Wealth Building

No, this is not about the military-industrial complex, politics, Google, or the Whitehouse. There is no axe grinding or personal attacks. This post is about applying universal concepts to business.

Business is a lot like warfare.

There is something that makes wargaming more appealing to me than traditional sports. New terrain, varied and changing makes for a more interesting game then a fixed and finite empty field.

To be successful at war, game or real, you have to both think and execute strategic and tactical actions. In business, strategy and tactics are what seperate long time winners from short term burn outs.

As an employee you sometimes are forced to take action on the tactical level. This might mean performing a successful sales routine or convincing a lead to learn more about your product. Unless you make it to the upper ranks you will have little involvement on the strategic level.

As a business owner you are thrown in to strategic and tactical decision making immediately.

If you are having trouble understanding all of this, let me give you a few examples.

Few wargames operate on both the strategic and the tactical level. Strategic games involve moving large groups of forces. You may place a battalion of tanks, but nothing smaller. At the tactical level you move individual units. Tactical is clearing a room, stopping an ambush, or exiting Mogadishu.

As an internet publisher or marketer you are making both strategic and tactical decisions daily.

Strategic — should I focus on this long term publishing project that will make me money 5 years from now, or should I venture into affiliate marketing in hopes that I can pump the profits in to my publishing project? Tactical — a webmaster rejected my link request, what action am I going to take to ensure that my link is on his website?

What really makes this interesting is that the rules are constantly changing.

Chess is set. The rules, the pieces, the board, they never change. In real warfare things change. Staying a step ahead can mean the difference between winning and losing. Despite having pathetic “armies” Islamic militants in the Middle East have put up one hell of a fight. Right now, in 2006, we are witnessing an evolution of warfare.

World War I looked much different than World War II. I venture to guess this was not simply because of technology but because there was a realisation that there were better ways to fight. In fact, it could be argued that those understandings influenced the techonology of warfare.

As a internet business owner you need to understand the basic concepts of humans. Why does someone tell their friends about something? How do you convince a person you are trustworthy?

At the same time, understand what pieces of technology are going to change the game — and be prepared to take advantage of them, or to evolve if they don’t include you. There are a lot of businesses out there that really don’t understand how search engines can benefit them.

I don’t enjoy static environments full of limitations. I do enjoy learning, growing, and ultimately evolving. If you are the same, you are in the right businesses.

Has any industry moved as fast and evolved as rapidly as this one has? Whether you are blackhat, whitehat, a publisher, or an affiliate marketer you must stay on your toes if you want to keep making money online. Fortunately new opportunities are plenty and under served niche markets are virtually limitless. Right now the web is like the wild west, but this time around the gold rush is minting new millionaires on almost a daily basis.

Will this always be the land of opportunity? I would like to believe so. But, sometimes its worth thinking about a rainy day.

I think that there are two different elements to making money online — making money through assets, or earning money through work. Huh?

Think about it this way — ad inflation. Ad cost inflation means that the price of advertising rises, either because of new buyers or because two competitors want the same inventory. As an ad seller ad cost inflation is great. You make more money on the same, or even less traffic. As an ad buyer, not so great. Ad cost inflation may mean you are out of business.

So, how do you make sure you are still earning an income 5, or even 10 years from now?

First, think about having a project or two that is more on the asset side of things. That means being more independent and less dependant on someone else (like ranking in Google, for example.) This could mean building a community through a forum, an e-mail newsletter, having a great generic domain that gets type-in traffic. Short term, these projects typically aren’t too profitable — but that’s not always true.

On the other side, you have short term profit projects. This may include PPC arbitrage or affiliate sites. A distinguishing factor here usually is your visitors come to your site and leave, never to return.

Sometimes it makes a lot more sense to do the short term stuff. If solely focusing on building affiliate sites makes you enough money to retire within 2 or 3 years, trying to build a forum could be very costly.

Here is the bottom line — don’t think that you are going to be doing the exact same thing for the next 30 years. Your not. Plan accordingly.

One of the biggest stopping points that causes small website owners to not commit is the concern that they do not have the ability to make it online. Many people live their entire life setting a low bar for goals because they think that if everyone can’t do it its not worth trying for.

Consider this, in 2005 online consumer spending was estimated at 143.2 billion dollars. Advertising spending, close to $4 billion. Sure thats not all profit, and its not just going to fall in your lap. However, that does give you an idea of what we are dealing with.

An attitude of failure is curling up in to the corner and playing it safe. Safe is a commodity. A good union job at GM looked like a safe bet for decades. Today that “safe” company is losing millions of dollars a day.

I challange you to take a serious look at your life and evaluate your own personal goals. If you don’t do it, someone else willl.

What makes the human brain so hard to copy is its ability to recognize patterns. We are able to see patterns both visually and conceptually in what would otherwise appear to be unrelated bits of data. To a great degree your ability to be open and understand patterns will determine how successful you are at what you do.

Search engine optimizers pick out patterns in test sites to see what works and what doesn’t. Programmers recognize patterns in chunks of buggy code. Cinematographers know what will put the audience to sleep and what will pick them up by the seat of their pants.

The American Heritage Dictionary defines the word pattern as “A model or original used as an archetype.” Archetype as “An ideal example of a type; quintessence” And Quintessense, what the heck does that mean? “The pure, highly concentrated essence of a thing.”

When you see the world around you is it a world of chaos or order? Is the conflict in the Middle East an example of nonsensical mindlessness or the consequence of very real events that have happened in the past?

The way you view the world will determine who you are and what you become.

For thousands of years religions pointed to lighting as a powerful force of the gods. Lighting that hit buildings resulted in explosions of fire, death, and destruction. Benjamin Franklin said nonsense and invented the lighting rod.

When your eyes are new to the world of making money online everything appears as if it is complete chaos. All of this jaron is like a foreign language. Even as things begin to make sense the pathway between failure and your goal appears non-existant.

To the uninitiated paranormal events are viewed as a force of magic and success is seen as luck.

Pattern recognition in this industry is the ability to see what works, what doesn’t, and then apply that information to yourself and your projects. Once you have a successful site, just being lucky seems a little silly.

The unexplained is always explainable. Recognize patterns of both success and failure and you can master any element of this business or life in general. This is the quintessense of reality.

There was a web designer who was very skilled. He could charge above the market rate and his clients were more than willing to pay for it. For several years he made very good money. He was not afraid to spend it and lived a very comfortable lifestyle.

Unfortunately the good times did not last forever. As time progressed his competitor’s skills grew and his rates started feeling the squeeze. Not only did he have to work harder but he also had to work longer. He was no fool, he realised he would not be able to do this forever. He made the decision to scale back his lifestyle and start saving.

Yes, that is a true story.

Today not just the web, but the entire world is changing and growing at an unbelievably rapid pace. I encourage you to take a serious look at outside threats to your business model. Instead of giving up, this designer could have started a design outsourcing firm. Where some see an end to their livelihood, others see new oppurtunities.

I am predicting that independent publishers are soon going to begin feeling the same pressures that the web designer did. Why? Pick up a recent issue of Business 2.0. The profitability of this industry is no secret, nor is search engine optimization.

This is great news for those who are building powerful sites, but very bad news for those who have hesitently pushed out mediocre projects for years.

Where do you stand?

I suspect that every single reader here has some objective they are chasing, be it $10 a day, $310 a day, selling a business for a few million, or something more.

I think that measuring time in years hurts us. Why? Because a year is a long time. Despite being an exact measurement we use it to seperate large periods of time. Next year seems like a long ways away, when it can actually be counted in days. Right now we are 42% of the way to 2007 — that is almost half way there!

Its a cliche, but every person has the same amount of hours in every day. It is how we use them that turns those hours into money (including while we sleep.)

I was gone Wednesday, and got caught up with my work upon returning yesterday, so I apologize for this sudden barrage of blog posts I just found something you have to read, from AffiliateBlog.com. Every so often there is a thread on Sitepoint about how to deal with bad clients, how much you should do for your clients, or some variation of that. Ignore the 10 page debates and take a look at this instead.

On his blog, Matt DeAngelis shares ten things he credits for that sucess. Whether you do web design jobs for clients, or run websites which rely on recurring visitors, this list is worth reading.

Have you ever heard someone say you should not rely soley on Adsense for income? Although Yahoo’s publisher program has helped some webmasters sleep better at night, there is some truth to this statement. Seth Godin pointed out to me, what happens if Markus put all the dating sites out of business, who would pay for his ads?

Diversification isn’t so simple as it sounds. An entrepreneur I know said he usually lost money on the projects that were in areas he wasn’t very good at. Once you become an expert at something you usually understand and recognized the subtleties that help create windfall profits. When you can’t recognize these things you lose money or get lucky and just break even. (Beware of the “this looks good on paper” thing.)

This and my own experiences leads me to believe specialization is the best way to make lots of money and diversification is how to avoid losing it. Thus, its not a bad idea to strike a balance between the two.

How does an independent, self-employed web developer diversify? Does it mean create 100 Adsense sites instead of 3?

I’ve diversified my own income through affiliate marketing, building my own products, and consulting. Other oppurtunities could include web design, search engine optimization services, and selling ad spaces to advertisers who aren’t paying by impression (in case your SE rankings tank.)

Here is the problem with diversification: even though you are working in a related area it isn’t directly contributing your main business. Last year I got side tracked on other projects that lost money. Worse, I lost time. This happened because I devoted entire months to projects rather than working on them on the site while focusing on the things I really was good at.

This is my solution to that problem — keep your foot in the door, but don’t go all the way inside. Google uses the 70-20-10 rule (incidently my top searched keyphrase for this blog.) What this means is that Google employees spend 70% of their time on the core business (Adwords, Adsense, Search), 20% on related projects (Froogle, Google Local, etc.) and 10% on new businesses (Google Talk, Google Maps etc.)

If my advertising earnings bottomed out tommorow I could still pay my rent, my hosting, and all my other bills. It would be a pain in the ass, but it would be done. If you are risk averse and can’t bare to leave your current job (I know a lot of web site owners fall into this area) consider this approach. The truth is, you will be safer than a job where you could get a pink slip tommorow. Short of a worldwide economic collapse you’ll do just fine.

If you have found a project that you truely believe you have to devote 100% of your time to, and the payoff will be big, don’t let diversification scare you away. Plenty of people have made it with a single website from Amazon to eBay to PlentyofFish.

Not everyone thinks the same way I do, but this is the way I thought when I was an employee: every dollar I made was an exchange for a part of my life. That meant saving a few dollars here and there was important. It was worth getting upset if I was over charged $100 because that was almost a whole day of my life gone.

As a business owner and entrepreneur I see things very differently now. First, I enjoy what I am doing. A day of work is something to look forward to. That alone makes all of the difference. The second reason is that I see money differently too. I’ve realised just how wasteful obsessing over money is. The time spent counting every last penny and accounting for every dollar spent could be put to use doing something that not only earns many multiples of that back but also has a positive impact on other people’s lives.

The turning point for me came a few years back when reading The Motley Fool. I was looking for a way to live the lifestyle I wanted on my small income and still have money to invest. I was browsing through a section on their forums called something like living cheap. After reading posts about pinching pennies by eating dirt cheap meals (that were incredibly unbalanced, which I know because my mom was a nutritionist) I realised just how lame and backwords these ideas were.

Now there is nothing wrong with careful spending to finance the start up of your business or sleeping on the kitchen floor of a studio apartment for a year or two in the early stages of entrepreneurship, but nickle and diming for 30 years of your life in order to live semi-comfortably after you retire is simply a waste of your life.

I do this because I want to do it. I like going to bed knowing that I am making money as I sleep. Its even better when I realise how much of a pain in the ass earning a measly couple of dollars took before all of this. Even better in the web publishing business is knowing how many thousands and thousands of people are seeing your work every single day.

So why would I want to work for someone else?

You may have heard about Howard Sterns half a billion dollar contract with Sirius. An article on MSN Money points out this is about $93,000 an hour. Think thats crazy? Oprah’s deal with XM satellite radio works out to $705,000 an hour. Even after staff and production costs, this is a lot of money.

In the United States, if you make $93,000 a year you are considered very successful — if you make $705,000 a year you are at the very tiny top of the iceburg. Few people even think about bringing in that kind of revenue an hour.

Why did I bring this up, and what the hell does it have to do with web publishing? Here is why its important — your name matters. Howard Stern and Oprah aren’t the only people who have been able to create massive leverage through their own name. Sport stars, musicians, and celebrities do it every day simply by appearing or endorsing a product. But your not a celebrity, and neither am I.

Here is what you should learn from this: don’t forfeit your name for a quick buck. You might be trading a quick $100 here and there today for an easy $100,000 5 years from now. The internet is filled with here today, gone to tommorow “gurus” who are more than eager to sell low-quality products to boost their short term earnings. You might fall for buying their e-books once, but you won’t a second time. Do any of them stop to consider how much more they could make developing and endorsing high quality products? Instead of slash and burn customer aquisition they could build up a portfolio of clients who earn them revenue again and again.

Oprah’s loyal viewers watch her TV show, buy books from her bookclub, and subscribe to her magazine. This would never happen if their first “Oprah” experience was a bad one.

I’ve been tempted to link to products on my blog with affiliate codes or do link exchanges, but up until now, I haven’t. Does it matter? May be not, but for an extra couple of hundred dollars a month (if even that), I’ll pass.

Here is my advice for you, do something only the ultra-successfull have figured out: invest in your name; it will pay off exponentially for years to come.