37signals: A Secret to Making Money Online

The secret of making money money online is having something to sell. Have a great product, ask people to give you money for it and make profit. Start out small, build your business over time and set small targets instead of shooting straight for the stars.

This is a post consists of my notes and thoughts on David Heinemeier Hansson's (37signals) speech at Startup School 08 about the "secret to making money online".

Have you heard of the company called 37signals? These are the guys behind Basecamp, Backpack, Highrise and Campfire (plus other web-based applications, like Writeboard and Ta-da List). In addition to that, they also released Ruby on Rails, an open source web application framework.

They launched five of their web-based applications (Basecamp, Campfire, Backpack, Writeboard, Ta-da List), and Ruby on Rails, in just two years with no funding, no debt, and only 7 people. And they've written a book how they did that. The book is called Getting Real. I haven't read it yet, but it went straight to my wish list now that I heard about it.

But this post isn't about that book, it's about doing business online. And more importantly, this is about doing small business online and the right mindset, the beauty of thinking small and mastering the art of the start.

Getting Real with 37signals

I haven't used any of the 37signals products myself (probably: yet), so I can't recommend you their actual products, although I've heard nothing but good things about Basecamp and the other applications. And I know how incredibly good application framework Rails is. But I like how these guys do business, I've enjoyed their podcast, video presentations and speaks, so I can recommend them and what they do.

How many other companies and businesses do you see out there making a podcast, publishing books, giving public speaks (as a result of their books and blogs) in addition to their "main products" like 37signals? Not very many, right?

Do you think their business is doing better because they do this? Do you think they enjoy what they're doing more because they SHARE what they learn and know? You bet your ass they are.

Do you think their business would be as big as it is, if they had kept their processes and tools for themselves as a "business secret" and not publish Ruby on Rails to the world? And not write a book about their journey?

Take the first secret right there: START SHARING.

A Secret

With that said, this whole post was inspired amazing video presentation and speak by David Heinemeier Hansson (partner at 37signals and the man behind Ruby on Rails, in addition to co-authoring their more recent book, Rework 37signals: A Secret to Making Money Online). The presentation, A secret to making money online is the best speak I've heard in a long time, if not ever.

Update: It looks like something has happened to the video embed on 37signals site, so here's the same speech from YouTube:

Watch on YouTube: David Heinemeier Hansson at Startup School 08.

Don't let the "making money online" topic fool you, it's not about "Internet marketing" as such, but more about building a profitable (Internet) business (drawing from the experience they've had with 37signals, building their business and creating their web applications) and there's a whole lot of wisdom on that one.

The video was recorded at Startup School '08 in San Fransisco, so it's not new or anything, but I just found it today when I listened to 37signals podcast episode which had the audio of the video. Anyway - what you'll see below was highly influenced by the video.

Making Money Online

The secret? Have something to sell. And set a price to it. Do this well enough (just a little bit better than the others) and you'll make money.

1. Great application (or product/service/etc)
2. Ask people money for using/getting it
3. Profit

The other secret? Be happy with "enough", you don't need to make millions to be successful. Web start-up or Internet business is successful even if they don't come up with the next Facebook or MySpace. Making a million is very nice (and even 6 figures is more than needed) for most, so why target making a billion which is a lot harder and will probably never happen?

Wouldn't you rather have some than nothing? Would it really make a difference if you would make a gazillion or just enough to live by, doing the things you love the most? Remember - you don't have to be rich, just rich enough.

Think Small

Let's continue with the million vs. billion example.

Let's assume that you have:

  • 1/10 chances to make a million
  • 1/10000 chances to make billion

On average, both "odds" result in 10000. But isn't it better to actually get there 10% of the time. Let's say you use 10 days for each attempt (yes, it probably takes a lot more to earn a million, but play with me) - even if you fail 9 times, you'd get there in 100 days, rather than in 274 years!

David suggests (and I agree), that a lot more people should take the better odds and just do it, and try to make a million (or even 100k) instead of trying to make a billion. It's not easy, it is still very hard, but it's not as hard as making a billion or trying to build the next big thing (which again, will not happen that often).

When you think about a million, it feels like a lot, right? But when you break it into little chunks, it doesn't feel to unreachable anymore.

Here's an example from the video, seeing how much it takes for a subscriptions based service to make a million:

  • 2000 customers
  • x $40
  • x 12 months
  • = 1 Million / year

Still hard. But achievable.

If 5% of people sign-up for such a membership, you would need 40000 people (about 110 a day!) to visit your site to get 2000 sign-ups. The 5% conversion rate is just an example here, but even with something like 1%, it would still be "just" 550 visits a day. Trying to get 110 visitors a day (or even that 500) feels a lot more achievable than trying to make a million dollars.

Break Things into Comprehensible Chunks

Apply this to your blog and you'll have easier time shooting for your targets. Trying to get 1000 subscribers feels like a distant goal when you're starting. But how about getting 5 new subscribers a day? You'll be in 1000 in 6-7 months!

Still hard. But VERY achievable.

Or if you're selling an eBook for a 35. That's about 28600 copies sold to make a million. Sounds like a lot, but what if you'd sell 5 each day? It will take you over 15 years to make a million, BUT you'd be making over 60000 each year. With conversion rate of 1%, you'd need 500 visitors to sell 5 eBooks a day (or 15000 a month to sell that 150).

Hard? Yes.

Impossible? Hell no!

I'd say 50 thousands a year is very good income. Especially if it would be relatively passive in this case. And of course, you would have something to build on it.

Apply this on any of the ways to earn money through Internet. If you're selling advertising, check how much you have to charge per day (even if you actually charge monthly) to make your target income. If you're doing affiliate marketing, do the calculations like you would sell your own product - how many sales with commissions of X I need to make to make Y?

Or apply it to any other product, industry or niche. Just replace membership or an eBook with anything, like T-Shirts, DVDs, coffee makers, service, or whatever it is you're selling and do the math. Check how many you need to sell on one day to make the income you're looking for. It will make it feel a lot more achievable.

There is No Business Too Small

And you don't have to be the best, you just have to be a little bit better than the next guy. If you're selling flowers, sell them a little bit better than the business next to you. If you're selling cars, do it a little bit better than the store next to you and you'll do fine.

Yes, you can EVENTUALLY be the best, the number#1, but you don't have to be there on day 1. It can happen after 7 years (or it can happen after 2).

You don't have to be "Fortune 500" company AND you don't have to try to build your business WITH the Fortune 500. There's plenty of business in the Fortune 5000000 as David calls it.

And to "make it", you don't need funding. You don't need investment. You can just do it. And it will be enough. In fact, it will be great! You might end up in the "top" one day, but you might as well enjoy the journey, right?

Run at your own pace, don't rush it. Don't build a business with the idea of selling it and THEN enjoy (that day will never come and even IF you end up selling your business for profit, you probably won't enjoy "doing nothing" afterwards). How about building a business you can enjoy for the next 20 years instead?

Conclusion

There's a whole lot on the video that I didn't mention here, so I suggest you check the whole presentation, a secret to making money online (watch it in YouTube). It's VERY useful, but incredibly FUNNY too.

As mentioned, I first heard this speech in 37signals podcast, which I highly recommend you subscribe to. The podcast is in iTunes and you can find all the episodes and the subscriptions links from the 37signals Podcast page. The episode#5 is the audio of the video that started this post in the first place.

All the tips and lessons on the video are great, but I think the biggest one of them all is making use of "by-products". Products that get done while you're doing something else.

This might be knowledge. Whatever you're doing, you're learning and building knowledge while at it, right? Write a book, these guys have done it. Or make videos. Record public speaks if do them.

Or it might be a whole new product. Maybe some of the tools or scripts you've created for yourself could help others too. Did you know that Ruby on Rails was originally a by-product of Basecamp?

Do you have an eBook (or print book) out? Make an audio version of it. Heck, turn it into short presentation, keep a webinar, record it and sell the video. Or give it all out for free if you like.

And of course I loved the idea that it's OK to be small. Everything is easier when you think small. It's OK to dream big, but don't let those big dreams freeze you. I'd love to have 10000 subscribers on this blog, but I won't get there overnight. But I will get there 1 new reader at a time.

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