419 – BCS Part 2 Of 6 – Side Projects (Why You Probably Shouldn’t Do Them)

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Focus on what works

In the podcast:

01:26 – Stop doing this (if you want to make more money)
02:27 – Switching from day job to online business
04:12 – What business unit should you be focusing on?
07:16 – The Chocolate Wheel
09:50 – The paradox of success
11:20 – A benchmark to determine if it’s worth it
12:01 – Where side projects might work
14:37 – Be mindful of THIS
15:56 – All eggs in one basket or diversify?
16:43 – How to choose
17:17 – Yes or NO?
19:15 – What to look for in a business…
20:03 – Criteria for exclusion
22:39 – Summary and action steps

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Part 1 of the series
Part 3 of the series
Part 4 of the series
Part 5 of the series
Part 6 of the series

Tweetables:

Discovering what is working [Click To Tweet]
Discipline creates results. [Click To Tweet]
Evaluate everything you’re doing. [Click To Tweet]
Reality trumps potential. [Click To Tweet]

Transcription:

James: James Schramko here, welcome back to SuperFastBusiness.com, and you’re listening to the Business Case Study Series, with myself and Matthew Paulson, and this is episode 2 of 6. In Part 1 we talked about how to grow and monetize an email list of 250,000. If you haven’t listened to that, please go and listen to it. But right now, I’d like to welcome back Matthew Paulson.

Matthew: Hey, James.

James: How are you doing?

Matthew: Good, how are you?

James: Good, it was great talking about episode 1, we went through the email dos and don’ts, and some fantastic information there, which I’m sure was valuable to anyone that doesn’t have a list of 250,000 people yet. Today, we’re going to switch gears, talk about side projects. And interestingly, something you learned with a case study is why you shouldn’t do them.

Matthew: Yes.

James: Perhaps you could tell me a bit about how this topic idea came up.

Making more by focusing on less

Matthew: I figured out that whenever I stopped doing something, I made more money. So in 2012, I had a day job. I was working as a Web developer for a local agency. I was their senior developer, I’d be making websites, Web applications, anything that required a lot of custom code, I would do that. And they could never quite keep me busy enough, so I thought, hey, at the time I was making a couple of hundred grand in revenue from my business, and maybe 60 grand from my day job. And since my day job wasn’t that hard, I thought I could just hold onto it, it wasn’t that big of a deal.

But what I found was that when I quit my day job, I actually had a kid in September of 2012, so I figured, if I’m going to quit, it was better use of my time to play with my baby than it is to keep the day job because I just didn’t need the money at that point.

But what I found was, when I quit my day job, there was just a lot of freed up mental energy to focus on my business. So I’d gone from about 20k, 25k a month in revenue to 40k in 3 or 4 months after I had quit that day job. That was my first sign, I said, hey, maybe I need to focus a little bit here and put all my energy into my business.

James: We certainly have that in common. When I was switching from day job to my online business, I really started to feel like my day job was an annoyance, of that 70 hours a week stealing from my primary purpose. So it was a mental shift, where I made my online business compete with my day job to the point where the online business had to conquer and win, and something had to give and it was that 70-hour inconvenience of working in someone else’s business.

So what happened next?

Matthew: So, 2013, I started the year at about 40k in revenue a month, and I ended the year at 106k in revenue a month. And I think that’s just the snowball effect of having my business being this whole focus of my life other than my family and stuff like that. When you can devote 8 hours a day to a business, and you just start trying stuff that you would otherwise think that you know, hey, I don’t have time to do that, but you finally have time to do those kind of things, do just exploratory marketing, try out new advertising channels, new revenue streams…

When you don’t have enough time, you kind of feel like you’re in maintenance mode, so you’re doing all of the work to run the business, but you’re not necessarily putting in the time to grow your business, that you could otherwise. I just had a lot more biz dev time freed up, and I tried a lot of different things, and I found some things that worked, and we doubled our monthly revenue that year.

James: Wow. So when you talk about sole focus on your business, this is where I think it gets interesting because in a case like you, or I, and many of our listeners, they have their business, they’re not still doing the job and the business. So let’s say, we have our business, do you have a process or a way of looking at what business units you’re focusing on and how far apart they are or side projects versus primary projects within that business?

What’s working, what’s not?

Matthew: Yeah. Fast forward a year later, beginning of 2014, I had a hundred grand a month in revenue, I was taking a look at all the different projects I had going on, and how much time each of these little business units take up.

And I figured out that, you know, it sounds stupid that I figured this out or had to figure this out, but I had 2 businesses at the time, 2014 I did about $1.6 million in revenue, this year I made $2.5, but of the $1.6 million we made last year, $1.4 million came from MarketBeat and then $200,000 came from a press release business that we had. But each of those were taking just about the same amount of time to run, so 50 percent of my time was going towards one-seventh of my revenue. And I thought, hey, this doesn’t make sense.

So I actually sold that business to a couple of guys out of Utah that I met at a conference called Rhodium Weekend. Their names are Dave Parkinson and Andrew Pincock, a couple of nice guys. They bought that business, so by doing that I was able just to focus, double down on MarketBeat, and we doubled revenue again that year, just by getting rid of that little business.

And I’m sure you have, but I have, we’ve built probably 50 to 100 websites in the last 5 years, most of them don’t get any traffic. Some get a little bit of traffic. I got rid of everything but MarketBeat, that’s under my umbrella company. So MarketBeat is the thing. I guess my book’s in there, but I cleaned house in my domains, I cleaned house in my websites, and that’s really all that’s left. That way, I don’t have to put any time into thinking about anything else.

James: Yeah. We have had similar experiences. What we’re really talking about here is doing more of what’s working and letting go of the things that aren’t. And it’s an 80/20 type analysis, but it’s quite fractal. I imagine even within your single business, there’ll be areas of that business that deserve more of your time and attention than other areas of that business.

If you go back a few years in my own online journey of the last decade or so, I had many different profit centers, at least 10, and I slowly pruned them back to have less but more. Less business divisions, but more profitable and more rewarding, and I’ve got them down to just a few core elements now. And I imagine I’ll be going through a similar process to what you’ve been doing, and that is started making the moves that will see me eventually separate off some of the elements of my business just to keep one, maybe two, but they’ll be very closely related.

A few things that are sort of important to mention at this point is that I talk about a chocolate wheel idea where you have a core customer in the middle, and if you do have multiple businesses, it works really well if they all have the same customer. And that’s something I’m fortunate with, that when, for example, I’ll have coaching, I’ll have website, I’ll have traffic services and some affiliate income, they all revolve around the exact same customer.

So through one window, we might say they’re 4 separate businesses, and through another window we might say it’s one business because it’s got the same customer but it has four departments or four sections. So a lot of it comes down to how we want to look at our business, through which glasses. You know, you could look at it in terms of domain names, and I’ve actually gone through the exercise of bringing those four or five separate websites all back to one website, and that sort of redefines that as being the primary business. So I’ve ended up too, just like you, I’ve ended up with two websites.

Matthew: Tell me about the process of moving everything over to SuperFastBusiness. How has that changed things for your company in what you do?

James: Well, it’s much, much simpler, and we’ll certainly be diving into that in episode 5, where we talk about how to successfully change the name of your business, because it’s an entire episode worth of learning, as we’ll be talking about selling a website in episode 3, which you were just talking about. These are all parts of this incredible business case study series, because it’s so vital. But the short answer is, it’s much easier. It’s easier for me to understand, it’s easier for my customer to understand.

And as long as you know your numbers and you partition them in other ways, like with the way you manage them internally and the way you report, and the costs then, etc, and that’s where I think we’ll have a lot of fun talking about in that topic, it’s a great way for you to measure what the right thing to do is.

And just like you I sold off and continuing to reduce down my domain portfolio. At one point, I had over a thousand websites, because of our SEO business. We had independent websites that we could rely on for very easy ranking gains for customers, which we dismantled many years ago, and subsequently of the 2,000 domains that I held, we’ve gotten that back down to around 600 or 700 now. Sold off the premium ones, and just let the other ones lapse.

So the consolidation, I think all this points to a simple fact. Entrepreneurs tend to take on side projects because of the paradox of success that is when we get something sorted out and organized and it reduces our time capacity requirements then we tend to fill the void, exactly like when you quit the job. We now have an extra 70 hours a week. It’s so tempting to start several new business models, and it requires I think a lot of discipline and focus to only be doing the things that are getting you essential results rather than dilute them with side projects. Do you agree?

Matthew: Absolutely. I think you know, finding out what is taking that more time than it should and getting rid of it one way or another, whether you delegate that to somebody or hire somebody to do that for you, to do your low value task that take up a lot of your time, you can do that, you can sell stuff, you can get rid of it, but focus more on what’s working and get rid of the rest. I think that’s a great strategy for any business.

Regular evaluation

James: So one of the tools that I use is firstly, I have regular review points. So if I do have side projects or if I was tempted do, they’d have to be reviewed often. No longer than 12 weeks apart. I draw it up on a whiteboard, what the business units are, and I put a representation of their revenue, their profit after taking up fixed and variable costs. Then I look at how many hours I have to spend on that unit. I like my effective hourly rate calculation. It’s simply the amount of profit it makes per month and divide it by the number of hours that I spent on that business unit. That will give me a benchmark to know if it’s good or bad. And then you’ve got to factor things like future growth or potential value if you were to sell it. That’s where part 3 of 6 is going to be really helpful in terms of selling a website.

If we’re thinking that the end goal is a sale amount and we’ve got an amount in mind, then we might be able to effectively work out what this is worth to us. If I’m finding that part of the business is giving me a very low yield or causing an excess in support of frustration, it has to go.

Doing side projects

Matthew: I absolutely agree. I’m not totally opposed to side projects. I have two of them. They’re separate companies. I don’t run them, but I have equity in them. So there is a golf publishing company I own 20% of and a fundraising task tool that I own 33% of. I’m not operationally involved in either of them but I helped get them started. I helped with some expertise and a little bit of time, so now I have meeting once a month for both of those business and I collect a check. Those have been good side projects for me.

So if you can line it up where it doesn’t take a lot of your time, where you can leverage your expertise and a little bit of money, that can be a good side project, but something that takes a lot of your time is usually not a good side project.

James: Yeah, and I’m sure if you stack them up on an effective hourly rate based on their actual or potential rate, they’re going to have pretty good number.

Matthew: Yeah, it’s going to be huge. I got a check for 4 grand last month and I put maybe an hour or two into that business that month. So stuff like that is hard to argue with.

James: Based on my benchmark for the people I’m working with, we target $1,000 per effective hour, so that would be a number that is acceptable for most people for how long you spend on it. For example, $100,000 per month profit, 100 hours per month to get it is for most people, that’s quite acceptable and it’s a good starting point or a current sort of target.

What we find is when we start with people, often their effective hourly rate is like $12 or $20 or $50, and it’s nowhere near where it could be. So by using a tool like that, it prevents you from spending too much time into a project and not getting a result.

One of the things that you need to be mindful of is the phenomenon of sunk cost and that is because you’ve spent a lot of time and energy and money on something. You get bonded to it and you can’t give it up because you feel like you’re losing everything that you’ve invested in it. A good tool to offset is the opportunity cost. It’s what else could you do from this point. Even if you write off the loss, you can correct your course quickly and get back on it. You could get your yield back up.

One of the greatest misnomers that’s espoused by gurus out there is take action, take action, imperfect action, just get going. But if you’re doing it in the wrong place or it’s not going to get you the result, then you’re just actually digging yourself further into a horrible hole.

Matthew: Yeah. I see a lot of people get hung up on projects they put a lot of time into. They think they have a great idea. They put a bunch of time into making it happen. They probably should give up on it but they just don’t because they feel they put so much time on it already. I think you’re right. Every now and then, you should just objectively evaluate everything you’re doing and say, does it still make sense to do this regardless of what I’ve put into it already.

James: And there are some opposing viewpoints that like there’s the Warren Buffet side of things like you should put all your eggs in the same basket because if you diversify, it just means you don’t know what you’re doing. I’m paraphrasing there. And what you’re saying before is with your website, you’ve got a good sense that it’s working really well. So you want to put some eggs in that basket and not have to care for so many other baskets because you know where the money is, you know what you’re doing.

The other viewpoint of guys like Peter Diamandis who sort of like, have lots of irons in the fire and you’ll end up with more things. So there are some people who seem to be designed for multiple projects or the multitasking. But I think a lot delude themselves and partly, it’s maybe because they get bored easily. It just requires focus and discipline to stick with something in a stoic way that doing the hard things to get the good rewards later seems to elude a lot of people.

Matthew: Yeah. I think a lot of entrepreneurs have ADD with their businesses. They have some success and they are always looking to the next thing even before what they’re doing right now isn’t finished yet. I think that’s a challenge for a lot of entrepreneurs. For me, the default is answer is no to everything unless I have a very good reason to say yes. Whenever somebody asks to do consulting, I just say, “No sorry, I don’t do that.”

It’s like we’re getting tempted all the time with new business opportunities and say, “Oh, I can make money there, I could do this, I could do this, I could do this.” But those things just distract you from your main focus, like you think it’s a revenue opportunity but it’s actually going to hurt your revenue because you aren’t focusing on your main bread and butter.

James: Exactly. And just because you can do something doesn’t mean you should do something.

Matthew: No.

Pick your waves

James: I think sitting out in the lineup when I’m surfing is a good metaphor. Just because you can catch up a wave, it doesn’t mean you should paddle for it. It’s a lot to do with wave selection. Some waves are better than others, they’re better shaped and they’re going to give you a better ride. And people who are too opportunistic, they’ll just take off on the very next wave that comes, thinking, well, the wave’s here now and I can catch it. And if we’re more patient and we select the right opportunity, we can get better rides.

So do you have a filtering mechanism or scoring checklist that you use to determine if something’s a “yes”?

Matthew: Yeah. A lot of it is based on the relationship I have with the person. So like if you and I were doing a deal I’d have a pretty good idea of what I’m getting into. With the last side project, I said yes to called US Golf TV, I met with those guys, it was an introduction from one of my wife’s friends, her husband had that business. I met with them five times before we signed a deal. I wanted to make sure they were guys that I was comfortable with, guys that would work hard, guys that wouldn’t want me to do everything for them. I gave them some stuff to do and they actually did it.

So so much of it is knowing 1), what you’re signing up for, and 2), who you’re getting into bed with. I would never do a new business with somebody I don’t know very well, and I would never sign up for something unless it was very clear, like what my responsibilities are, how much time I’m going to put into this and what they’re going to do, what I’m going to do, stuff like that.

What to look for in a business

James: Great. So let’s imagine that you’ve got several businesses on your plate, they’re all yours, there’s no partners. How are you going to sift through them, what sort of criteria do you look for in a good business?

Matthew: I look for things that scale. I look for things where my name doesn’t have to be on it. I want something that’s going to be sellable in the future. I don’t want to run MarketBeat for the rest of my life. I like doing it, but that doesn’t mean I’m going to be wanting to do it 10 years from now. I don’t want to be Pat Flynn who is inexorably connected with SmartPassiveIncome. He could never sell that, because nobody else can be Pat Flynn. I don’t want to have that business.

I want to have a scalable business that’s not tied to my name, my personality, something that I can systematize so it’s not all my labor. I don’t sell my time for money, so anything where I’d be doing consulting work or just selling my time, I wouldn’t do that. I love businesses where I can put in a fixed amount of work and then just use that work over and over again. So like with MarketBeat, I made this software that creates the newsletter once, and then I can use that for one person or I can use it for 200,000 people and not do any additional work.

James: Yes, so you are a certified genius. I like stacking ideas together like recurring income business models. And I like building teams, so that I can basically hire people, I can buy time and I can leverage that into productized services, because it’s a fairly complex market that most people can’t figure out, unless they get some good help, of course.

And I think once you find your things, you’ll start to recognize what takes your attention, and we have to protect ourselves from the opportunistic part of our brain that values potential more than it should. I value reality far more than potential.

Matthew: Absolutely.

James: And the more of an optimist you are, the more I think you get affected by this. Some people can see good in anything. So if you have a list of criteria that would exclude something, that’s a good thing. And way back in the car dealership, we learned this with our stock.

We used to have to buy trade-ins from people and decide which ones we want to put on our lot and resell. And because they’ve got built dates and compliance dates, the longer they sit the less valuable they become, and God help you when they turn over one year, they get a birthday, that’s the industry term, the car has a birthday. And it instantly drops another $10,000. So you’ve got to move them quickly.

So we came up with a stock matrix, and it was simply a list of all the cars that we know sell quickly, for good profit, and a list of cars we knew sit for a long time and sell for a loss. And we would exclude the type of car. Weird colors, weird models, we’d exclude. The mainstream, easy colors, good models that everyone always wants would stay. And using that filter, we were able to say yes or no based on historical performance. And it was a really good system and it’s something that I apply now.

I’m looking for businesses that aren’t going to chew up too much of my time, that I love being involved with, that have recurring income, that ideally, if they have the same customer as my existing business units, then that’s a real bonus. So I tend to stick close to my core customer, and that’s served me well.

Summing things up

So, Matthew, let’s just have a look at this episode and wind it up into something actionable. We’ve talked about side projects and if they’re a good idea or not, we’ve given some ideas about how we should be disciplined with our focus and where we might look to see if something’s going well or not, and why just chasing every opportunity is a flawed idea.

We also talked about shuffling out of the day job, which is nice. It may be very relevant for some of our listeners. We talked about regular review points, and some of the things we look for in a business. We like scale, we like that it will work without us, we like that you can put in a fixed amount of input but get a leveraged output from it.

You also talked about the importance of relationships in business partnerships. And we alluded to the fact that you might be able to sell off or exit some of the things that aren’t going to be viable for you. I talked about selling premium domains, and you talked about selling your entire business, and that’s what we’ll be covering on episode 3 of this business case study series, which is the very next episode. I’m looking forward to that one, Matthew. Have you got any further comments on this episode?

Matthew: No. I think the biggest takeaway from this is just to identify what…Make a list of everything you’re doing, how much time you’re putting into a week or a month, and just making that, what’s my effective hourly rate? What’s worth my time, what’s not worth my time? What can I have somebody else do, what can I stop doing, what can I sell? And just every 3 or 4 months, take a day and just evaluate what am I doing and what needs to change.

James: Fantastic. Well, it’s been great catching up again, Matthew. I look forward to our next episode, we’re going to be talking about selling our website, and we’ll look at a real life case study, which is going to be very, very exciting. And of course, we also alluded to episode 5, we’re going to be talking about how to successfully change the name of your business or rebrand, which we’ve both done, and it’s a very interesting subject as well. Thanks, mate.

Matthew: Thanks, James.

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