A few weeks ago I wrote a post about my new startup.

I got a number of emails asking questions about the post, so I thought I’d do a follow up on the subject to help bring more clarity to an issue a lot of businesses have, even though many don’t even know they have it.

Unless you’re making your desired hourly rate at full capacity (assuming you aren’t trying to live The 4-Hour Workweek), you have bottlenecks that have to be filled.

Here is a video that will help you find any bottlenecks in your business:

I’d like to go more in depth on a few things that are important for people to understand.

While Mike and Mason attempted to implement the things I discussed in the post, they actually started talking about turning down jobs.

The reason they debated doing this was that doing certain jobs at fair pricing wouldn’t allow them to accomplish their desired hourly rate because of the difficulty of the job and their inexperience with the requests. Turning these jobs down may sometimes be the correct thing to do, however we aren’t at capacity, or anywhere near it yet.

In most situations like this, they need to forget about their internal hourly rate, and be okay with working sometimes twice as many hours on a job, which would mean half their desired hourly rate.

Why?

Because since they aren’t at capacity yet, if those hours aren’t filled, we’re getting $0/hr during those hours. To not take a job where you may only make $50/hr instead of $100/hr because it’s too low, while not at capacity, is incorrect unless there are other tasks that can be done that will generate more than $50/hr. Even tasks that may generate more than $50/hr such as a great content marketing plan, may not pay you out until the future, so often times it still may be correct to take those difficult jobs.

Note: I’m NOT saying do any/every job no matter what. Definitely not. But I am saying people need to HUSTLE a bit in the early going and be okay with ‘grinding it out’ on less than optimal jobs.

Hard work is not a bad thing.

Too many people are caught up in 4-Hour Workweek mentality without actually understanding what enables a 4-Hour Workweek to be created.

If you understand Millionaire’s Math, you can calculate your EV on non-billable work to determine if taking on a difficult job that may bring a lower than desired hourly rate is the correct decision or not.

Keep in mind that the ‘other stuff’ you’re considering doing besides billable work MUST be related to fixing the bottleneck in the business. If not, you are SPEWING money until it is fixed.

Definition of a bottleneck: A bottleneck is one process in a chain of processes, such that its limited capacity reduces the capacity of the whole chain.

“An hour lost on the bottleneck is an hour lost on the business forever.” – Eliyahu M. Goldratt

Note: I highly recommend reading The Goal.

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The bottleneck for most businesses seems to be getting enough leads. I got a number of emails and comments on this subject, so I thought I’d go more into depth on it since this seems to be the main pain point for people.

I’m looking at a number of different businesses right now, under the same type of deal I have with Mike and Mason. People have a business or business idea, and don’t have the funds and/or the ability to get it where they’d like it to be. So, they inquire about having me invest and/or advise the business.

The first thing I do, is make sure the business can accomplish the two steps I’ve outlined on how to create a business that prints money:

Step 1: How can you create something of value in a market better than what’s out there?

Step 2: When you do that, how can you reach your potential audience?

With Mike and Mason, they had step one figured out. They do better design work than the average design company, and understand how to actually make their clients money by increasing their conversions.

However, they were struggling to get any jobs. They had no money to advertise, and didn’t have a network. They lacked a clear strategy on how to market themselves.

I felt like I could help them solve #2, so we partnered up, and the first thing we did was put together a plan to market the business.

I’m going to tell you what we’re doing to get customers, why we’re doing it the way we’re doing it, and how doing it that way will enable us to have a substantially higher margin/leaner business than most others in the space.

The first way is easy enough – some of the investment went into an adwords campaign.

Why?

Because competition is low for good design companies running campaigns, and based on expected spend per lead, and the fact that we’re a better choice than our competition, we should expect to convert enough people to give us a good ROI.

However, we don’t run adwords the same way most businesses would run adwords. We wanted to make sure we get a good return on our spend. A lot of businesses attempt to run campaigns themselves, and while there’s nothing wrong with this, they may be costing themselves a lot of money longterm. We opted to hire a top new advertising company to run our campaigns. I knew the guys who had recently formed the company, and knew they could get results.

“Ya, but that’s expensive!”

It could be. But we got it for free.

See, using the same concepts we talked about in this post and the previous post, we set up a win-win deal based on the fact that neither company was currently at capacity. We handled a re-design of their site, and they handled our adwords campaign.

Instead of spending $3-$5k, we each got what we wanted, while neither of us came out of pocket. Again, arranging this deal with them worked because they weren’t at capacity either. They would have had to come out of pocket to hire someone else, or barter and spend $0.

Remember, just because you rarely hear of these deals being done doesn’t mean it’s not the optimal move to be making. Think outside the box and create value for people, and you’ll often see a place where value can be returned to you. We’re getting more/better leads than we would be getting if we were running the campaign ourselves.

This was a pretty straight forward deal, but there’s lots of unique opportunities out there to add massive value to your business without spending much money (if any at all). That’s why your greatest money maker will be your mind if you train it to work in the right ways.

It was also more strategic than just having our campaign managed by a top agency. We knew if we did a good enough job for them they’d send us future business, because they knew we did good work. They’re constantly coming into contact with people who need better websites, since a better website will make them more money. We wanted to be the people they think of when that happens.

We actually traded $5k worth of work for $3k if I remember correctly. However, as discussed we weren’t at capacity, so matching dollar for dollar was unnecessary. Also, the EV of doing a good job for a company that could potentially become a consistent lead generator for us was worth substantially more than $2k, so even if we had been at capacity it’s probably still a deal we would have done.

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Another thing we’ve done a couple times, has been to do work ‘out of our league’. We’ve done a few jobs similar to the example I just gave, where the goal of the job wasn’t money, but to accomplish longer term strategic goals from doing the job.

“What the heck does that mean?”

Well, we started the company with a portfolio of relatively small, simple jobs. If we wanted to increase the leads we were getting, that could be done not only in quantity, but quality. If we wanted higher quality leads, and bigger jobs, we’d have to have a portfolio that backed up our ability to do the job.

So, I connected Mike and Mason with a few influential people in the space they wanted to be working in who needed sites done, and they set up deals to make them a new site, without pay.

“Wait, so FREE WORK!? I heard that’s a horrible business strategy.”

It would be the way most people do it. But again, we’re not just discounting the value of our work because we’ve got a bunch of free time, we’re doing strategic deals with influencers who have the ability to send a lot of leads our way assuming they are pleased with the work. Plus, as a bonus, we get nice portfolio pieces to show off that we definitely wouldn’t have had otherwise.

It’s basically a way to work on a job that would normally be seen as ‘out of your league’, where you’re actually getting more value than the monetary amount you would have received from the job had you charged (assuming you’re picking the right people to work with).

Someone has to take a chance on your to give you that first BIG job. We basically force the big job to happen very quickly, by arranging a win-win that allows Mike and Mason to prove that they can crush it on a big project. Most small design companies would grind out tiny projects for a long time, hoping that one day they ‘get their shot’. We make our shot happen right away, and then have a ‘we can crush big jobs’ piece in our portfolio, that proves to companies that we’re a company they should hire for their big jobs. With only tiny jobs in your portfolio, you’re not going to magically get hired for big jobs out of the blue. People are going to want to see you’ve done it.

The obvious no brainer time to do this is when your company is not at capacity, because you have a lot of billable time not being used yet. As we started the company, it was going to take a little time to generate and close leads, so doing this out of the gate made the most sense.

One site they did would have cost about $15k. They did it for $0. However, that person also happened to have referred 8 people to another design company in the recent past. He has a big network, and if we did a good job for him, the next 8 people could be going to us.

“What if they do it for free and he doesn’t love the work they did, and decides not to refer people to them?”

It was still +EV.

Let’s assume he’s happy 50% of the time. Let’s say the average job is $10k.

The 50% of the time he’s not happy with the work, he refers 0 people.

The 50% of the time he’s happy with the work, and refers the next 8 people to us instead of our competitor.

[code style=”1″]Not happy 50% = $0

Happy 50% = $80,000

EV= $40,000[/code]

We can conservatively expect $40,000 in future jobs from doing this project. Also, it’s even more conservative because each of the people he may refer us to may also refer us to other people. It compounds if we’re doing good work.

Also, keep in mind we don’t subtract the $15k we “gave up” from the $40k in EV, because we didn’t actually give up $15k. We didn’t have $15k in work we could have replaced that time with, so we didn’t really give up much at all. Plus, we got to hook up a good dude with a high quality product.

Having an awesome portfolio site just ends up being the cherry on top. But it’s a somewhat valuable cherry as we make our case to future clients as to why they should go with us.

As capacity fills, there becomes less need to do these jobs, and eventually zero need. It’s not like it’s a business that’s doing “free” work for long as a business strategy. It’s just part of some initial marketing. If our end product sucked, it’d be bad marketing. Because of the fact it accomplishes the two things that print money, it’s a good strategy. It compounds. If another design company who did average or subpar work asked if they should use this strategy, it may be a different answer since their efforts aren’t going to compound very well.

Most people who hate on work that isn’t directly monetized just can’t do math.

A lot of people in the design business specifically, hate on free work. They’re the same people not only struggling to get enough jobs to reach capacity, but are spending a ton of their revenue on advertising to get the jobs they’re getting. They’re often left with small margins. It’s not uncommon for many service businesses to have single digit margins. So they’re doing closer to ‘free work’ than we will long term.

Again, it’s not free work. It’s trading time you would have made $0/hour on, in exchange for leads. Since people don’t understand math they view this as free work, since they don’t calculate the EV on what this work will gain them.

How else would two 22 year old kids start doing $10k+ jobs for influencers with zero portfolio or network? It’s a ridiculously fast way to get their foot in the door with the right people, while giving up time they aren’t even currently monetizing. Not much of a risk.

On top of expecting a good amount of jobs to come from referrals and our ad campaign, we also plan on doing content marketing, as well as creative marketing. I’d assume the content marketing and creative marketing will be our top two sources for leads, and we haven’t even started implementing them yet.

All of these forms of lead generation (besides adwords) have little to no expenses. So, we can expect our margins to be incredibly high in relation to what the ‘average’ margin in the industry would be.

I think we could be doing mid-five-figures per month by mid-year, with our expenses staying around what a four-figure business’ expenses would be. Our goal is to be extremely profitable, and lean.

Do you know someone who has a business that could use more leads? Help them out by sending them this post.

Or, maybe they have a different bottleneck, and could benefit by watching the video, or downloading the PDF below to help them solve their issue.

How do you generate leads, for your business?