This is one of the best articles I’ve seen from Jason Fried of 37Signals. I’m a big fan of his and what 37signals is doing, both from a product perspective as well as their business.
Sales have grown at double-digit rates every year for the past decade; so have profits. (Like many private companies, we don’t disclose revenue.) How did I learn how to do this? I have a degree in finance, but I don’t remember taking any classes that even remotely taught me how to make money. I’ve read plenty of business books. Same thing—lots of talk about money, but not much about how to actually make the stuff.
One thing I do know is that making money is not the same as starting a business. For entrepreneurs, this is an important thing to understand. Most of us identify with the products we create or services we provide. I make software. He is a headhunter. She builds computer networks. But the fact is, all of us must master one skill that supersedes the others: making money. You can be the most creative software designer in the world. But if you don’t know how to make money, you’re never going to have much of a business or a whole lot of autonomy.
This is not about getting rich (though there’s certainly nothing wrong with that). Instead, for me, making money is about freedom. When you owe people money, they own you—or, at least, they own your schedule. As long as you remain profitable, the timeline is yours to create.
He dives into 6 key points:
1. Understanding the buyer is the key to being a strong seller
People’s reasons for buying things often don’t match up with the company’s reason for selling them.
When you describe things in terms people don’t understand, they tend not to trust you as much. Trust is important. You can bluff your way into money, but for only so long.
2. The Power of a Middle Man
Sell only things you’d want to buy for yourself.
3. How, and why, to charge real money for real products
People are happy to pay for things that work well. Never be afraid to put a price on something. If you pour your heart into something and make it great, sell it. For real money. Even if there are free options, even if the market is flooded with free. People will pay for things they love.
Charging for something makes you want to make it better. I’ve found this to be really important. It’s a great lesson if you want to learn how to make money.
When you put a price on something, you get really honest feedback from customers. When entrepreneurs ask me how to get customers to tell us what they really think, I respond with two words: Charge them. They’ll tell you what they think, demand excellence, and take the product seriously in a way they never would if they were just using it for free
4. There are different pathways to the same dollar
Don’t just charge. Try as many different pricing models as you can. That’s a great way to get better at making money.
We’ve continued to experiment with pricing models. It’s been a great way to get a 360-degree view of how customers think about their money and our products. Our apps, for example, are available as monthly subscriptions for $24 to $249 per month. We’ve sold our book Getting Real as an instant download for $19 and as a paperback for $25. We’ve sold tickets to our eight-hour workshops for up to $1,000. Listings on our job board are $400 for 30 days. We sell listings on Sortfolio, a service we built to help small businesses find Web designers, for $99 per month.
5. The true value of bootstrapping
I can’t say enough about bootstrapping. Whether you’re starting your first business or your next one, my advice is to bootstrap it. Bootstrapping forces you to think about making money on Day One. There’s a fundamental difference between a bootstrapped business and a funded business. It’s all about which side of the money you’re on. From Day One, a bootstrapped business has no choice but to make money. There’s no cushion in the bank and not much in the pockets. It’s make money or go home. To a bootstrapped business, money is air.
On the other hand, from Day One, a funded business is all about spending money. There’s a pile in the bank, and it’s not there to collect interest. Your investors want you to hire, invest, and buy. There’s less—and in some cases, no—pressure to make money. While that sounds comforting, I think it ultimately hurts. It replaces the hustle, the scrap, the fight, with a false comfort of “we can worry about that later.”
Anyone can spend money.
6. A word about practicing
It’s all about practice. Whether you’re playing drums or building a business, you’re going to be pretty bad at something the first time you try it. The second time isn’t much better. Over time, and after a lot of practice, you begin to get there.