Biznik Blog

In just a minute, we’re going to be talking with Timothy Ferriss, author of the widely acclaimed book, “The 4-Hour Workweek.”  We’re going to be hearing his advice for entrepreneurs and other indie biz free agent types, particularly in the context of the current economic craziness.

I really forward to connecting with you guys today in the second half of the show and later on biznik.com.

Hello, Tim.  Welcome to Biznik Live.

Timothy Ferriss:  Thank you for having me.  My pleasure.

Leif Hansen:  It’s great to have you here.  As you are the world traveler, where in the world is Timothy Ferriss today?

Timothy Ferriss:  Tim Ferriss is in San Francisco, one of my favorite places in the world.

Leif Hansen:  That’s home for you, right?

Timothy Ferriss:  Yes, it is home.  It is close to home as I have at the moment since Francisco Bay area would be what I would call home for the last seven or eight years.  Yes, I can drive my Fuson within two hours, and it’s just a fantastic place.

So I wanted just to start by saying that a ton in your book I found very refreshing.  It’s like a wake up call, a paradigm shift, and it’s just so easy to buy into the whole concept of -why are we buying into this deferred life plan?  Why are we postponing our whole life and buying into this century-old 9 to 5 and then live the rest of your life maybe at the end of your life if you even make it that far?  Just the concept of finding your goals and your dreams, the 80-20 Pareto Principle.

My partner has a company, 80-20 Vision, so I’m very familiar with the idea that 80% of our productivity comes from 20% of our time; and then that the other 20% gets eaten up by 80% of our time.

It seems like what was most controversial in your book, for me and when I read other reviews and blogs, is the chapter on automating and the different ways that you can do that to generate streams of income in your life.

So before I even ask a question about that, could you summarize for our listeners what that chapter is about and do you think that’s affected at all by the current economic climate?

The book is cut into four sections: definition, elimination, automation and then liberation.  The first portion looks at different tools and metrics, commission your life differently.  The elimination section focuses on as you might guest with moving as much to track as possible before you try to organize to plan anything.

And then the automation chapter really looks at - some people, I think, misinterpret the automation chapter as about creating a business that is 100% automated.  That is one application of it but out of its core, the automation chapter is about taking whatever remains after you eliminate and creating rules and processes so that those facets of your life or your business work as elegantly, as seamlessly as possible without you as a bottleneck.  So that is the basic.

Then liberation talks about mini retirements and taking advantage of mobility and geo-arbitraging and things like that.

Timothy Ferriss:  Sure.  Yes, no problem.

That is the snapshot of automation, and I’ll let you continue on with whatever question you might have.

Leif Hansen:  I guess the second part of that is, with the current economic climate, it’s like a stage five river ride out there and a lot of people are uncertain.  A lot of those automation systems seem to rely on newer technologies and marketing yourself.  It seems like some of that could be affected by the economy right now.  Do you think that is true, and have you seen that yourself?  Just what are your thoughts on that?

So micro-testing will be one approach.  The second, I talked about in the case that you are in an entrepreneur or a freelancer, how to market your services or test different business models and so forth online.

So for example, in June, I took 90% of my foreign take and put it into a cash equivalent.  I took it out of the market completely.  Actually, it was not even six months.  It was three months ago.  And I have an almost all fixed income portfolio, and most people would expect me to have a comfort level of let’s say 20%.  Maybe there’s absolutely no way I would panic.  So I’m very low risk.  But I do test extreme options, and I think that that is a very valuable tenet for people who don’t have large budgets for marketing.

So I think that whether you look at a smaller enterprise or a single-man shop or if you look at extremely large companies, I speak to Fortune 500 companies also interested in setting up rules and processes that take out error and redundancy and static because you need to make better use of your resources in a recession.  If you can’t hire more people that you have bigger sales goals, you need to get greater output per person.  You have to spend less time wasting time.

So I think that they are actually equally relevant and most likely more relevant and important as we go into a recession which seems inevitable.

Timothy Ferriss:  I’ll just cover it very briefly.  I think that we are effectively in a recession.  If you look at the monthly job creation versus population growth and so forth, but I don’t think that’s actually that worrisome.  And particularly for entrepreneurs, I think it’s actually in some cases a very big thing.

So I think it’s actually a very good thing for entrepreneurs.  I would also emphasize for people who are panicking about market losses.  In fact, I’ve also lost money in the market but you actually haven’t lost it unless you sold it what you had.  So if the value on paper of your equity portfolio has declined, you haven’t lost any money unless you sold it all.  And I actually -

Timothy Ferriss:  Yes.  Are we live?

Leif Hansen:  Yes, great.  All right.  Thanks for calling back in here, Tim.  Do you want to continue what you were saying there?

Timothy Ferriss:  Yes, I’ll continue.  So maybe eBay and Skype are laying off employees.  That could be why I dropped off.

I think it’s a very good thing for entrepreneurs.  And for that reason, I really don’t think in most cases that freelancers don’t need to be concerned with enormous macroeconomic movements very much in general.  So that would be my short commentary on economics.

Leif Hansen:  It’s very complex obviously.

Timothy Ferriss:  It is but I figure there are some really smart people I deal with regularly, economists or whatnot.  I think that we’ll see the market rebound significantly, probably third quarter of 2009, so I’d say just hold on there.

Timothy Ferriss:  The top two pieces of advice, I would say: Number one is test, test, test.  So when I mention micro-testing, there are excellent tools out there right now for testing and split-testing.

Split-testing, I just mean if you have, let’s say, a website or a newsletter and you want to test the click-through rate based on a specific headline or a specific closing tagline that you can do that for free.  There are excellent tools out there.  So whether that’s Google website optimizer or whether that’s Optimus, there are a number of others that you can use.

I would also say really start looking at expanding.  I’m sure a lot of people listening to this are based online primarily.  I would consider people to start looking at offline options in some cases.  One of the best ways to drive traffic and therefore conversions in my opinion is going to where the channels are emptiest.  And in that case, it’s often radio or television.  You can look at remnant advertising agencies, whether that’s Manhattan Media or there are quite a few of them, some of them I detailed in the book.  And you can get full-page advertisements, half-page advertisements, 90-second, 60-second spots for 80 or 90% off of retail especially in a recession when people are going to be cutting back on advertising budgets dramatically.  There’s going to be a plummeting phenomenon in advertising costs.

But if I had to give a separate recommendation, it would be to do ruthless 80-20 analysis.  You mentioned it earlier.  Just to put in concrete terms, really focus on the critical fuel and eliminate or ignore the trivial money.  Meaning, identify the 20% of customers that are producing 80% of your profit.  Identify the 20% of products or services that you offer that are producing 80% of your profit.  And either get rid of the rest or stop spending time on them.  And really profile this product and customers that work and try to duplicate them.

Timothy Ferriss:  I don’t think looking at it is hard.  I think putting the elimination into practice is difficult for people who are unaccustomed to having uncomfortable conversations.  So I really think that success in almost anything, certainly interpersonal, can be measured at the number of uncomfortable conversations you’re willing to have.  That will be number one.

The second reason it’s difficult is because people will often use prior investment of time, energy, of income, let’s just say the extent, a year developing a portfolio of 10 products, they’ll be loathe to eliminate eight of those two because they’ve invested that time.  But it does not make sense that I would just look at that as a testing period.

Timothy Ferriss:  It’s really primarily ego-driven.  I’ve battled with that myself.  It was not easy.  In my own case, I’ve looked at 120 wholesale customers, recognized it, I thought eight of them were producing more than 95% of my profit, and I think it was five actually.  Of those five, there were two or three who were professional ball-breakers.  I’m not going to sugar-coat the term.  They were pains in my ass and they would berate me and my employees, and they just took great pleasure in being difficult to work with and having unreasonable demands.  And I realized it was carrying over into my personal life.  It would keep me up at night.  I took it as a cost of business.  Customers’ are always right.

Two of them immediately corrected course and changed their behavior entirely.  One flipped out and I said, “Thank you very much.  Have a nice life.”  That one period of 24 hours right into that had a greater impact on my quality of life than almost anything else I did revenue related.

Leif Hansen:  That’s powerful.

Leif Hansen:  Well, you know what?  I want to follow up on that and I have another dozen questions of my own but I know we have a bunch of questions coming in and calls coming in.  So I just want to let you guys know that of course you can use the Google Talk client.  If you use Biznik Catalyst, you can ask questions, you can use the chat client on the site here.  You can also call in (347) 884-8009.  We can take two or three questions here.

I’m going to start with a question that I have from somebody in the chat room who says, Scott Clark saying, “Tim, I’ve had horrible luck outsourcing to India even following your tips and books.  Any further advice for outsourcing to get success?”

There’s a new company I’ve been using for several months now called Ask Sundays.  If you go to tryasksunday.com, they are based in India and the Philippines but you call through a New York number and they speak very good English.  It’s worth taking a look at.  That’s the best as a concierge type of service but they also have projects.  So if you go to tryasksunday.com, that’s a very good one to look at.

So I would encourage you to look not only in India or at Elance but also at Craigslist and in other countries as well.  The Philippines is, I think, an upcomer.

Dan McComb:  Yes, hello.

Leif Hansen:  Hello there.  Who are we speaking with?

Dan McComb:  It’s Dan McComb, the cofounder of Biznik.

Leif Hansen:  Right on, Dan.  Thank you for calling.

Dan McComb:  Yes, I wanted to call in and say hello to Tim.  I’m looking forward to meeting you at Biz Tech Day Conference in San Francisco on October 27.

Timothy Ferriss:  Thanks for calling in.  For sure, I’ll be there.

Dan McComb:  Yes, it’s going to be fun.  Tim’s going to be speaking at the event and I’m going to be on the panel down there too, so lots of fun for those of you who are in San Francisco.  It would be great to meet you down there.

I wanted to ask you, Tim, a question.  You mentioned that actually some businesses are going to do well and some are going to have a harder time in the economy that’s coming up.  So I wondered if you could be specific about that.  Are there some types of businesses that should do well in the coming downturn and others that we should be worried about?

Large businesses are going to have lots of problems.  But as a result of that, I think entrepreneurs who have large companies, Fortune 500 types of companies, as their primary customer base are going to have challenges ahead, particularly if they’re selling very high-end products or services.  So if you’re dealing with brand name blue chip companies and you’re selling what might be considered a nice to have but not have to have service or product, I think that you could be looking at hard times.  And they should adapt to that by perhaps looking at lower market products for smaller or medium-size businesses.

So I think that for people who are looking for a very quick exit in a startup, this is not the ideal time to have limited cash on hand if you have a very high burn rate.

So those will be two examples.  But I don’t think the competition is a bad thing.  As Darwinian as it sounds, I do think that the companies that deserve to exist will do very well.  But I think it’ll be up to the entrepreneurs to be extremely agile and recognize when some things are not working and adapt to that.

Timothy Ferriss:  Sure.

Leif Hansen:  Yes, go ahead.

Dan McComb:  One more is, speaking of being extremely agile, the idea in the 4-hour workweek, I love your ideas which by the way I think are really excellent and interesting, but one that just need pause is the idea that we should be outsourcing a lot of work to other countries.  I think we have a lot of service providers, sort of one-person businesses.  Should they be worried as stuff like that goes out and sent out to work overseas or is that something that they can ride as well?  How does that fit in with the small Indie business guys?

Because, number one is, this is a phenomenon; this is a fundamental shift that is not stopping.  It’s not like the book invented the flatness of a new competitive global marketplace.  So this is something that you can either take advantage of or be victimized by essentially.  If you were to look at it from a different perspective, let’s just say you forget about, and this is what I encourage a lot of entrepreneurs to do also, is rather than getting let’s say assistants in India or in addition to getting assistants in places like India or the Philippines, Canada, etc., let’s just say that you have a service that is going to find more large-capped clients in a place like the UK versus the US right now.  The same technologies allow you to sell your services in pounds to people in London that allows someone in the Philippines to sell their services to you in the US.

So it’s not quite a zero-sum game, and I think that there are many more benefits than detriments to US economy if we embrace it properly rather than resisting something that’s going to continue to expand whether we wanted to or not.

We have Scott Clark. Drew Curtis and I, being Scott Clark, wonder when you’re coming back to Lexington to go horse racing.

Van Neau from Seattle hopes that you can come and wondering if you would be willing to do a workshop in Seattle.

A man named Marty is saying that he outsources to needy relatives, so actually outsourcing is a paradigm for him to connect to people that need it more.  A little comment on that last conversation.

I’m just going to basically say -

Timothy Ferriss:  I can answer a few more questions after we stop recording so it just isn’t that finite.

Second is I would say to cultivate optimism and recognize that if you test properly what you invest in, it has a very high likelihood of succeeding, of having an exceptional ROI.  In the last seven years, I never lost money on a roll-out campaign and that’s not because I’m good at divining the future and guessing.  In fact, generally, what I think is going to work best does not.  It’s because I test very methodically.

So I’ll just encourage people to embrace experimentation on very small scales to determine what works and to be very optimistic.  We’re going into a very, very exciting land grab type period for entrepreneurs in a recession.  I think that there will be more opportunities and not fewer.