The 4-Hour Workweek: Escape 9–5, Live Anywhere, and Join the New Rich - Expanded and Updated

by Timothy Ferriss

  This is the fun part. Now we get to brainstorm or find products with these two markets in mind.

  The goal is come up with well-formed product ideas and spend nothing; in Step 3, we will create advertising for them and test responses from real customers before investing in manufacturing. There are several criteria that ensure the end product will fit into an automated architecture.

  The Main Benefit Should Be Encapsulated in One Sentence.

  People can dislike you—and you often sell more by offending some—but they should never misunderstand you.

  The main benefit of your product should be explainable in one sentence or phrase. How is it different and why should I buy it? ONE sentence or phrase, folks. Apple did an excellent job of this with the iPod. Instead of using the usual industry jargon with GB, bandwidth, and so forth, they simply said, “1,000 songs in your pocket.” Done deal. Keep it simple and do not move ahead with a product until you can do this without confusing people.

  It Should Cost the Customer $50–200.

  The bulk of companies set prices in the midrange, and that is where the most competition is. Pricing low is shortsighted, because someone else is always willing to sacrifice more profit margin and drive you both bankrupt. Besides perceived value, there are three main benefits to creating a premium, high-end image and charging more than the competition.

  Higher pricing means that we can sell fewer units—and thus manage fewer customers—and fulfill our dreamlines. It’s faster.

  Higher pricing attracts lower-maintenance customers (better credit, fewer complaints/questions, fewer returns, etc.). It’s less headache. This is HUGE.

  Higher pricing also creates higher profit margins. It’s safer.

  I personally aim for an 8–10x markup, which means a $100 product can’t cost me more than $10–12.50.27 If I had used the commonly recommended 5 x markup with BrainQUICKEN, it would have gone bankrupt within 6 months due to a dishonest supplier and late magazine. The profit margin saved it, and within 12 months it was generating up to $80,000 per month.

  High has its limits, however. If the per-unit price is above a certain point, prospects need to speak to someone on the phone before they are comfortable enough to make the purchase. This is contraindicated on our low-information diet.

  I have found that a price range of $50–200 per sale provides the most profit for the least customer service hassle. Price high and then justify.

  It Should Take No More Than 3 to 4 Weeks to Manufacture.

  This is critically important for keeping costs low and adapting to sales demand without stockpiling product in advance. I will not pursue any product that takes more than three to four weeks to manufacture, and I recommend aiming for one to two weeks from order placement to shippable product.

  How do you know how long something takes to manufacture?

  Contact contract manufacturers who specialize in the type of products you’re considering: http://www.thomasnet.com/. Call a related manufacturer (e.g., toilet bowls) if you need a referral to a related manufacturer you cannot find (e.g., toilet cleaning solutions). Still no luck? Google different synonyms for your product in combination with “organization” and “association” to contact the appropriate industry organizations. Ask them for referrals to contract manufacturers and for the names of their trade magazines, which often contain advertisements for contract manufacturers and related service providers we’ll need for your virtual architecture later. Request pricing from the contract manufacturers to ensure the proper markup is possible. Determine the per-unit costs of production for 100, 500, 1,000, and 5,000 units.

  It Should Be Fully Explainable in a Good Online FAQ.

  Here is where I really screwed up in my product choice with Brain-QUICKEN.

  Even though ingestibles have enabled my NR life, I would not wish them on anyone. Why not? You get 1,000 questions from every customer: Can I eat bananas with your product? Will it make me fart during dinner? On and on, ad nauseam. Choose a product that you can fully explain in a good online FAQ. If not, the task of travelling and otherwise forgetting about work becomes very difficult or you end up spending a fortune on call center operators.

  Understanding these criteria, a question remains: “How does one obtain a good muse product that satisfies them?” There are three options we’ll cover in ascending order of recommendation.

  Option One: Resell a Product

  Purchasing an existing product at wholesale and reselling it is the easiest route but also the least profitable. It is the fastest to set up but the fastest to die off due to price competition with other resellers. The profitable life span of each product is short unless an exclusivity agreement prevents others from selling it. Reselling is, however, an excellent option for secondary back-end28 products that can be sold to existing customers or cross-sold29 to new customers online or on the phone.

  To purchase at wholesale, use these steps.

  Contact the manufacturer and request a “wholesale pricelist” (generally 40% off retail) and terms.

  If a business tax ID number is needed, print out the proper forms from your state’s Secretary of State website and file for an LLC (which I prefer) or similar protective business structure for $100–200.

  Do NOT purchase product until you have completed Step 3 in the next chapter. It is enough at this point to confirm the profit margin and have product photos and sales literature.

  That’s reselling. Not much more to it.

  Option Two: License a Product

  I not only use all the brains that I have, but all that I can borrow.

  —WOODROW WILSON

  Some of the world’s best-known brands and products have been borrowed from someone or somewhere else.

  The basis for the energy drink Red Bull came from a tonic in Thailand, and the Smurfs were brought from Belgium. Pokémon came from the land of Honda. The band KISS made millions in record and concert sales, but the real profit has been in licensing—granting others the right to produce hundreds of products with their name and image in exchange for a percentage of sales.

  There are two parties involved in a licensing deal, and a member of the New Rich could be either. First, there is the inventor of the product,30 called the “licensor,” who can sell others the right to manufacture, use, or sell his or her product, usually for 3–10% of the wholesale price (usually around 40% off retail) for each unit sold. Invent, let someone else do the rest, and cash checks. Not a bad model.

  The other side of the equation is the person interested in manufacturing and selling the inventor’s product for 90–97% of the profit: the licensee. This is, for me and most NR, more interesting.

  Licensing is, however, dealmaking-intensive on both sides and a science unto itself. Creative contract negotiation is essential and most readers will run into problems if it’s their first product. For real-world case studies on both sides, ranging from Teddy Ruxpin to Tae-Bo, and full agreements with actual dollar amounts, visit www.fourhourblog.com. From how to sell inventions without prototypes or patents to how to secure rights to products as a no-name beginner, it’s all there. The economics are fascinating and the profits can be astounding.

  In the meantime, we will focus on the least complicated and most profitable option open to the most people: product creation.

  Option Three: Create a Product

  Creation is a better means of self-expression than possession; it is through creating, not possessing, that life is revealed.

  —VIDA D. SCUDDER, The Life of the Spirit in the Modern English Poets

  Creating a product is not complicated. “Create” sounds more involved than it actually is. If the idea is a hard product—an invention—it is possible to hire mechanical engineers or industrial designers on www.elance.com to develop a prototype based on your description of its function and appearance, which is then taken to a contract manufacturer. If you find a generic or stock product made by a contract manufacturer that can be re-purposed or positioned for a special market, it�
��s even easier: Have them manufacture it, stick a custom label on it for you, and presto—new product. This latter example is often referred to as “private labeling.” Have you ever seen a massage therapist’s office with its own line of vitamin products or the Kirkland brand at Costco? Private labeling in action.

  It is true that we’ll be testing market response without manufacturing, but if the test is successful, manufacturing is the next step. This means we need to keep in mind setup costs, per-unit costs, and order minimums. Innovative gadgets and devices are great but often require special tooling, which makes the manufacturing start-up costs too expensive to meet our criteria.

  Putting mechanical devices aside and forgetting about welding and engineering, there is one class of product that meets all of our criteria, has a manufacturing lead time of less than a week in small quantities, and often permits not just an 8–10 x markup, but a 20–50 x markup.

  No, not heroin or slave labor. Too much bribing and human interaction required.

  Information.

  Information products are low-cost, fast to manufacture, and time-consuming for competitors to duplicate. Consider that the top-selling non-information infomercial products—whether exercise equipment or supplements—have a useful life span of two to four months before imitators flood the market. I studied economics in Beijing for six months and observed firsthand how the latest Nike sneaker or Callaway golf club could be duplicated and on eBay within a week of first appearing on shelves in the U.S. This is not an exaggeration, and I am not talking about a look-alike product—I mean an exact duplicate for 1/20 the cost.

  Information, on the other hand, is too time-consuming for most knockoff artists to bother with when there are easier products to replicate. It’s easier to circumvent a patent than to paraphrase an entire course to avoid copyright infringement. Three of the most successful television products of all time—all of which have spent more than 300 weeks on the infomercial top-10 bestseller lists—reflect the competitive and profit margin advantage of information products.

  No Down Payment (Carlton Sheets)

  Attacking Anxiety and Depression (Lucinda Bassett)

  Personal Power (Tony Robbins)

  I know from conversations with the principal owners of one of the above products that more than $65 million worth of information moved through their doors in 2002. Their infrastructure consisted of fewer than 25 in-house operators, and the rest of the infrastructure, ranging from media purchasing to shipping, was outsourced.

  Their annual revenue-per-employee is more than $2.7 million. Incredible.

  On the opposite end of the market size spectrum, I know a man who created a low-budget how-to DVD for less than $200 and sold it to owners of storage facilities who wanted to install security systems. It’s hard to get more niche than that. In 2001, selling DVDs that cost $2 to duplicate for $95 apiece through trade magazines, he made several hundred thousand dollars with no employees.

  But I’m Not an Expert!

  If you aren’t an expert, don’t sweat it.

  First, “expert” in the context of selling product means that you know more about the topic than the purchaser. No more. It is not necessary to be the best—just better than a small target number of your prospective customers. Let’s suppose that your current dreamline—to compete in the 1,150-mile Iditarod dogsledding race in Alaska—requires $5,000 to realize. If there are 15,000 readers and even 50 (0.33%) can be convinced of your superior expertise in skill X and spend $100 for a program that teaches it, that is $5,000. Bring on the Huskies. Those 50 customers are what I call the “minimal customer base”—the minimum number of customers you need to convince of your expertise to fulfill a given dreamline.

  Second, expert status can be created in less than four weeks if you understand basic credibility indicators. It’s important to learn how the PR pros phrase resume points and position their clients. See the boxed text later in this chapter to learn how.

  The degree to which you personally need expert status also depends on how you obtain your content. There are three main options.

  Create the content yourself, often via paraphrasing and combining points from several books on a topic.

  Repurpose content that is in the public domain and not subject to copyright protection, such as government documents and material that predates modern copyright law.

  License content or compensate an expert to help create content. Fees can be one-time and paid up front or royalty-based (5–10% of net revenue, for example).

  If you choose option 1 or 2, you need expert status within a limited market.

  Let’s assume you are a real estate broker and have determined that, like yourself, most brokers want a simple but good website to promote themselves and their businesses. If you read and understand the three top-selling books on home-page design, you will know more about that topic than 80% of the readership of a magazine for real estate brokers. If you can summarize the content and make recommendations specific to the needs of the real estate market, a 0.5–1.5% response from an ad you place in the magazine is not unreasonable to expect.

  Use the following questions to brainstorm potential how-to or informational products that can be sold to your markets using your expertise or borrowed expertise. Aim for a combination of formats that will lend itself to $50–200 pricing, such as a combination of two CDs (30–90 minutes each), a 40-page transcription of the CDs, and a 10-page quickstart guide. Digital delivery is perfectly acceptable—in some cases, ideal—if you can create a high enough perceived value.

  1. How can you tailor a general skill for your market—what I call “niching down”—or add to what is being sold successfully in your target magazines? Think narrow and deep rather than broad.

  2. What skills are you interested in that you—and others in your markets—would pay to learn? Become an expert in this skill for yourself and then create a product to teach the same. If you need help or want to speed up the process, consider the next question.

  3. What experts could you interview and record to create a sellable audio CD? These people do not need to be the best, but just better than most. Offer them a digital master copy of the interview to do with or sell as they like (this is often enough) and/or offer them a small up-front or ongoing royalty payment. Use Skype.com with HotRecorder (more on these and related tools in Tools and Tricks) to record these conversations directly to your PC and send the mp3 file to an online transcription service.

  4. Do you have a failure-to-success story that could be turned into a how-to product for others? Consider problems you’ve overcome in the past, both professional and personal.

  The Expert Builder: How to Become a Top Expert in 4 Weeks

  It’s time to obliterate the cult of the expert. Let the PR world scorn me. First and foremost, there is a difference between being perceived as an expert and being one. In the context of business, the former is what sells product and the latter, relative to your “minimal customer base,” is what creates good products and prevents returns.

  It is possible to know all there is to know about a subject—medicine, for example—but if you don’t have M.D. at the end of your name, few will listen. The M.D. is what I term a “credibility indicator.” The so-called expert with the most credibility indicators, whether acronyms or affiliations, is often the most successful in the marketplace, even if other candidates have more in-depth knowledge. This is a matter of superior positioning, not deception.

  How, then, do we go about acquiring credibility indicators in the least time possible? Emulating the client-grooming techniques of some of the best PR firms in New York City and Los Angeles isn’t a bad place to start.

  It took a friend of mine just three weeks to become a “top relationship expert who, as featured in Glamour and other national media, has counseled executives at Fortune 500 companies on how to improve their relationships in 24 hours or less.” How did she do it?

  She followed a few simple steps that created a credibility snowball e
ffect. Here’s how you can do the same.

  1. Join two or three related trade organizations with official-sounding names. In her case, she chose the Association for Conflict Resolution (www.acrnet.org) and The International Foundation for Gender Education (www.ifge.org). This can be done online in five minutes with a credit card.

  2. Read the three top-selling books on your topic (search historical New York Times bestseller lists online) and summarize each on one page.

  3. Give one free one-to-three-hour seminar at the closest well-known university, using posters to advertise. Then do the same at branches of two well-known big companies (AT&T, IBM, etc.) located in the same area. Tell the company that you have given seminars at University X or X College and are a member of those groups from step 1. Emphasize that you are offering it to them for free to get additional speaking experience outside of academics and will not be selling products or services. Record the seminars from two angles for later potential use as a CD/DVD product.

  4. Optional: Offer to write one or two articles for trade magazines related to your topics, citing what you have accomplished in steps 1 and 3 for credibility. If they decline, offer to interview a known expert and write the article—it still gets your name listed as a contributor.

  5. Join ProfNet, which is a service that journalists use to find experts to quote for articles. Getting PR is simple if you stop shouting and start listening. Use steps 1, 3, and 4 to demonstrate credibility and online research to respond to journalist queries. Done properly, this will get you featured in media ranging from small local publications to the New York Times and ABC News.