A few years ago I was very close with someone whose father was a billionaire. He owned a healthcare company and then started investing and buying other healthcare companies. He was completely self-made, put in the work and was really, really successful.
I admired him so much, and the time I got to spend with him was always filled with learning moments for me.
He always had a way of making business seem so simple. I loved our conversations because nothing ever seemed too complex. He had a way of distilling everything down to the simplest concepts and dealt with all situations with the simplest logic. It was very inspiring.
Don’t get me wrong - he worked HARD. Harder than anyone else I’ve ever seen, and it showed. But he did have a lot of fun too, as he deserved to with all of that success and hard work.
One day we were having lunch and he said, “Stephanie, there are only 4 rules to making money. Just four. And if you have these in place, no matter what you create - you’ll make money. A lot of it.”
(Stephanie carefully pulls a notepad and pen from her purse)
These 4 rules are what worked for him. They REALLY worked for him, obviously.
These rules sound very simple (as he always made things sound) but might not be that easy.
Over the last 5 years after hearing these rules - I’m still working on an idea to fit all of them! Again, simple but not easy. You may have already violated rule #1. If so, don’t worry - these are just his rules and if you are billionaire already too - then you obviously have your own set of rules. If you aren’t a billionaire yet, then keep reading.
Here they are:
1) Don’t do retail.
Yikes! But Stephanie! I’m already doing retail! It’s ok. Look at IKEA. They are retail and wildly successful. Sara Blakely with Spanx, she’s a billionaire and she’s crushing it. Remember, these are his rules. But that doesn’t mean it’s not a good one! Selling B2B rather than B2C can turn in to really big profit, really fast. The deals tend to be bigger, the work more focused and sales efforts more targeted.
You may have heard the 30% margin rule. If you don’t have 30% margins, you won’t have enough money to have a profitable company. And if your margin is higher? Yeeeee!!!! That’s awesome. One of my best friends used to work for a company that made shoe inserts. A very big company. They created inserts for around $3 and sold them for over $200. That’s a healthy margin right there. A standard 30% margin on a $3 product would be around $4.35. But $200, that's around 96%. Holy guacamole.
Now, don’t go thinking you can up your prices if the market won’t bear it, so you need to get creative. Some products that provide massive margins are info products or software products. Anything that you can make once and sell over and over again.
Does your business have healthy margins? Like HEALTHY margins? What can you do to up that percentage?
Annuity: aka recurring payments. Selling your customer over and over again is easier than finding a new customer over and over again. But the key here is necessity. Recurring payments for your product or service must be a necessity - or a perceived necessity to your customer.
Think of your cell phone bill, the wifi, your gym membership. Your product or service needs to be so vital to your customer that they can’t live without it. If it comes to either having a cell phone or your BirchBox subscription - which one would you choose if you had to?
Your product needs to fulfill a big need for your customer so a recurring payment is second nature to them.
Also known as sales. Ramit Sethi wrote about passion this week, and I recently wrote about it in my book “No One Told Me, Until Someone Told Me” - the worst thing someone could tell you is to follow your passion and the money will come. (You need to be solving a problem... but that's for another post.)
Actually, make some sales and the money will come. Selling a lot of a product that creates annuities and has an amazing margin will ultimately lead to wealth according to my billionaire friend.
So those are his four rules. 1) Don’t do retail. 2) Margins. 3) Annuity. 4) Volume.
Does your business have these 4 elements? If not, could it? How can you incorporate these guidelines into your current offerings?