Thursday, July 5, 2012

The mutiplicative business model

"My son is now an 'entrepreneur.'  That's what you call it when you don't have a job." - Ted Turner

"I feel that luck is preparation meeting opportunity." - Oprah Winfrey

Earlier I mentioned wood carving.  Now, I love that craft.  It's truly one of the most satisfying activities I've ever done.  If I could figure out a way to make a meaningful living out of doing it I would, and I would have been doing so for a while now.  In fact, some day I hope to retire to a secluded house with a small bedroom, a whatever in the rest of the dwelling that will make my lovely bride happy, and a huuuuuge wood shop from which I can tell the rest of the world to, to leave me alone.  And, of course, a writing desk with which to do so.

It took me a while to learn enough about the craft to consider myself competent, but I'm still not that good at it.  It's like any other craft--read all the books you want on it, but those won't make you better.  It can only be learned by doing, and then by doing it again, and then by spending another 50,000 hours(ish) doing it more.

What didn't take me long to figure out about wood carving was that it's a fun activity but it doesn't represent a great potential for making a living.  I say that not to denigrate those who are doing wood carving now--I know that many people do a fine job at it, and a few do manage to make a fine living out of it.  But I've always believed in the power of multiplicative business that I learned while futzing around in Amway some years ago, proving that the "get your friends to buy soap" idea just ain't my thing.  

It's really pretty simple.  The basic idea: as an entrepreneur, you have a certain number of hours available to you.  Each of those hours is--must be--worth $X to you.  That's your bottom line, your most precious commodity, because you only have so many hours available, and once the hours are gone you can't get more.

Now, the math on a linear model is simple.  Each of us has 168 hours per week--no more, no less.  Each of us has to sleep for part of that--let's say 7 hours a day.  You're also going to spend time doing other stuff, and let's assume for the sake of argument that whatever you choose to do to earn a living doesn't combine well with, say, showering or time with family.  Entrepreneurs don't typically only work 40 hours a week, of course, so let's pick an even number somewhere in the realm of normal: 60 hours.

Unfortunately for the typical entrepreneur, nobody's gonna show up at your door to buy your products out of the blue.  You have to market and merchandise.  Let's say--half of that time.  I know it seems like a lot when you're approaching the topic fresh, but believe me that it's realistic.  So there you go--30 hours per week actually producing what you're going to sell, which is the amount of time you'll actually be making money.  Everything else is just administrative "stuff" that goes with the task of running a business.

Alrightee, we're almost done.  Thirty hours per week, and let's assume you're a super-human worker who doesn't need vacations (not that tough an assumption to swallow, really, if you love what you're doing).  Thirty times 52, then, is 1,560.

One thousand five hundred and sixty hours.  That's it in a linear model.  That's all the time you have to make your money.  So--how much do you want to make?  $40,000 per year?  $30,000?  $50,000?  A beeeeelion dollars?  It's up to you and your budget.  What's it going to take to make your life a pleasant and happy one?

Let's say you just said "TOSK, I think I could be pleasantly pleased on $40,000 per year."  Good, let's go with that.  Now divide that by the number of hours: $40,000 / 1560 hours is $25.64 per hour.  THAT is what your work has to be worth to you to do this.

The good news is that makes it a simple question: can you make $25.64 per hour?  If your chief product takes one hour to create from start to finish, can you sell each one reliably for $25.64 plus cost of parts?  If it, like a lot of wood crafting projects, requires a few hours--let's say, for the sake of calculation, four hours--can you sell it for just over a hundred bucks plus the cost of the wood (and screws and other crap)?

Most crafts, and most craftsmen (especially when starting out), that answer is no.  Believe it or not, back when I was sick and having troubles finding a job between episodes of coughing my lungs up, I tried to do cross-stitch because a) I didn't own any woodworking tools, and b) my wife at the time already had everything needed to do cross-stitch.  But cross-stitch takes hours and hours to do, and sells for a pittance.  Beading: same thing.  Dream-catchers take less time and sell for more, but everybody and his brother and their cousins and even their girlfriend's pet cat is making dream-catchers, so we couldn't sell them reliably.

But here's the flaw of the linear model: you make what you make, and it takes whatever time it takes, and then you can only sell it once.

Enter the power of multiplication.  In Amway's business model, that involves roping your friends into selling your crap too, and so your income is a product of your time plus a portion of your friends' time as well.  Works great, if you're into--that.  I'm not.

The world of the authorpreneur, though, works along the same principle.  Write a book once, and then you can sell it to several different people.  Yes, once everybody who would buy it has a copy you're done selling, but do you have any idea how big that number is?  I sure haven't come close.  Neither has Konrath, one of my personal idols, and he's been doing it for years.

See what I'm saying?  With the multiplication model you invest the time into creation once, and you sell many copies for a period of time.  You just have to be able to sell it, and in the field of writing that's seeming to get tougher and tougher every day with the number of people who are creating books increasing.  There's a LOT of noise out there, and it's hard to be noticed.  It's certainly not something you can just create and forget about. You have to constantly work your marketing/merchandising muscles.  But remember that 50% rule that I mentioned earlier?  All that I've admitted here is that it's applicable to writing. 

By the way, I didn't make the 50% rule up.  It actually came from a few books I read once upon a time when I was looking at starting up my own IT business.  It seems to be a fairly consistent rule through accounting, IT and other fields: the professional is going to spend half of his professional time in non-productive pursuits. 

Anyway, that's the allure, to me, of becoming an authorpreneur: write once, sell many times. 



  1. When I use to do crafts including cross stitch I never knew how to estimate the selling price! Most money I ever made was making candy but only did it during holidays and special occasions.
    I have found out over the last few years that to really make the BIG money is to be a drunk slut and get a reality show and you become a millionare ;)

    1. Well, that's the price you NEED to sell it for to make a living (or at least what your time is worth) for doing it. For folks who do it as a labor of love and just want to earn some extra cash, I say go for it! But that is why such things as well-made quilts seem so expensive--the artist is trying to make enough money to pay for their time. It's tough, especially when the economy is down.

      Oh, and you don't have to be a drunk slut. You could also be a former Alaska governor, get picked up for a Vice President slot, and then make a show about Alaska. Either way works, I guess. Failing all that, though--I'm'a gonna keep writing my books.