Dear Mark…

I’m starting a new company, and I need your advice. I will be selling a line of organic, CBD-based health supplements. My target market is women over 40. From reading Ready, Fire, Aim, I know that I want to test my concept quickly to make sure that this is a viable idea. My first thought is to try to get someone with a health-related newsletter or blog to test-market it to their list. Any suggestions would be greatly appreciated.

 Nancy S

Nancy – I can imagine how excited you must feel. You have an idea for a business opportunity that combines something you care about (women’s health) with a burgeoning market (CBD). You may already be imagining your business taking off, propelled by this skyrocketing demand for CBD products.

Let’s put aside the excitement for a minute, though, and return to the basics – including the basic rules of starting a business from zero, as I spelled them out in Ready, Fire, Aim.

There are several cornerstones to starting a business. You need an idea. You need to discover the OSS (optimal selling strategy) for that idea. And to discover that OSS, you need enough money to keep testing different marketing and selling strategies.

Right now, your idea is to go to online businesses and try to persuade them to do some sort of joint venture with you: You supply the product and possibly the sales copy, and they provide access to their audience.

That might seem like a no-brainer to you, but it’s not. In fact, I’d say it’s unlikely you will find a partner of any size (large enough to discover your OSS) because…

You would be going to them with an idea – an idea and nothing else.

I’m pretty sure you know this already, but…

In the world of direct marketing, ideas aren’t worth much, if they are worth anything at all. What has value – from most important to least – are responsive lists, proven promotions,  proven products, and proven ideas.

Your strategy, as you describe it, to go to someone who has a responsive list (the most valuable element) and try to persuade them to do a JV deal with you in exchange for your unproven idea. Do you see the problem?

To your ideal JV partner – someone that has a sizeable women’s health list – ideas for new women’s health products are worth virtually nothing at all.

Remember, the people you are going to be approaching are already in the market. They are on top of market trends. The chances that they aren’t already working on a CBD product for women are very low. And even if your idea had a special twist that they liked… why would they make you a partner just for the idea? It would be easier and cheaper for them to simply take your idea and do it themselves.

(Please don’t take that as a suggestion that you should try to protect your idea legally. Trust me. For a half-dozen reasons, that would be a complete waste of time.)

So what can you do?

You can give up on the idea – which might be the right move. Or you can take into account what I’ve said here and chart a different path.

What sort of path? One that puts you higher up on the value scale.

In other words, don’t go to them with an unproven idea. Go to them with a proven product, and a proven promotion as well.

To “prove” your product, have a batch made and hand out 100 samples to friends, colleagues, and family members. Collect at least a dozen positive testimonials.

To get a proven promotion, you have to write and test a sales letter successfully. In the digital world, this can be done with small ads. In the print world, it can be done with a small mail order campaign. You don’t have to spend a ton of money to see if your sales letter works. But you do have to spend enough to be able to document positive results. Assuming you write the sales letter yourself, you should expect to spend between $10,000 and $20,000 on such a test.

If you can offer someone with a big list not just a “good” idea but a product that has been proven to work, with testimonials, and a proven sales letter, you will have a much better chance of getting the sort of affiliate franchising deal you are looking for.

Hope this helps,

Mark

We were touring an old castle, a stone fortress built by the Crusaders from the ruins of a Roman temple built 1000 years earlier. The fortress was built with limestone and marble blocks, half a ton apiece, transported dozens and even hundreds of miles over land and sea.

I had the same two thoughts I have every time I see a monumental structure like this: “What an immense human achievement!” And… “Boy, the person that funded this was really, really rich!”

I voiced this second thought to Osama, our archeologist/guide. He said, “Don’t forget. They had free labor. They had slaves.”

I’ve heard this said as a rationale for slavery more times than I can count. But it’s not true. Slave labor may be cheap, but it’s hardly free. A slave owner has to provide food and clothing and shelter to his slaves. And teach them the skills they need. And treat them when they get sick.

I kept thinking about this during the rest of the tour. And my thinking was that in purely economic terms – from the point of view of the guy who’s paying for it – there’s not much difference between slave labor and wage labor.

For centuries, most laborers were paid little more than what they needed for the basics: food, clothing, shelter. In other words, a worker received subsistence wages – a salary that was roughly equivalent to what it cost to employee him.

All this began to change – a bit – during the Industrial Revolution. There was suddenly such a huge demand for labor, skilled and unskilled, that some wages began to rise above the subsistence level. Especially for those with technical skills.

Today, in the industrialized West, unskilled laborers are usually paid a salary that leaves little or nothing for saving. But what constitutes subsistence is much more than it used to be. The real improvement has been in the wages of skilled and even some semi-skilled workers. They can make enough to cover the basics and buy some modest luxuries and even save a little, if they try.

This increase in worker compensation was the result of widespread industrialization. It was partly a matter of scientific development, but also a matter of an expansion of capital in the private sector. Growing industries created growing profits. And that led to the growth of banking and other forms of capital investment.

I thought some more about that and then I had this thought:

At base, there are only three ways to participate in an economy: as a laborer, as a merchant, or as a capitalist.

 That was true 2000 years ago. And it’s true today.

* You can make money as a laborer: i.e., a worker.

* You can make money as a merchant: i.e., a businessperson.

* You can make money as a capitalist: i.e., a banker.

There are grades and variations of each one, but these are the core three.

(Well, you can also make money through robbery, bribery, and extortion – but we are not talking about government jobs here.)

Workers make money by working. This seems redundant, but it needs to be understood. As a worker, you are essentially trading your time or dollars. You can make extra money in two ways: by working more hours (if you are paid by the hour) or by doing more work per hour (if you are paid piecemeal).

Businesspeople make money by trading things. Working more hours and/or doing more work per hour can have a positive effect on how much money they make. But the real determinant is profit.

A businessperson makes a profit by selling things at a higher price than it cost him to make or acquire them. If he fails to do this, he will lose money. Thus, the businessperson’s primary ability to make money depends on his ability to buy and sell. Buying and selling prices are partly determined by supply and demand. But the businessperson that buys cheap and sells dear can make money even when the economy is difficult.

The primary difference between a worker and a businessperson is that the worker earns his money as salary, which is a legal contract, and the businessperson’s income is determined by profit, for which there are no guarantees.

The third way to make money is to act as a banker. A banker is someone that comes to the economic table with capital – i.e., a store of money that he is willing, under the right circumstances, to lend or to invest.

Like the worker and the businessperson, a banker has the potential to make more money by spending more time banking. And like the worker, the amount of money he makes is backed up by a legal contract. But unlike the businessperson, the primary factor in how much the banker makes depends on supply and demand.

Generally speaking, banking is easier than working and simpler than running a business. If you have money to lend, there will always be someone that wants to borrow it. If you lend conservatively (with sufficient collateral) to someone that really wants to borrow it, you can charge a high-interest rate. You can also have the borrower sign a legally binding document guaranteeing you a fixed return. Like a worker, you have the advantage of earning your money by contract. And like a merchant, there is no limit to the profit you can make when supply is limited and demand is strong.

Usually, when we talk about the economics of making money, we talk about all sorts of factors that complicate our thinking. Of these complications, thinking that there are dozens, if not hundreds, of jobs available is the most confounding.

Consider only the types of jobs you can have: You can be a farmer or a scientist or a doctor or a lawyer. You can be a plumber or a sheet metal worker or a retail salesperson. You can be skilled, unskilled, or semi-skilled. You can be experienced or inexperienced. You can be an entry-level worker or a manager or a senior VP. But at base, you are a worker. And if you understand that, you can understand why most workers never make enough money to acquire wealth. It’s because they spend their lives trying to make more money as a worker, instead of thinking about how they can take on other jobs.

That’s what we’ll talk about in Lesson 2.