The video that changed how I think about making money | #37

Plus: my latest mistake, my new plan to flip websites, and how I'm fighting the robots

Hey friends!

I'm starting to plan for next year. Which means I'm taking the time to examine and learn from the mistakes I've made this year.

I watched a video a few months ago that changed how I thought about making money. Now, I’m re-orienting my plan around those ideas.

In this 37th issue:

• All roads lead to private equity: a summary of a video that changed how I think about making money

  • Every business is a 3 step process

  • outsourcing both the offer and fulfillment (scenario 1)

  • outsourcing fulfillment (scenario 2)

  • doing it all yourself (scenario 3)

  • What's better than ownership? Owning other peoples' ownership.

• Picking a lane: a mistake that has plagued me for long time

• My new plan: flipping websites, and why I'm not afraid of AI eating my lunch

Enjoy!

All roads lead to private equity

I watched a video a few months ago that changed how I view making money. Here's my summary of it.

Every business is a 3 step process

Over-simplifying it, there are two positions you can occupy when you add value to a business: an employee or an owner.

As an employee, you're (somewhat) protected from business mistakes, but you also don't get rich if the company does well.

As an owner, you can cripple the company if you don't make the right decisions, but if you do, it will pay off wildly.

Hence, if you're good at what you do, it makes sense to seek as much ownership as possible.

For a business to be good (i.e. make money), it must

1. find an audience that would buy things it offers

2. put an offer in front of them that adds value to their life

3. fulfill the offer

It's hard to learn how to do all those steps well. Most people pick one slice of the process and team up with other people for the rest of it.

But, in general, the more ownership you have and the bigger the slice you take on, the more money you make. Even though it's a lot of work up front to learn everything, it means you don't have to work as hard later.

I'll use being a YouTuber as an example for 3 scenarios. Let's say you have 100k subscribers and want to make money off your channel.

You already own an audience (1). To make it a business, you have to either take on or outsource the offer (2) and the fulfillment (3).

Scenario 1: outsourcing both the offer and fulfillment

If you wanted to outsource your offering and fulfillment (the simplest solution), you could turn on ads and call it a day. You don't have to worry about who's offering what or how it's getting fulfilled.

But, to make a decent amount of money, you have to be fantastic at getting views. A ballpark estimate is that you need 10 million views a year to make $100k a year in revenue.

Scenario 2: outsourcing fulfillment

Next, Let's say you know your audience pretty well. You understand their wants and needs and could come up with an offer (2) they'd go for.

But, you don't care to fulfill the transaction (3).

Instead, you can recommend offers you know they'd go for and collect a commission. You're a salesperson for other products and services. This could mean sponsorships or affiliate links.

Now you're taking care of audience acquisition (1) and the offer (2). There are less middle men between you and the profit. Thus, you need less views to make the same amount of money.

It varies a lot, but a ballpark estimate is 4 million instead of 10 million views to make $100k a year.

Scenario 3: doing it all yourself

If you do the entire business process yourself then, assuming you do it well, you can make a lot of money.

As a YouTuber, this would mean selling your own product or service to your audience. A course, a book, a paid community, a newsletter, a physical product, or anything that fulfills a need.

Let's try and come up with a ballpark estimate for how many views it'd take to get to $100k in revenue doing it all yourself. Again, this all varies a lot, so take these numbers with a grain of salt.

For every 1,000 views you get, let's say someone buys $100 worth of something from you a year. Then, doing the math, it takes 1 million views to make $100k a year.

That means if you do it all yourself, it takes 1/10th of the views to make $100k than if you did nothing else but turn on ads. And that assumes you’re only selling one thing. You could sell multiple things, each with different price ranges. The sky is the limit.

What's better than ownership? Owning other peoples' ownership.

You might be wondering: what comes next after total ownership of the business process? How would you make even more money with less effort?

The answer is: owning other peoples' ownership!

Often people own businesses, and they'd like to make them more profitable, but they don't know how. Or they don't have the time. Or, something.

So, other people who specialize in building an audience, offers, or fulfillment come in. They'll make the business more profitable and collect a fee.

Sometimes that fee is a commission. For example, Alex Hormozi mentioned that, if he wanted to make $100k a month from scratch, he would

1. find a business that sells something expensive

2. negotiate a bulk discount if he could bring them 100 customers in a month

3. find leads and close them for the regular price they would pay

4. pocket the difference, i.e. (regular price - discounted price) * 100

Other times, the compensation is a stake in the company, which is Alex's current model. He takes $1M-$10M a year companies and helps grow them to $100M a year in exchange for equity.

I think of this model as the polar opposite of being an employee.

• Being an employee means investing ongoing resources for a capped upside.

• Being a business owner means investing ongoing resources for an uncapped upside.

• Being in private equity means investing a fixed amount of resources for an uncapped upside.

(Assuming you buy, grow, and then sell the business. Or, maybe you have a holding company and you keep growing it to the moon.)

I see this as less effective than "investing" by passively buying stocks or other assets and hoping they go up. If I can buy them, other people can buy them. That means supply and demand will shrink the profit margin towards zero.

To me it makes much more sense to buy an asset and use my resources to help grow it. As opposed to buying stocks at market prices, waiting years, hoping for the best.

(Also, I'm not an expert in this stuff, yet. If I said something inaccurate feel free to tell me and I’ll correct it!)

Picking a lane: a mistake that has plagued me for long time

So, how does this private equity perspective apply to me?

A few issues ago, I wrote about my plan to start a YouTube channel.

My logic felt sound at the time. I like making videos. There are many clear paths to making money. What's the issue?

It turns out that optimizing for both business and pleasure at the same time leads to me spinning my wheels.

The loop I'd go through was something like this:

• Okay, it'll probably be 100 videos before I see any traction. I need to pick an audience and be consistent. What audience should I pick?

• Gosh I don't know. I'm interested in all these things (finance, math, psychology, art, dancing, etc). How about I pick the most lucrative thing? How about finance?

• OK, let's come up with video ideas. Damn, I don't know much about any of this. I have to learn it first. Ugh, but that takes a while. I don't want each video to take a month to make.

• Hmm, okay, well what do I already know? I just learned to animate, how about I make animation tutorials?

• Argh but do I want to be doing that for years? What if I get bored and want to branch out? Surely there's a way to brand my channel to allow more flexibility.

• But the more general my marketing, the longer it'll take to gain traction, the harder it'll be to make an offer for my audience, etc.

So... I barely made any videos. 😬

To pick an audience, I kept trying to weigh

• how much I enjoyed a subject,

• how much I thought I'd enjoy it in the future, and

• how valuable the audience for that subject would be.

Which turns out to be impossible because I have no idea what I'll be interested in 3, 6, or 12 months down the road.

I also had no idea what I'd even be offering this hypothetical audience. Hence, forecasting how valuable the audience would be was difficult.

My plan was too shaky. I didn't know for sure that I wasn't going to pivot to a "better" audience down the road. So, given the amount of time and effort required to make videos, I wasn't motivated to execute.

It also turns out I'm too precious about what I want to cover and how. If I don't have an audience with specific desires on the other end, I get too side-tracked.

I don't know how to pick a specific audience with any real conviction. For example, I could pick "people like me 2 years ago" as my audience, but those people don't have money. 😅

I could pick "finance" professionals but what does that even mean? Is that a specific enough niche? Probably not, but how would I get more specific? If I did get more specific, why would I pick that niche over a different one?

I got too caught up in analysis paralysis.

My new plan: flipping websites, and why I'm not afraid of AI eating my lunch

I came across the idea of buying and selling websites a few months ago. It seemed interesting, but I was deep off in animation and YouTube at the time. I'm susceptible to Shiny Object Syndrome, so I told myself: NO, we're sticking with YouTube!

But, the more I thought about it, the more it made sense.

If I bought a website, it would come with an existing audience. That would prevent a lot of agonizing I have about choosing an audience.

Plus, fixing up websites fits my background well. I was a software engineer. I've done SEO work.

If I further specialized in content sites, that's an even better match. I write. I've been a math tutor and TA. I think I know how to explain things well.

My biggest hesitancy came from ChatGPT and other AIs. How would I compete with them?

Well, I think I have a few good arguments:

• An AI is only as good as its training data. It inherits the weaknesses of all the text it's trained on. If it's trained on bad documentation, it's limited in how well it can answer questions. If it's trained on forums and social websites, it's limited in how accurate its answers can be.

• I can always get more specific. The more domain expertise required, the less training data available, the less likely an AI can do it.

• An AI has no concept of what's interesting. It has no backstory. I can stand out with interesting tangents and personal anecdotes.

• I think people, at the end of the day, trust humans more than machines when it comes to content. That might change in the future, but I have at least a few years.

• ChatGPT and its brethren can write, code, and draw pictures. But it can’t animate. If I were to add useful animations to my sites' pages, that would also allow them to stand out.

• Plus, I’ll be using the AI myself. Fight fire with fire, baby!

At the end of the day, I have faith that in, at least some cases, I can create better content than AI. That's all I need.

So, now the plan is:

• binge nano flips and learn everything I can

• spend maybe $1-$3k on a site

• fix it up

• see if I can sell it for double what I bought it

And if that works.. then I'll start doing more and bigger flips. Rinse and repeat until I have "enough" money. I’ll be my own little private equity firm!