• “I need more energy.”
• “You want me to eat less bread? No way.”

By the time you build your Customer Desire Map, you will know who your most likely rabid fans are. You would recognize this person if you met them in a bar. And when you sit down to build your product, write your copy, or publish guest posts, you’ll be 100% clear on who you’re speaking to.

$5 Million Lesson #2: The “Students For Life” Philosophy

For 8 years, we’ve sent 3-5 emails per week, plus blog posts, plus videos — all free.

My goal is to create free material that’s better than anyone else’s paid stuff. And when a reader uses my free material to negotiate a $28,000 raise, they instantly become a student for life.

At that point, price is practically a triviality.

One of the primary reasons we can sell products that are 10x – 100x the price of our competition is that we get them results before they even have the chance to buy. That’s because 98% of our material is free. In fact, if you look at the sales funnel above, you’ll notice that the first two weeks are focused on getting our students successful results — whether or not they pay us a cent.

We believe that as long as we continue producing the best material — free and paid — it’s just a matter of time until they join us. With that long time perspective, you can do some really cool things.

You can invest in them first by sending them free PDFs, detailed videos, and even host meetups around the world because you know when you invest in your prospects first, eventually they’ll invest in themselves. It could be with you or with someone else, but if your material is the best, they’ll eventually come to you.

You can get more personalized. I get 2,000+ emails per day and read every single one.

If someone emails asking whether a course is right for them or not, we’re completely candid and often direct them to a competitor product. We know the power of trust you build when you’re honest with a prospect, especially when it goes against your best interest. In the short term, it might cost us $2,000 or $5,000. In the long term, it’s priceless. This is based off of my mentor Jay Abraham’s strategy of preeminence.

In short: While others focus on sales-page optimization, by the time we make our sales page live (“open” it), we aim for the sale to be a foregone conclusion.

Here are some specific suggestions for creating fans for life:

• In your emails and blog posts, aim for a ratio of at least 80% meat (valuable content with no selling whatsoever) and 20% pitch (sales material).
• Prove how good your material is first — for free. There are millions of other sites out there. Why would anyone listen to you? Prove it, using great content, success stories, and even personal interaction using email and chat. You’ll instantly stand out.
• Employ the Damaging Admission. If someone wants to buy your product, but you know it’s the wrong fit, be honest. You’ll give up short-term revenue, but they’ll respect you, tell their friends, and someone will be 10x more likely to buy when the time is right.

$5 Million Lesson #3: The CEO Sets the Strategy, Not the A/B Test

We once ran a low vs. high price test. According to the test, we would maximize revenue if we charged the lower price. I reviewed the data and thought about it. Deciding on the low price would instantly generate hundreds of thousands of dollars of revenue.

As an entrepreneur, some of the most challenging decisions are those where lots of money is staring you in the face. But I don’t think business is always just about money. Ultimately, I decided against the lower price because it would attract the wrong kind of customer (and headaches).

Tests are terrific. Data is critical. But the CEO ultimately sets the vision and makes the call.

Don’t get me wrong: testing is a huge component of my business. For example, we ran a successful test to optimize our email subscribers that generated $87,000 for us.

Can you guess which variant was the winner?

The winner was variant 3. This one test produced a sizeable increase in email subscribers, which is worth over $87,000 annually to our business.

You see lots of winning split tests on the Internet. They’re fun to brag about. But almost nobody will tell you two things:

1. How much revenue their test generated. It sounds impressive to say you got a “50% lift in email subscribers,” but if that doesn’t generate actual money for the business, who cares?
2. The shameful secret of the testing industry is that most tests produce 0 winners!

At IWT, between 70%-80% of our tests do not move the needle in any way. And we’re good at what we do! Would you be comfortable doing something and knowing that 70% of the time, it would fail?

The key is the strategy of being methodical, not any one test. It’s like writing a book — your table of contents matters more than any individual page.

When you understand that failure is part of the process, you just keep going. A few years ago, I was sure my readers wanted a product on healthcare. After all, I’m an educated guy and I couldn’t figure out how to choose my health insurance!

We spent over $50,000 building a product, beta testing it with students, even writing copy for a launch.

We locked this healthcare product away in our vault and it will never be sold to the public.

Because after all that testing, we realized this product was going to be a complete failure. It turns out people love to complain about healthcare…but few want to really do anything about it.

This was a very expensive lesson for us. It taught us to become much more rigorous around testing. Our goal is to virtually guarantee success before we ever launch something.

Of course, sometimes your gut choices backfire. 

I once decided we needed to switch email service providers. We hired someone to help us lead the evaluation process, which took more than 3 months. We finally conducted the due diligence, legal and engineering checks, and signed the $100,000 contract. The next week, when my team logged in, they realized — to their horror — that the software couldn’t perform a simple function that was critical for us to use the software. Their engineering team wouldn’t promise when they’d build this feature in the future, so we were stuck. My team asked me what we should do.

By this point, we’d already paid them $30,000. I gave them a call and said, “Look guys, I’d appreciate your help on this. We made a mistake. We’ve already paid you $30,000 even though we haven’t imported a single piece of data. Honestly, you should keep that money. But I’d personally appreciate it if you could cancel the rest of our contract so we don’t have to pay $70,000 for software we don’t use.”

Their response:

I can’t really blame them. After all, it was my fault for not overseeing the project. I fired the team member, swallowed the $100,000 cost, and set systems in place so we’d never make the same mistake again. Sometimes your gut leads you the wrong way.

Still, if we were to base every decision on what test data showed us, we’d soon look like every other site — with loud, shrieking claims, blinking headers, and page-long testimonials. I’d rather be dead.

We do use rigorous testing methodology. In fact, we’re running more than 20 tests at any given time. But we always balance science with art.

Let me show you what I mean. There are two kinds of posts that gets tons of likes on Instagram: food pics and inspirational quotes. I love nachos as much as anyone, but I’ll be damned if my Instagram is going to turn into a food-review account.

Yet if we follow the raw data, that’s what many businesses become: a test-driven Frankenmonster built to appeal to the lowest common denominator. They chase the empty click, the easy “like.”

It’s tempting to post something that you know will get 500 likes tomorrow. And sometimes, you really want to post an inspirational quote. Great! Do it!

But the pursuit of a cheap click at the expense of all other standards is the beginning of the end for a business. Every time we’ve insisted on quality, it’s paid off. And every time we’ve tried to take a shortcut, we’ve paid dearly.

To make sure you can set strategy, here are a few important considerations.

How to Find Time

The first thing I learned was to be intentional. I wasn’t going “find” time unless I made it. So I started by clearing one hour per week for big-picture thinking. Eventually, I blocked off an entire day.

It’s on the calendar so my team knows:

At first, it feels weird to block off this time without any clear-cut purpose. Do it anyway. I found several million-dollar breakthroughs on my strategy days and they’ve become a catalyst for my business.

Once you have time, it’s important to read the right material

Personally, I like to read books from people I admire. Here are five books I suggest you start with:

• The Checklist Manifesto: How to Get Things Right by Atul Gawande
• Mindless Eating: Why We Eat More Than We Think by Brian Wansink
• The Robert Collier Letter Book by Robert Collier
• Age of Propaganda: The Everyday Use and Abuse of Persuasion by Anthony Pratkanis and Elliot Aronson
• Iacocca: An Autobiography by Lee Iacocca and William Novak

Good ideas can shape your mindset and strategy. So, making time to read is inevitably a part of building a better business.

The True $5 Million Lesson

I thought that as I grew my business, I’d learn about the super-secret tools that successful entrepreneurs used once they crossed $1 million, $5 million, and beyond.

But actually, I learned two very different lessons:

My first lesson was that business isn’t just about creating money. Of course, you need to get paying customers. And when you launch, you should be fiercely focused on building an audience of people who love what you’re doing (and are delighted to pay). Ultimately, every successful entrepreneur I know looks for more meaning than another $100 of revenue. For me, it’s about impact and generosity.

My second lesson was that you can create a business your way.

There will always be people who criticize you for charging too much. Let them complain. They’re not buyers.

There will be people who tell you that you “need to” set up a Facebook page, or Twitter account, or Instagram. I didn’t have those for years. And even if you took all my social media accounts away today, it would make zero difference to my business.

There are even people who think that online courses are a total scam! Nothing I say will change their mind. I love getting their hate mail, though.

And don’t always be different, especially conspiciously. I once had a friend tell me he wanted to charge $62, an unusual price, for his product. “Why?” I asked. “I just want to try something new.” My friend was being an idiot. There’s no need to reinvent the wheel: Most things in business are remarkably similar. You need a website, an email list, a sales page, and a product. Get those basic things right, and you will grow. You don’t need to reinvent the wheel on everything.

The most successful entrepreneurs — the top 1% of the top 1% — learn when to break the rules. It’s like when you learn how to dress well and you start experimenting with patterns and textures because you want to. One day, someone’s going to say, “Dude, that doesn’t even match,” and you’ll say, “So?”

It’s the same with your business. Know the best practices, execute them, but as Marshall Goldsmith says, “what got you here won’t get you there.” Your greatest successes won’t come from imitating best practices. Your competitors are almost certainly following a me-too playbook.

We were fortunate to generate $5 million in 6 days. Sure, the tools helped. Yes, the headlines mattered. But ironically, when we stopped chasing revenue and instead shifted to impact and students for life, that’s when we grew faster than ever before.

Ramit Sethi is the New York Times best-selling author of I Will Teach You To Be Rich. He writes for over 1 million readers/month on business, careers, negotiation, and psychology. If you’re interested in launching an online business, get our exact, word-for-word funnel that generated $400,000: GrowthLab.com/400k

The post Real-World Blueprint for a $5-Million Week appeared first on The Blog of Author Tim Ferriss.

The wisdom of life consists in the elimination of non-essentials.
— Lin Yutang

Discipline equals freedom.
— Jocko Willink

This post will attempt to teach you how to say “no” when it matters most.

At the very least, it will share my story of getting there. It’s a doozy.

Here’s the short version:

I’m taking a long break from investing in new startups. No more advising, either. Please don’t send me any pitches or introductions, as I sadly won’t be able to respond. Until further notice, I am done. I might do the same with interviews, conferences, and much more.

Now, the longer version for those interested:

This post will attempt to explain how I think about investing, overcoming “fear of missing out” (FOMO), and otherwise reducing anxiety.

It’s also about how to kill the golden goose, when the goose is no longer serving you.

I’ll dig into one specifically hard decision — to say “no” to startup investing, which is easily the most lucrative activity in my life. Even if you don’t view yourself as an “investor”—which you are, whether you realize it or not—the process I used to get to no should be useful…

[Warning: If you’re bored by investment stuff, skip the next two bulleted lists.]

Caveat for any investing pros reading this:

• I realize there are exceptions to every “rule” I use. Most of this post is as subjective as the fears I felt.
• My rules might be simplistic, but they’ve provided a good ROI and the ability to sleep. Every time I’ve tried to get “sophisticated,” the universe has kicked me in the nuts.
• Many startup investors use diametrically opposed approaches and do very well.
• There are later-stage investments I’ve made (2-4x return deals) that run counter to some of what’s below (e.g. aiming for 10x+), but those typically involve a discount to book value, due to distressed sellers or some atypical event.
• Many concepts are simplified to avoid confusing a lay audience.

Related announcements:

• I will continue working closely with my current portfolio of startups. I love them and believe in them.
• I will be returning all unallocated capital in my private Stealth Fund on AngelList. If you’re an investor in that fund, you’ll be getting your remaining money back. My public Syndicate will remain in place for later re-entry into the game.

So, why am I tapping out now and shifting gears?

Below are the key questions I asked to arrive at this cord-cutting conclusion.  I revisit these questions often, usually every month.

I hope they help you remove noise and internal conflict from your life.

The Road to No

ARE YOU DOING WHAT YOU’RE UNIQUELY CAPABLE OF, WHAT YOU FEEL PLACED HERE ON EARTH TO DO? CAN YOU BE REPLACED?

I remember a breakfast with Kamal Ravikant roughly one year ago.

Standing in a friend’s kitchen downing eggs, lox, and coffee, we spoke about our dreams, fears, obligations, and lives. Investing had become a big part of my net-worth and my identity. Listing out the options I saw for my next big moves, I asked him if I should raise a fund and become a full-time venture capitalist (VC), as I was already doing the work but trying to balance it with 5-10 other projects. He could sense my anxiety. It wasn’t a dream of mine; I simply felt I’d be stupid not to strike while the iron was hot.

He thought very carefully in silence and then said: “I’ve been at events where people come up to you crying because they’ve lost 100-plus pounds on the Slow-Carb Diet. You will never have that impact as a VC. If you don’t invest in a company, they’ll just find another VC. You’re totally replaceable.”

He paused again and ended with, “Please don’t stop writing.”

I’ve thought about that conversation every day since.

For some people, being a VC is their calling and they are the Michael Jordan-like MVPs of that world. They should cultivate that gift. But if I stop investing, no one will miss it. In 2015, that much is clear. There have never been more startup investors, and–right along with them–founders basing “fit” on highest valuation and previously unheard of terms. There are exceptions, of course, but it’s crowded. If I exit through the side door, the startup party will roll on uninterrupted.

Now, I’m certainly not the best writer in the world. I have no delusions otherwise. People like John McPhee and Michael Lewis make me want to cry into my pillow and brand “Poser” on my forehead.

BUT… if I stop writing, perhaps I’m squandering the biggest opportunity I have—created through much luck—to have a lasting impact on the greatest number of people. This feeling of urgency has been multiplied 100-fold in the last two months, as several close friends have died in accidents no one saw coming. Life is fucking short. Put another way: a long life is far from guaranteed. Nearly everyone dies before they’re ready.

I’m tired of being interchangeable, no matter how lucrative the game. Even if I’m wrong about the writing, I’d curse myself if I didn’t give it a shot.

Are you squandering your unique abilities? Or the chance to find them in the first place?

HOW OFTEN ARE YOU SAYING “HELL, YEAH!”? 

Philosopher-programmer Derek Sivers is one of my favorite people.

His incisive thinking has always impressed me, and his “hell, yeah!” or “no” essay has become one of my favorite rules of thumb. From his blog:

Those of you who often over-commit or feel too scattered may appreciate a new philosophy I’m trying: If I’m not saying “HELL YEAH!” about something, then I say no.

Meaning: When deciding whether to commit to something, if I feel anything less than, “Wow! That would be amazing! Absolutely! Hell yeah!” – then my answer is no. When you say no to most things, you leave room in your life to really throw yourself completely into that rare thing that makes you say “HELL YEAH!”

We’re all busy. We’ve all taken on too much. Saying yes to less is the way out.

To become “successful,” you have to say “yes” to a lot of experiments.  To learn what you’re best at, or what you’re most passionate about, you have to throw a lot against the wall.

Once your life shifts from pitching outbound to defending against inbound, however, you have to ruthlessly say “no” as your default. Instead of throwing spears, you’re holding the shield.

From 2007-2009 and again from 2012-2013, I said yes to way too many “cool” things. Would I like to go to a conference in South America? Write a time-consuming guest article for a well-known magazine? Invest in a start-up that five of my friends were in? “Sure, that sounds kinda cool,” I’d say, dropping it in the calendar. Later, I’d pay the price of massive distraction and overwhelm. My agenda became a list of everyone else’s agendas.

Saying yes to too much “cool” will bury you alive and render you a B-player, even if you have A-player skills. To develop your edge initially, you learn to set priorities; to maintain your edge, you need to defend against the priorities of others.

Once you reach a decent level of professional success, lack of opportunity won’t kill you. It’s drowning in 7-out-of-10 “cool” commitments that will sink the ship.

These days, I find myself saying “Hell, yes!” less and less with new startups. That’s my cue to exit stage left, especially when I can do work I love (e.g. writing) with 1/10th the energy expenditure.

I need to stop sowing the seeds of my own destruction.

HOW MUCH OF YOUR LIFE IS MAKING VERSUS MANAGING? HOW DO YOU FEEL ABOUT THE SPLIT?

One of my favorite time-management essays is “Maker’s Schedule, Manager’s Schedule” by Paul Graham of Y Combinator fame. Give it a read.

As Brad Feld and many others have observed, great creative work isn’t possible if you’re trying to piece together 30 minutes here and 45 minutes there. Large, uninterrupted block of time — 3-5 hours minimum — create the space needed to find and connect the dots. And one block per week isn’t enough.  There has to be enough slack in the system for multi-day CPU-intensive synthesis. For me, this means at least 3-4 mornings per week where I am in “maker” mode until at least 1pm.

If I’m in reactive mode, maker mode is all but impossible. Email and texts of “We’re overcommitted but might be able to squeeze you in for $25K. Closing tomorrow. Interested?” are creative kryptonite.

I miss writing, creating, and working on bigger projects. YES to that means NO to any games of whack-a-mole.

WHAT BLESSINGS IN EXCESS HAVE BECOME A CURSE? WHERE DO YOU HAVE TOO MUCH OF A GOOD THING?

In excess, most things take on the characteristics of their opposite. Thus:

Pacifists become militants.

Freedom fighters become tyrants.

Blessings become curses.

Help becomes hinderance.

More becomes less.

To explore this concept more, read up on Aristotle’s golden mean.

In my first 1-2 years of angel investing, 90%+ of my bets were in a tiny sub-set of startups. The criteria were simple:

• Consumer-facing products or services
• Products I could be a dedicated “power user” of, products that scratched a personal itch
• Initial target demographic of 25-40-year old tech-savvy males in big US cities like SF, NYC, Chicago, LA, etc. (allowed me to accelerate growth/scaling with my audience)
• <$10M pre-money valuation
• Demonstrated traction and consistent growth (not doctored with paid acquisition).
• No “party rounds”—crowded financing rounds with no clear lead investor. Party rounds often lead to poor due diligence and few people with enough skin in the game to really care.

Checking these boxes allowed me to add a lot of value quickly, even as relatively cheap labor (i.e. I took a tiny stake in the company). Shopify is a great example, which you can read about here (scroll down).

My ability to help spread via word of mouth, and I got what I wanted: great “deal flow.” Deals started flowing in en masse from other founders and investors.

Fast forward to 2015, and great deal flow is now paralyzing the rest of my life.  I’m drowning in inbound.

Instead of making great things possible in my life, it’s preventing great things from happening.

I’m excited to go back to basics, and this requires cauterizing blessings that have become burdens.

WHY ARE YOU INVESTING, ANYWAY?

For me, the goal of “investing” has always been simple: to allocate resources (e.g. money, time, energy) to improve quality of life. This is a personal definition, as yours likely will be.

Some words are so overused as to have become meaningless.  If you find yourself using nebulous terms like “success,” “happiness,” or “investing,” it pays to explicitly define them or stop using them. “What would it look like if I had (or won at) ___ ?” helps. Life favors the specific ask and punishes the vague wish.

So, here: to allocate resources (e.g. money, time, energy) to improve quality of life.

This applies to both the future and the present. I am willing to accept a mild and temporary 10% decrease in current quality of life (based on morale in journaling) for a high-probability 10x return, whether the ROI comes in the form of cash, time, energy, or otherwise. That could be a separate blog post, but conversely:

An investment that produces a massive financial ROI but makes me a complete nervous mess, or causes insomnia and temper tantrums for a long period of time, is NOT a good investment.

I don’t typically invest in public stocks for this reason, even when I know I’m leaving cash on the table. My stomach can’t take the ups and downs, but—like drivers rubbernecking to look at a wreck—I seem incapable of not looking. I will compulsively check Google News and Google Finance, despite knowing it’s self-sabotage. I become Benjamin Graham’s Mr. Market. As counter-examples, friends like Kevin Rose and Chris Sacca have different programming and are comfortable playing in that sandbox. They can be rational instead of reactive.

Suffice to say — For me, a large guaranteed decrease in present quality of life doesn’t justify a large speculative return.

One could argue that I should work on my reactivity instead of avoiding stocks. I’d agree on tempering reactivity, but I’d disagree on fixing weaknesses as a primary investment (or life) strategy.

All of my biggest wins have come from leveraging strengths instead of fixing weaknesses. Investing is hard enough without having to change your core behaviors. Don’t push a boulder up a hill just because you can.

Public market sharks will eat me alive in their world, but I’ll beat 99% of them in my little early-stage startup sandbox. I live in the middle of the informational switch box and know the operators.

From 2007 until recently, I paradoxically found start-up investing very low-stress. Ditto with some options trading. Though high-risk, I do well with binary decisions. In other words, I do a ton of homework and commit to an investment that I cannot reverse. That “what’s done is done” aspect allows me to sleep well at night, as there is no buy-sell choice for the foreseeable future. I’m protected from my lesser, flip-flopping self. That has produced more than a few 10-100x investments.

In the last two years, however, my quality of life has suffered.

As fair-weather investors and founders have flooded the “hot” tech scene, it’s become a deluge of noise. Where there were once a handful of micro VCs, for instance, there are now hundreds. Private equity firms and hedge funds are betting earlier and earlier. It’s become a crowded playing field. Here’s what that has meant for me personally:

• I get 50-100 pitches per week. This creates an inbox problem, but it gets worse, as…
• Many of these are unsolicited “cold intros,” where other investors will email me and CC 2-4 founders with “I’d love for you to meet A, B, and C” without asking if they can share my e-mail address
• Those founders then “loop in” other people, and it cascades horribly from there. Before I know it 20-50 people I don’t know are emailing me questions and requests.
• As a result, I’ve had to declare email bankruptcy twice in the last six months. It’s totally untenable.

Is there a tech bubble? That question is beyond my pay grade, and it’s also beside the point.

Even if I were guaranteed there would be no implosion for 3-5 years, I’d still exit now. Largely due to communication overload, I’ve lost my love for the game.  On top of that, the marginal minute now matters more to me than the marginal dollar.

But why not cut back 50%, or even 90%, and be more selective?  Good question. That’s next…

ARE YOU FOOLING YOURSELF WITH A PLAN FOR MODERATION?

The first principle is that you must not fool yourself and you are the easiest person to fool.

– Richard P. Feynman

Where in your life are you good at moderation? Where are you an all-or-nothing type? Where do you lack a shut-off switch? It pays to know thyself.

The Slow-Carb Diet succeeds where other diets fail for many reasons, but the biggest is this: It accepts default human behaviors versus trying to fix them. Rather than say “don’t cheat” or “you can no longer eat X,” we plan weekly “cheat days” (usually Saturdays) in advance. People on diets will cheat regardless, so we mitigate the damage by pre-scheduling it and limiting it to 24 hours.

Outside of cheat days, slow carbers keep “domino foods” out of their homes. What are domino foods? Foods that could be acceptable if humans had strict portion control, but that are disallowed because practically none of us do. Common domino foods include:

• Chickpeas
• Peanut butter
• Salted cashews
• Alcohol

Domino triggers aren’t limited to food. For some people, if they play 15 minutes of World of Warcraft, they’ll play 15 hours. It’s zero or 15 hours.

For me, startups are a domino food.

In theory, “I’ll only do one deal a month” or “I’ll only do two deals a quarter” sound great, but I’ve literally NEVER seen it work for myself or any of my VC or angel friends. Sure, there are ways to winnow down the pitches. Yes, you can ask “Is this one of the top 1-2 entrepreneurs you know?” to any VC who intro’s a deal and reject any “no”s. But what if you commit to two deals a quarter and see two great ones the first week? What then? If you invest in those two, will you be able to ignore every incoming pitch for the next 10 weeks?

Not likely.

For me, it’s all or nothing. I can’t be half pregnant with startup investing.  Whether choosing 2 or 20 startups per year, you have to filter them from the total incoming pool.

If I let even one startup through, another 50 seem to magically fill up my time (or at least my inbox). I don’t want to hire staff for vetting, so I’ve concluded I must ignore all new startup pitches and intros.

Know where you can moderate and where you can’t.

YOU SAY “HEALTH IS #1″…BUT IS IT REALLY?

After contracting Lyme disease and operating at ~10% capacity for nine months, I made health #1. Prior to Lyme, I’d worked out and eaten well, but when push came to shove, “health #1” was negotiable. Now, it’s literally #1. What does this mean?

If I sleep poorly and have an early morning meeting, I’ll cancel the meeting last-minute if needed and catch up on sleep. If I’ve missed a workout and have a con-call coming up in 30 minutes? Same. Late-night birthday party with a close friend? Not unless I can sleep in the next morning. In practice, strictly making health #1 has real social and business ramifications. That’s a price I’ve realized I MUST be fine paying, or I could lose weeks or months to sickness or fatigue.

Making health #1 50% of the time doesn’t work. It’s absolute — all or nothing. If it’s #1 50% of the time, you’ll compromise precisely when it’s most important.

The artificial urgency common to startups makes mental and physical health even more challenging. I’m tired of unwarranted last-minute “hurry up and sign” emergencies and related fire drills. It’s a culture of cortisol.

ARE YOU OVER-CORRELATED?

[NOTE: Two investors friends found this bullet slow, as they’re immersed in similar subjects. Feel free to skip if it drags on, but I think there are a few important novice concepts in here.]

“Correlated” means that investments tend to move up or down in value at the same time.

As legendary hedge fund manager Ray Dalio told Tony Robbins: “It’s almost certain that whatever you’re going to put your money in, there will come a day when you will lose 50 percent to 70 percent.” It pays to remember that if you lose 50%, you need a subsequent 100% return to get back to where you started. That math is tough.

So, how to de-risk your portfolio?

Many investors “rebalance” across asset classes to maintain certain ratios (e.g. X% in bonds, Y% in stocks, Z% in commodities, etc.). If one asset class jumps, they liquidate a part of it a buy more of lower performing classes. There are pros and cons to this, but it’s common practice.

From 2007-2009, during the “real-world MBA” that taught me to angel invest, <15% of my liquid assets were in startups. I was taking a barbell approach to investing. But most startups are illiquid. I commonly can’t sell shares until 7-12 years after I invest, at least for my big winners to date. What does that mean? In 2015, startups comprise more than 80% of my assets. Yikes!

Since I can’t sell, the simplest first step for lowering stress is to stop investing in illiquid assets.

I’ve sold large portions of liquid stocks—mostly early start-up investments in China–to help get me to “sleep at night” levels, even if they are lower than historical highs of the last 6-12 months. Beware of anchoring to former high prices (e.g. “I’ll sell when it gets back to X price per share…”). I only have 1-2 stock holdings remaining.

Some of you might suggest hedging with short positions, and I’d love to, but it’s not my forte. If you have ideas for doing so without huge exposure or getting into legal gray areas, please let me know in the comments.

In the meantime, the venture capital model is mostly a bull market business. Not much shorting opportunity. The best approximation I’ve seen is investing in businesses like Uber, which A) have a lot of international exposure (like US blue chips), and B) could be considered macro-economically counter-cyclical. For instance, it’s conceivable a stock market correction or crash could simultaneously lead fewer people to buy cars and/or more people to sign up as Uber drivers to supplement or replace their jobs. Ditto with Airbnb and others that have more variable than fixed costs compared to incumbents (e.g. Hilton).

WHAT’S THE RUSH? CAN YOU “RETIRE” AND COME BACK?

I’m in startups for the long game. In some capacity, I plan to be doing this 20+ years from now.

The reality: If you’re spending your own money, or otherwise not banking on management fees, you can wait for the perfect pitches, even if it takes years. It might not be the “best” approach, but it’s enough. To get rich beyond your wildest dreams in startup investing, it isn’t remotely necessary to bet on a Facebook or Airbnb every year. If you get a decent bet on ONE of those non-illusory, real-business unicorns every 10 years, or if you get 2-3 investments that turn $25K into $2.5M, you can retire and have a wonderful quality of life. Many would argue that you need to invest in 50-100 startups to find that one lottery ticket. Maybe. I think it’s possible to narrow the odds quite a bit more, and a lot of it is predicated on maintaining stringent criteria; ensuring you have an informational, analytical, or behavioral advantage; and TIMING.

Most of my best investments were made during the “Dot-com Depression” of 2008-2009 (e.g. Uber, Shopify, Twitter, etc.), when only the hardcore remained standing on a battlefield littered with startup bodies. In lean times, when startups no longer grace magazine covers, founders are those who cannot help but build a company. LinkedIn in 2002 is another example.

HOWEVER… This doesn’t mean there aren’t great deals out there.  There are. Great companies are still built during every “frothy” period.

The froth just makes my job and detective work 10x harder, and the margin of safety becomes much narrower.

[Tim: Skip this boxed text if the concept of “margin of safety” is old news to you.]

Think of the “margin of safety” as wiggle room.

Warren Buffett is one of the most successful investors of the 20th century and a self-described “value investor.” He aims to buy stocks at a discount (below intrinsic value) so that even with a worst-case scenario, he can do well. This discount is referred to as the “margin of safety,” and it’s the bedrock principle of some of the brightest minds in the investing world (e.g., Seth Klarman). It doesn’t guarantee a good investment, but it allows room for error.  Back in the startup world…

I want each of my investments, if successful, to have the ability to return my “entire fund,” which is how much capital I’ve earmarked for startups over two years, for instance. This usually means potential for a minimum 10X return. That 10X minimum is an important part of my recipe that allows margin for screw ups.

For the fund-justifying ROI to have a snowball’s chance in hell of happening, I must A) know basic algebra to ensure my investment amounts (check sizes) permit it, and B) avoid companies that seem overpriced, where the 10x price is something the world has never seen before (i.e. no even indirect comparables, or tenable extrapolations from even an expanded market size).

If you throw low-due-diligence Hail Mary’s everywhere and justify it with “they could be the next Uber!”, you will almost certainly be killed by 1,000 slow-bleeding $25K paper cuts. Despite current euphoria, applying something like Pascal’s Wager to startups is a great way to go broke.

Good startup investors who suggest being “promiscuous” are still methodical.

It’s popular in startup land to talk about “moonshots”—the impossibly ambitious startups that will either change the world or incinerate themselves into star dust.

I’m a fan of funding ballsy founders (which includes women), and I want many moonshots to be funded, but here’s the reality of my portfolio: as I’ve signed the investment docs for every big success I’ve had, I’ve always thought, “I will never lose money on this deal.”

The “this will be a home run or nothing” deals usually end up at nothing. I’m not saying such deals can’t work, but I try not to specialize in them.

These days, the real unicorns aren’t the media darlings with billion-dollar valuations. Those have become terrifyingly passé. The unicorns are the high-growth startups with a reasonable margin of safety.

Fortunately, I’m not in a rush, and I can wait for the tide to shift.

If you simply wait for blood in the streets, for when true believers are the only ones left, you can ensure come-hell-or-high-water founders are at least half of your meetings.

It might be morbid, but it’s practical.

My Last Deals For A While

It’s still a great time to invest in companies… but only if you’re able to A) filter the signal from the noise, B) say no to a lot of great companies whose investors are accepting insane terms, and C) follow your own rules. Doing all three of these requires a fuck-ton of effort, discipline, and systems. I prefer games with better odds.

There are a few deals you’ll see in the upcoming months, which I committed to long ago. These are not new deals.

They are current companies in which I’m filling my pro-rata, or companies postponing funding announcements until they’re most helpful (e.g. launching publicly). Separately, I work closely with the Expa startup lab and will continue to do so. They are largely able to insulate themselves from madness, while using and refining an excellent playbook.

Are You Having a Breakdown or a Breakthrough? A Short How-To Guide

“Make your peace with the fact that saying ‘no’ often requires trading popularity for respect.”
— Greg McKeown, Essentialism

If you’re suffering from a feeling of overwhelm, it might be useful to ask yourself two questions:

– In the midst of overwhelm, is life not showing me exactly what I should subtract?

– Am I having a breakdown or a breakthrough?

As Marcus Aurelius and Ryan Holiday would say, “The obstacle is the way.” This doesn’t mean seeing problems, accepting them, and leaving them to fester. Nor does it mean rationalizing problems into good things. To me, it means using pain to find clarity. Pain–if examined and not ignored–can show you what to excise from your life.

For me, step one is always the same: write down the 20% of activities and people causing 80% or more of your negative emotions.

My step two is doing a “fear-setting” exercise on paper, in which I ask and answer “What is really the worst that could happen if I did what I’m considering? And so what? How could I undo any damage?”

Below is a real-world example: the journal page that convinced me to write this post and kickstart an extended startup vacation.

The questions were “What is really the worst that could happen if I stopped angel investing for a minimum of 6-12 months? Do those worse-case scenarios really matter? How could I undo any potential damage? Could I do a two-week test?”

As you’ll notice, I made lists of the guaranteed upsides versus speculative downsides. If we define “risk” as I like to—the likelihood of an irreversible negative outcome—we can see how stupid (and unnecessarily painful) all my fretting and procrastination was. All I needed to do was put it on paper.

Below is a scan of the actual page.  Click here for an enlarged version.

Further below is a transcribed version (slightly shorter and edited). For a full explanation of how and why I use journaling, see this post.  In the meantime, this will get the point across:

Transcription:

“The anxiety is mostly related to email and startups: new pitches, new intros, etc.

Do a 2-week test where “no” to ALL cold intros and pitches?

Why am I hesitant? For saying “no” to all:

PROS:

– 100% guaranteed anxiety reduction

– Feeling of freedom

– Less indecision, less deliberation, so far more bandwidth for CREATING, for READING, for PHYSICAL [TRAINING], for EXPERIMENTS.

CONS (i.e. why not?):

– Might find the next Uber (<10% chance) — Who cares? Wouldn’t materialize for 7-9 years. If Uber pops (IPO), it won’t matter.

– Not get more deals. But who cares?

* Dinner with 5 friends fixes it.

* One blog post fixes it. [Here’s an example from 2013 that helped me find Shyp and co-lead their first round]

* NONE of my best deals (Shyp, Shopify, Uber, Twitter, Facebook, Evernote, Alibaba, etc.) came from cold intros from acquaintances.

If try 2 weeks, how to ensure successful:

– I don’t even see interview or [new] startup emails

– No con-calls. [Cite] “con call vacation” –> push to email or EOD [end-of-day review with assistant]

– Offer [additional] “office hours” on Fridays [for existing portfolio]?

I ultimately realized: If I set up policies to avoid new startups for two weeks, the systems will persist. I might as well make it semi-permanent and take a real “startup vacation.”

What do you need a vacation from?

My Challenge To You: Write Down The “What If”s

“I am an old man and I have known a great many troubles, but most of them never happened.”

– Mark Twain

“He who suffers before it is necessary suffers more than is necessary.”

– Seneca

Tonight or tomorrow morning, take a decision you’ve been putting off, and challenge the fuzzy “what if”s holding you hostage.

If not now, when? If left at the status quo, what will your life and stress look like in six months? In one year? In three years? Who around you will also suffer?

I hope you find the strength to say no when it matters most. I’m striving for the same, and only time will tell if I pull it off.

What will I spend my time on next? More crazy experiments and creative projects, of course.  To hear about them first, sign up for my infrequent newsletter. Things are going to get nuts.

But more important — how could you use a new lease on life?

To surf, like this attorney who quit the rat race? To travel with your family around the world for 1,000+ days, like this?  To learn languages or work remotely in 20+ countries while building a massive business? It’s all possible. The options are limitless…

So start by writing them down. Sometimes, it takes just a piece of paper and a few questions to create a breakthrough.

I look forward to hearing about your adventures.

The post How to Say No When It Matters Most (or “Why I’m Taking a Long ‘Startup Vacation'”) appeared first on The Blog of Author Tim Ferriss.

The following is a guest post by Breanden Beneschott, co-founder and COO of Toptal, a marketplace for top developers. I have no affiliation with the company, but I found Breanden’s story fascinating.

This post covers how he traveled through 20+ countries while building a company, experiencing the best the world had to offer. His how-to instructions include travel tools, shortcuts, and all the non-obvious systems you’d expect from a great engineer.

For context and to kick us off, an excerpt from Breanden’s email to me might be helpful. Edited down a bit, here it is:

We started Toptal 3.5 years ago from my dorm room at Princeton (I think a week after I met you briefly in Ed Zschau’s class [TIM: I guest lectured there], where I decided to do my final paper on the company). By the time I finished school six months later, Toptal was doing well with clients and engineers all over the world. We decided to move to Eastern Europe and keep practicing what we were preaching, in terms of scaling a company via a completely distributed team. Doing so allowed us to funnel nearly all profits back into growing the business (and live like kings for next to nothing). We are now approx 60 team members and 1000 engineers (e.g., top-100 Rails contributors, guys from CERN, university professors, etc.) working with thousands of clients (e.g., Beats, Zendesk, Artsy, JPMorgan, etc.) with virtually zero restrictions when it comes to location.

People constantly ask me how I manage to travel and work the way I do. I had always hoped outside (non-Toptal) people would see this post and be inspired to join us or pick up and travel while working on their own big ideas.

BTW, I do expect that comments will highlight the ambiguity of the “growing hundreds of percent year over year” statement. We’ve very deliberately avoided most press until now, as we didn’t want to build a company based on PR, and we’ve never publicly announced our revenue. Right now we are well north of XXM/yr [TIM: I replaced the actual number with XX but, suffice to say, they have 9-figure acquisition offers and term sheets] and growing like a weed, but few non-core people know that. So do you see any tactful way of preempting those sorts of comments?

Yep, I do. I could include your email like I just did.

Now, on to the details. This is a good one, folks, so keep reading.  Breanden’s tips apply mostly to the mobility and travel pieces of the puzzle; if you’d like additional business-building tools, I highly suggest this article on rapid testing (in a weekend), this article on hacking Kickstarter, and this post on all aspects of marketing and PR.

Enter Breanden

[The following is based on my personal experience as a traveling engineer and founder. Feel free to contact me any time at breanden [at] toptal [dot] com.]

I’ve lived and worked remotely in approximately 29 countries since I finished school three years ago. I’ve been running Toptal, a venture funded company growing hundreds of percent year over year—all from my laptop, phone, and tablet.

I don’t have an apartment. I don’t have a house. I don’t have an office.

I hate the cold, so I summer hop.

Everywhere I go, I meet great engineers who end up becoming invaluable parts of Toptal.

I encourage everyone in Toptal to travel, and a lot of us do. Some of us travel for week long “breaks” throughout the year, and some of us live out of a suitcase like me. Few of us ever stop working for a full day.

I’m writing this because…

I was repeatedly asked if I had some sort of guide or checklist for traveling/working the way I do. Especially for first-timers, the idea of adventuring while working can be daunting. There are a lot of details to consider, and I’ve learned a lot from my own trial-and-error.

The more I thought about it, the more I realized a guide like this was actually missing.

The 4-Hour Workweek was great, and I like Tim Ferriss a lot. But what if you want to work more than 4 hours a week? I like working crazy hours. I don’t want a lifestyle company. I want to solve hard problems. I want to build something big and give it my all.

I want a book on how to create a billion-dollar company while becoming a fighter pilot. (I’m trying to build a world-changing company while becoming a professional polo player.) That would be inspiring. But until it comes, maybe this post will be helpful to a few people.

Why travel?

Because it’s unbelievably awesome.

Now is the time: it’s feasible like never before. You can put in a full work day no matter where you are. If you’re standing in line for airport security, you can listen to The Changelog. If you’re in the Hungarian countryside, you can work perfectly via 4G. If you’re flying across the world, you can work from the moment you buckle in to the moment you stand up to get off the plane. The airport will have WiFi to push a commit if your plane didn’t. You can travel while producing some of the best work of your career, and you will grow with every new stamp in your passport.

The secret benefit: avoiding burnout.

I don’t take vacations. I don’t want to work hard to build a company that makes lots of money so I can piss off and go on holiday. I’m at a start-up. I’m a part of it, and it’s a part of me. This is a marathon, and there will be a winner. Traveling and working allows you to go non-stop. There is no burnout. There’s no staring at a clock or calendar waiting for the EOD/weekend/break. You’re refreshed weekly, and you can hone your focus and structure your time so you are a cross functional superstar who never stops learning.

Length of travel

I usually stay in places for ~3 months. Why?

It fits under the constraints of the typical tourist visa.

More on that in a second.

It gives you time to relax and focus in between the stressful travel sessions.

Power trips of 9 countries in 3 weeks are for students on holiday. You need to be able to stop traveling and focus on work.

It gives you time to really explore and get to know a place and people.

There are almost certainly local tech meetups, and there are likely to be other Toptal engineers wherever you go now as well.

You can really try local culture.

Learn to play polo in Argentina. Practice capoeira in Brazil. Go to trance festivals in Europe. If you don’t know where to start, join Internations and go to expat meetups.

It helps with costs.

Trips of this duration help you negotiate special medium-term deals on apartments, cars, vespas, etc.

Who to go with

A close friend/colleague

You can split costs for a lot of things like cars, hotels, etc. You can also split the research and push each other to do things you might not do yourself (like go out to new places, go on adventures, rent a boat, etc.).

Alone

Not for the faint of heart, but not everyone has the flexibility you do as a software engineer. If you don’t have anyone to go with, don’t let it stop you. With Internations and a network like Toptal, you can almost certainly go anywhere and immediately find people with lots in common.

A girlfriend/boyfriend

Can be by far the most expensive option, but it’s probably the most rewarding and fun. Nothing brings compatible people together like adventure. However, nothing drives incompatible people apart like stress, so be careful. The other thing to consider is whether your significant other will also be working during your travels. If so, that’s tremendous, and you are very lucky. If not, that can be very hard. The added costs of having a dependent aside, you don’t want to be in a position where someone resents you for constantly working during what they’ve misunderstood to be a vacation. Luckily there are many interesting careers in addition to software engineering that are now doable remotely (e.g., executive assistant, translator, designer, tutor, entrepreneur, etc.).

What to take

Backpack

Always a carry on. Pretty much always with me.

Laptop

I use a MacBook Pro 15″ Retina.

Unlocked Smartphone

Get a local SIM card (usually a prepaid or pay-as-you-go for between $20-$50 at T-Mobile, Vodafone, etc., with a few GBs of data that you can top up as-needed) everywhere you go so you can always be online and never stress about what you’re missing. Don’t leave the store until you have the phone in your hands with working Internet. If you’re on an iPhone 5, you can almost always cut a micro SIM to fit the nano SIM and it will work just fine.

Tablet

You’re an engineer. Use Airdisplay to enable your tablet as a second monitor. It also makes it much easier to work on planes: I used an iPad Mini to write this post on a flight from LAX to Auckland, New Zealand.

GPS

I rent cars and explore places a lot, so this is key. I have a Garmin Nuvi. I try to download the maps before I leave to go to anywhere new.

External charger

iPhone batteries are terrible, and this saves the day.

Apple headphones

For work, I use the ones that come with everything Apple. They never fail, and I live on Skype. I see lots of people with more expensive systems and they constantly have problems. It’s pointless.

Ethernet cable

WiFi doesn’t always work.

Travel adapter

You’ll use this everywhere. If you ever find yourself without one, ask the hotel if they have an extra.

Sunglasses

New whiteboard marker

It saves the day at least a couple times a year, whether it’s because you’re collaborating in a co-working space and all the markers are dead or you need to work out something John Nash-style.

Pens

Passport

Take photos of this on your phone and also email them to yourself.

Insurance card

Take photos of this on your phone and also email them to yourself.

SIM card collection

Business cards

Thera-Band

Olympic gymnasts use these for resistance training. With 6″ of rubber, you can do a full body workout anywhere. When you spend long hours on your computer, you need to get up and exercise every hour.

Ibuprofen

For headaches and general aches and pains.

Dramamine

For motion sickness.

Probiotics

For digestion. Traveling can be stressful, and new foods do unexpected things.

Deodorant

Don’t let yourself expire. Like wearing boat shoes? Put a dab on your feet as well.

Toothbrush

Suitcase 1

Checked on flights. Leave your Louis Vuitton luggage at home. It just makes you a target, and your stuff will get stolen. Some people swear by expensive luggage, but I’ve used a basic 5-piece luggage set since I graduated high school in 2004, and it’s worked fine.

Clothes. You can figure out the basics but I usually carry the following:

• Dress shirt
• Dress shoes
• Gym shorts
• Running shoes. Running is a great way to explore places. [TIM: Bruce Lee had a similar philosophy while shooting films.]
• Swim shorts
• Flip flops. For gyms, pools, and beaches.

Toiletries.

• Shaver
• Toothbrush
• Floss
• Toothpaste
• Sunscreen

Suitcase 2

Aka the “toy bag”; also checked on flights.

Snowboards, polo equipment, surf boards, or whatever you need for your specific trip.

It sounds strange, but always make sure your stuff is clean. Some countries (like New Zealand) are very protective, and if there’s dirt, sand, grass, hair, etc. on your stuff, they may take everything and sanitize it for you (in God knows what) at the airport, or even confiscate it.

Where to stay

Try NomadList for selecting a city.

The data here does not match my own experience in many cases, but, overall, it gives a pretty good overview of some of the important aspects you’ll want to consider for each location you choose.

Airbnb is what I use most, but it’s a PITA [pain in the ass] for medium-term stays.

I see a need in the market for medium-term rentals. If you know of a better solution, please let me know! Unless you’re booking far in advance (something I find impossible), you’ll find Airbnb places might be available for a month straight except for one or two weekends where you’ll have to either temporarily move out or find another place. Don’t get too comfortable. I’ve had success asking the Airbnb hosts if they have recommendations on medium-term housing. They often have friends with unlisted places or can make special arrangements for you (like getting an apartment ready that they weren’t renting at all before… and since you’re there, you can check it out before you commit). Once you’ve stayed with them via Airbnb, you’ve earned their trust a bit, and they’re usually very helpful.

You need great Internet.

So, for now, Antarctica is out. But most places are totally fine (and often better than in the US). However, you have to do your homework. As a traveling software engineer, you can never be unavailable due to bad Internet. Buy a pay-as-you-go SIM first thing, but still be sure to explicitly ask every host/hotel/realtor etc. what the Internet speeds are.

Here’s my standard message when making an inquiry on Airbnb:

Hi {{name}},

Your apartment looks amazing. Any chance it’s available tonight for two people?

Also, as engineers, we do a lot of our work online, so we really need stable and quick internet. Do you know the speed of your connection (e.g., 10Mbs/2Mbps)? If not, would you mind running a little test (just google “internet speed test” and click the first result) and letting me know?

Thank you so much for your consideration.

Best,

Breanden

Every hotel will say their Internet is great, but you can usually find reviews about how good their Internet really is on Tripadvisor (and by Googling). Sometimes specific rooms at a hotel are ok while others are not. Do not get into a position where you can’t have a clear Skype call because you listened to a clueless receptionist.

You can also try All The Rooms and HomeAway.

All The Rooms is an aggregator of many house/apartment/hotel websites. HomeAway is similar to Airbnb. Some of these sites are better than others in each city.

Kayak and Hipmunk are good for hotels/rental cars.

However, you can usually call the hotels directly and negotiate better rates and upgrades.

Always ask for a better room or free upgrade when you check into a hotel.

You’ll get something about 50% of the time.

Similarly, always try to negotiate a special weekly or monthly rate on housing and cars.

Don’t stay in hostels.

You’re not a kid. You’re a professional, and you need dedicated time to focus on work.

How to pull it off

The longer you wait, the more expensive it is.

That said, I hate planning, and I find that last minute usually works out fine. Worst case scenario: you’re uncomfortable for a little while (red eye flight, stuck in traffic while it’s 900 degrees, etc.) but you end up with a funny story and an adventure.

Rental cars (above)

If you’re American, learn how to drive a stick shift before you go overseas. They are much cheaper to rent, and it’s often impossible to find an automatic.

Rewards programs

Use TripIt or SuperFly to keep track of and redeem your rewards. They will build up over time.

Money

I always try to carry a few hundred USD. It’s easily exchanged whereas others currencies aren’t always. Before you travel, you’ll also need to call your banks and let them know in which countries you’ll be using your debit card. Otherwise they may block it after your first transaction, and you’ll have a mess to untangle. Also, be sure to download a currency converter app so you know how much things cost; and when you need more cash, pull it from an ATM instead of an exchange in order to reduce fees.

Skype number

Get one and add credit to it so you can call clients, hotels, etc. any time. It’s also wise to have it forward to your current mobile number so your clients and colleagues can call you when they need to.

Lost a charger or adapter?

Ask the hotel desk. They usually have a box of them that other guests have left behind.

WiFi

Check Foursquare for free WiFi hotspots. Rewards lounges usually have a WiFi network. Restaurants often do as well… just ask for the password. Many gas stations like Shell and OMV have open and fast WiFi as well.

Time zones

Always use something like World Time Buddy to easily double check time zones. Do not get into a position where you’re missing team calls because you forgot daylight savings time or you did the mental math wrong.

When to go

Any time you want.

Visas

As I mentioned earlier, most countries permit a three-month stay under their tourist visa. (Specifically, 90 out of every 180 days.)

Most counties are very easy to go in and out of.

The worst is always the US where I’m treated like a terrorist virtually every time I enter or leave. (I refuse to fly into Seattle–Tacoma International Airport ever again). For many countries (in my experience, as an American), all you need to do is show up at the border not looking like a criminal, and they will give you a tourist visa as you go through the airport. In some countries like Turkey, you’ll have to pay a small fee (~$20). In others, you need to fill out paperwork beforehand and pay a larger fee (e.g., Argentina and Brazil). I carry a printout of a recent bank statement and copies of my return tickets (if I have them) just in case a customs agent asks to see them (and some countries like New Zealand require them).

Always check visa requirements before you travel.

I like using CheapoAir’s tool. If you have questions, call an embassy.

This sounds obvious, but don’t overstay your visas.

While most countries are pretty forgiving (you pay a fee on your way out/in and you can’t come back for a while… if you’re caught at all), it’s not worth the stress (and waiting in that line feeling guilty and terrified is freaking stressful). If you love a place and want to stay longer, find a recommended lawyer on Internations (just post a question asking for recommendations) and ask what it takes. For Europe, it’s pretty easy (at least in my experience as an American). You can go to a lax country like Hungary and pretty easily get a 1-year visa, which is then good for anywhere in the Schengen Zone.

Misc.

Communication with clients.

If the technical ability is there, then now it comes down to communication and reliability. I always tell engineers and their clients that if I were to take each into a separate room, they need to always be able to give identical answers to the following three questions:

1. What are you working on now?
2. What were you just working on?
3. What will you be working on tomorrow?

Maintaining that level of communication and transparency is not difficult in an office, but it’s also not difficult when you’re remote. Always be connected and proactive.

Always lock your suitcases with TSA approved locks.

I’ve had lots of baggage get lost and several misc items get stolen.

When flying, always check the rates for business class.

If you’re checking multiple bags, sometimes business class can be cheaper because the bags are free.

When you’re on long flights, get up and walk around every couple hours.

You don’t want to die from a blood clot.

Attitude

Shit will happen. Try to let it go immediately.

You don’t need to (nor can you) plan every last detail when you travel, and you don’t need to follow every rule. Sometimes you need to wing it. Be impulsive. Seize an opportunity to jump on a train to Oktoberfest with a group of brand new friends. Invite the girl you can’t stop thinking about to a wild weekend in Turkey. Go to Georgia and party like Russia might come back tomorrow.

That’s when awesome happens. Welcome to Toptal.

###

QUESTION OF THE DAY:  What would you add to the above recommendations? Please share in the comments by clicking here!

The post How to Travel to 20+ Countries…While Building a Massive Business in the Process appeared first on The Blog of Author Tim Ferriss.

The following is a guest post by Shane Snow, a frequent contributor to Wired and Fast Company.  Last year, he wrote about his two-week Soylent experiment, which went viral and racked up 500+ comments.

This post is adapted from his new book, SMARTCUTS, and it will teach you a few things:

• How to use strategic “laziness” to dramatically accelerate progress
• How “DHH” became a world-class car racer in record time, and how he revolutionized programming (they’re related)
• A basic intro to computer programming abstraction

Note: the technical aspects of programming have been simplified for a lay audience.  If you’d like to point out clarifications or subtleties, please share your thoughts in the comments!   I’d love to read them, as I’m thinking of experimenting with programming soon.

Enter Shane Snow

The team was in third place by the time David Heinemeier Hansson leapt into the cockpit of the black-and-pink Le Mans Prototype 2 and accelerated to 120 miles per hour. A dozen drivers jostled for position at his tail. The lead car was pulling away from the pack—a full lap ahead.

This was the 6 Hours of Silverstone, a six-hour timed race held each year in Northamptonshire, UK, part of the World Endurance Championship. Heinemeier Hansson’s team, Oak Racing, hoped to place well enough here to keep them competitive in the standings for the upcoming 24 Hours of Le Mans, the Tour de France of automobile racing.

Heinemeier Hansson was the least experienced driver among his teammates, but the Oak team had placed a third of this important race in his hands.

Determined to close the gap left by his teammate, Heinemeier Hansson put pedal to floor, hugging the curves of the 3.7-mile track that would be his singular focus for the next two hours. But as three g’s of acceleration slammed into his body, he began to slide around the open cockpit. Left, then right, then left. Something was wrong with his seat.

In endurance racing, a first place car can win a six- or 12-hour race by five seconds or less. Winning comes down to two factors: the equipment and the driver. However, rules are established to ensure that every car is relatively matched, which means outcomes are determined almost entirely by the drivers’ ability to focus and optimize thousands of tiny decisions.

Shifting attention from the road to, say, a maladjusted driver’s seat for even a second could give another car the opportunity to pass. But at 120 miles per hour, a wrong move might mean worse than losing the trophy.  As Heinemeier Hansson put it, “Either you think about the task at hand or you die.”

Turn by turn, he fought centrifugal force, attempting to keep from flying out while creeping up on the ADR-Delta car in front of him.

And then it started to rain…

***

When Heinemeier Hansson walked onto the racing scene in his early 30s, he was a virtual unknown, both older and less experienced than almost anyone in the leagues. A native of Denmark, he’s tall, with a defined jaw and dark spikey hair. At the time he raced 6 Hours of Silverstone, it had been about five years since he first drove any car at all.

That makes him one of the fastest risers in championship racing.

Despite that, Heinemeier Hansson is far better known among computer programmers—where he goes by the moniker DHH— than car enthusiasts. Though most of his fellow racers don’t know it, he’s indirectly responsible for the development of Twitter. And Hulu and Airbnb. And a host of other transformative technologies for which he receives no royalties. His work has contributed to revolutions, and lowered the barrier for thousands of tech companies to launch products.

All because David Heinemeier Hansson hates to do work he doesn’t have to do.

DHH lives and works by a philosophy that helps him do dramatically more with his time and effort. It’s a principle that’s fueled his underdog climbs in both racing and programming, and just might deliver a win for him as the cars slide around the rainslicked Silverstone course.

But to understand his smartcut, we must first learn a little bit about how computers work.

Think of the way a stretch of grass becomes a road. At first, the stretch is bumpy and difficult to drive over. A crew comes along and flattens the surface, making it easier to navigate. Then, someone pours gravel. Then tar. Then a layer of asphalt. A steamroller smooths it; someone paints lines. The final surface is something an automobile can traverse quickly. Gravel stabilizes, tar solidifies, asphalt reinforces, and now we don’t need to build our cars to drive over bumpy grass. And we can get from Philadelphia to Chicago in a single day.

That’s what computer programming is like. Like a highway, computers are layers on layers of code that make them increasingly easy to use. Computer scientists call this abstraction.

A microchip—the brain of a computer, if you will—is made of millions of little transistors, each of whose job is to turn on or off, either letting electricity flow or not. Like tiny light switches, a bunch of transistors in a computer might combine to say, “add these two numbers,” or “make this part of the screen glow.”

In the early days, scientists built giant boards of transistors, and manually switched them on and off as they experimented with making computers do interesting things. It was hard work (and one of the reasons early computers were enormous).

Eventually, scientists got sick of flipping switches and poured a layer of virtual gravel that let them control the transistors by typing in 1s and 0s. 1 meant “on” and 0 meant “off.” This abstracted the scientists from the physical switches. They called the 1s and 0s machine language.

Still, the work was agonizing. It took lots of 1s and 0s to do just about anything. And strings of numbers are really hard to stare at for hours. So, scientists created another abstraction layer, one that could translate more scrutable instructions into a lot of 1s and 0s.

This was called assembly language and it made it possible that a machine language instruction that looks like this:

10110000 01100001

could be written more like this:

MOV AL, 61h

which looks a little less robotic. Scientists could write this code more easily.

Though if you’re like me, it still doesn’t look fun. Soon, scientists engineered more layers, including a popular language called C, on top of assembly language, so they could type in instructions like this:

printf(“Hello World”);

C translates that into assembly language, which translates into 1s and 0s, which translates into little transistors popping open and closed, which eventually turn on little dots on a computer screen to display the words, “Hello World.”

With abstraction, scientists built layers of road which made computer travel faster. It made the act of using computers faster. And new generations of computer programmers didn’t need to be actual scientists. They could use high-level language to make computers do interesting things.

When you fire up a computer, open up a web browser, and buy a copy of my book online for a friend (please do!), you’re working within a program, a layer that translates your actions into code that another layer, called an operating system (like Windows or Linux or MacOS), can interpret. That operating system is a probably built on something like C, which translates to Assembly, which translates to machine language (1s and 0s), which flips on and off a gaggle of transistors.

(Phew.)

So, why am I telling you this? 
In the same way that driving on pavement makes a road trip faster, and layers of code let you work on a computer faster, hackers like DHH find and build layers of abstraction in business and life that allows them to multiply their effort.

I call these layers platforms.

***

At college in the early aughts, DHH was bored. Not that he couldn’t handle school intellectually. He just didn’t find very much of it useful.

He practiced the art of selective slacking. “Some of my proudest grades were my lowest grades,” he tells me.

We all know people in school and work with a masterful ability to maintain the status quo (John Bender on The Breakfast Club or the bald, coffee-swilling coworker from Dilbert), but there’s a difference between treading water and methodically searching for the least wasteful way to learn something or level up, which is what DHH did.

“My whole thing was, if I can put in 5 percent of the effort of somebody getting an A, and I can get a C minus, that’s amazing,” he explains. “It’s certainly good enough, right? [Then] I can take the other 95 percent of the time and invest it in something I really care about.”

DHH used this concept to breeze through the classes that bored him, so he could double his effort on things that mattered to him, like learning to build websites. With the time saved, he wrote code on the side.

One day, a small American web-design agency called 37signals asked DHH to build a project management tool to help organize its work. Hoping to save some time on this new project, he decided to try a relatively new programming language called Ruby, developed by a guy in Japan who liked simplicity. DHH started coding in earnest.

Despite several layers of abstraction, Ruby (and all other code languages) forces programmers to make countless unimportant decisions. What do you name your databases? How do you want to configure your server? Those little things added up. And many programs required repetitive coding of the same basic components every time.

That didn’t jibe with DHH’s selective slacking habit. “I hate repeating myself.” He almost spits on me when he says it.

But conventional coders considered such repetition a rite of passage, a barrier to entry for newbies who hadn’t paid their dues in programming.  “A lot of programmers took pride in the Protestant work ethic, like it has to be hard otherwise it’s not right,” DHH says.

He thought that was stupid. “I could do a lot of other interesting things with my life,” he decided. “So if programming has to be it, it has to be awesome.”

So DHH built a layer on top of Ruby to automate all the repetitive tasks and arbitrary decisions he didn’t want taking up his time. (It didn’t really matter what he named his databases.) His new layer on top of programming’s pavement became a set of railroad tracks that made creating a Ruby application faster. He called it Ruby on Rails.

Rails helped DHH build his project—which 37signals named Basecamp—faster than he could have otherwise. But he wasn’t prepared for what happened next.

When he shared Ruby on Rails on the Internet, programmers fell in love with it. Rails was easier than regular programming, but just as powerful, so amateurs downloaded it by the thousands. Veteran coders murmured about “real programming,” but many made the switch because Rails allowed them to build their projects faster.

The mentality behind Rails caught on. People started building add-ons, so that others wouldn’t have to reinvent the process of coding common things like website sign-up forms or search tools. They called these gems and shared them around. Each contribution saved the next programmer work.

Suddenly, people were using Ruby on Rails to solve all sorts of problems they hadn’t previously tackled with programming. A toilet company in Minnesota revamped its accounting system with it. A couple in New Jersey built a social network for yarn enthusiasts. Rails was so nice that more people became programmers.

In 2006 a couple of guys at a podcasting startup had an idea for a side project. With Rails, they were able to build it in a few days—as an experiment—while running their business. They launched it to see what would happen. By spring 2007 the app had gotten popular enough that the team sold off the old company to pursue the side project full time. It was called Twitter.

A traditional software company might have built Twitter on a lower layer like C and taken months or years to polish it before even knowing if people would use it. Twitter—and many other successful companies—used the Rails platform to launch and validate a business idea in days. Rails translated what Twitter’s programmers wanted to tell all those computer transistors to do—with relatively little effort. And that allowed them to build a company fast. In the world of high tech—like in racing—a tiny time advantage can mean the difference between winning and getting passed.

Isaac Newton attributed his success as a scientist to “standing on the shoulders of giants”—building off of the work of great thinkers before him.

Platforms are tools and environments that let us do just that. It’s clear how using platforms applies in computer programming, but what if we wanted to apply platform thinking to something outside of tech startups?

Say, driving race cars?

***

David Heinemeier Hansson was in a deep hole. Halfway through his stint, the sprinkling rain had become a downpour. Curve after curve, he fishtailed at high speed, still in third place, pack of hungry competitors at his rear bumper.

LMP cars run on slick tires—with no tread—for speed. The maximum surface area of the tire is gripping the road at any moment. But there’s a reason street vehicles have grooves in them. Water on the road will send a slick tire drifting, as the smooth rubber can’t channel it away. Grooved tires push water between the tread, giving some rubber grip and preventing hydroplaning. The slicker the tires—and the faster the speed—the more likely a little water will cause a car to drift.

That’s exactly what was happening to the LMP racers. As the rain worsened, DHH found himself sliding around the inside of a car that was sliding all over the race track. Nearby, one driver lost grip, slamming into the wall.

Cars darted for the pits at the side of the track, so their teams could tear off the slick tires and attach rain tires. Rain tires are safer, but slower. And they take a precious 13-plus seconds to install. By the time the car has driven into the pits, stopped, replaced the tires, and started moving again, more than a minute can be lost.

DHH screamed into his radio to his engineer, Should I pit in for new tires?

Like I said, DHH wasn’t the most experienced racer. He had gotten into this race because he was skilled at hacking the ladder. A few years into 37signals’s success, and with Rails taking a life of its own, Hansson had started racing GT4—essentially souped-up street cars—in his spare time.

Initially, he finished in the middle of the pack with the other novices. But after studying videos of master drivers, he started placing higher. High enough that after six races, he was allowed to enter into GT3 races (the next level up), despite zero first-place wins. In GT3, he raced another six times, placing first once, third another time. He immediately parlayed up to GTE (the “E” is for “endurance”). While other racers duked it out the traditional way, spending a year in each league, and only advancing after becoming league champion, DHH “would spend exactly the shortest amount of time in any given series that I could before it was good enough to move up to the next thing.”

There’s no rule that says you have to win the championship to advance from GT4 to GT3. Nor is there a rule saying you have to spend a year in a given league before moving up. That’s just the way people did it. Instead, DHH compressed what normally takes five to seven years of hard work into 18 months of smart work. “Once you stop thinking you have to follow the path that’s laid out,” he says, “you can really turn up the speed.”

On the rainy Silverstone course, however, parlays couldn’t help him anymore, and slacking was not an option. DHH had to drive as fast as safely possible, and every microsecond counted. In such tight competition, the only edge a racer had was raw driving skill.

Or, as it turned out, a better platform.

SHOULD I PIT IN? The man who hates repeating himself repeated over the radio. I’m going to end up in the wall!

His engineer told him to tough it out. The rain is about to clear up.

G-force pounding his body, DHH cautiously hugged the curves for another lap, and sure enough, the downpour began to subside. By two laps the course was dry. Heinemeier Hansson’s slick tires gripped the track with more friction than his competitors’ newly fitted rain tires and he sped ahead. The other drivers now had to pit back in for slick tires, for a total of nearly two minutes’ delay that DHH entirely avoided.

At the end of his leg of the relay, DHH jumped from the car, having demolished the competition.

The slick tires provided DHH a platform advantage, more leverage to drive faster with the same pedal-to-floor effort. And though driving slick in the rain had been risky, his skill learned by imitating master racers kept him alive.

Reflecting on his rapid ascent in racing, DHH says, “You can accelerate your training if you know how to train properly, but you still don’t need to be that special. I don’t think I’m that special of a programmer or a businessperson or a race car driver. I just know how to train.”

DHH had proven he had the skill to race. Videos of master drivers had helped him to learn quickly. His tire advantage had pushed him ahead of equally skilled drivers, and propelled him to the next level. And the advanced racing leagues themselves became a platform that forced him to master the basics—and faster—than he would have at a lower level.

When DHH returned to visit his home race track in Chicago, the same set of drivers still dominated the lower leagues.

He came back and effortlessly beat them.

***

Effort for the sake of effort is as foolish a tradition as paying dues. How much better is hard work when it’s amplified by a lever? Platforms teach us skills and allow us to focus on being great, rather than reinventing wheels or repeating ourselves.

“You can build on top of a lot of things that exist in this world,” David Heinemeier Hansson told me. “Somebody goes in and does that hard, ground level science-based work…”

“And then on top of that,” he smiles, “you build the art.”

###

Question of the day (QOD):  What other selectively “lazy” innovators can you think of?  People who’ve looked at problems in novel ways, or solved them in non-obvious ways? People who’ve opted for simplicity when most “experts” are choosing complexity?

Please share in the comments.

The post The Art of Strategic Laziness appeared first on The Blog of Author Tim Ferriss.