Friday, October 7, 2011

How to Get Good at Making Money

Entrepreneur Jason Fried offers the most fundamental of all small-business advice: how to get good at making money.
A few years ago, I decided I wanted to learn to play the drums. I've always loved the drums. Whenever I listen to music, I hear the drums first. I can listen to a great jazz drummer like Art Blakey for hours on end. I'd give up almost anything to be as good as Glenn Kotche of Wilco.

The path to learning the drums is pretty clear. You sign up for some lessons, you get some pads, you get some sticks, you learn some drills, and you practice. And you keep practicing. Every surface—your desk, your leg, your steering wheel—becomes a drum. You get better over time, but you never really stop practicing.
This is how we learn most things. Whether you want to be a writer or a musician or a painter or a baker or an accountant, the way to get there is fairly clear. Not everyone's going to be as good as he or she would like to be, but at least you know where to start. Lessons, classes, books, internships, workshops... All of these things are accessible to most people who want them.
One of the interesting things about picking up the drums was that I realized it had been some time since I had actually tried to learn something new. We spend most of our childhoods learning new things. But as you get older, the frequency with which you develop new talents slows down. Sometimes it stops completely.
That said, when I first started playing, I was bad. I sounded like someone was tripping over a drum set and knocking it on the floor. When you suck so badly at something new, it's comforting to know there are other things that you actually are good at. And being bad at drums reminded me of what I have gotten pretty good at: making money.
Today, I run 37signals, a software and design firm that I co-founded in 1999. Sales have grown at double-digit rates every year for the past decade; so have profits. (Like many private companies, we don't disclose revenue.) How did I learn how to do this? I have a degree in finance, but I don't remember taking any classes that even remotely taught me how to make money. I've read plenty of business books. Same thing—lots of talk about money, but not much about how to actually make the stuff.
One thing I do know is that making money is not the same as starting a business. For entrepreneurs, this is an important thing to understand. Most of us identify with the products we create or services we provide. I make software. He is a headhunter. She builds computer networks. But the fact is, all of us must master one skill that supersedes the others: making money. You can be the most creative software designer in the world. But if you don't know how to make money, you're never going to have much of a business or a whole lot of autonomy.
This is not about getting rich (though there's certainly nothing wrong with that). Instead, for me, making money is about freedom. When you owe people money, they own you—or, at least, they own your schedule. As long as you remain profitable, the timeline is yours to create.
It took me a long time to figure out how to make money. Here's how the lessons unfolded.

Shoes, Tennis Rackets, and More Shoes
Understanding the buyer is the key to being a strong seller
It started when I was about 14. In Illinois, that's when you can start working (with your parents' permission). So I went with my dad to get a worker's permit and got a summer job at the local grocery store. I don't remember learning much there. But a year later, at my next summer job, the lessons flowed.
I was working at Shelby's Pro Shop, a golf and tennis retailer in Deerfield, where I grew up. I sold shoes and tennis rackets. I didn't play tennis, but I learned how to be a very good tennis-shoe and tennis-racket salesman. That's because I made the discovery that people's reasons for buying things often don't match up with the company's reason for selling them.
Manufacturers used to dispatch reps to the pro shop to educate us on their latest and greatest technologies. They'd tell us about the new ethylene vinyl acetate midsoles that made shoes more comfortable; the Goodyear-brand rubber outsoles that made the shoes more durable; the new variation of Nike Air that was miles ahead of the competition.
They thought they were arming us with facts that would impress the customers. But, it turned out, none of that stuff mattered. In fact, it had a negative effect. When you describe things in terms people don't understand, they tend not to trust you as much. Trust is important. You can bluff your way into money, but for only so long.
Once I stopped slinging the technical terms, I realized that when customers shop for shoes, they do three things. They consider the look and style. They try them on to see if they're comfortable. And they consider the price. Endorsements by famous athletes help a lot, too. But the technology, the features, the special-testing labs—I can't remember a single customer who cared. I sold a boatload of shoes and tennis rackets that summer.
Understanding what people really want to know—and how that differs from what you want to tell them—is a fundamental tenet of sales. And you can't get good at making money unless you get good at selling.
I learned this as a teenage shoe salesman, and it still drives how I operate.
To be sure, this is hardly a unique insight. But judging by the number of companies and products that totally miss the mark, day after day, it's a lesson that needs to be learned again and again.

The Middleman Years
In which I sell electronics, knives, and throwing stars—and learn that it's all about passion
After a couple more summers at the pro shop, I decided to start my own business. It hadn't taken long to notice that retail was pretty simple: The store bought stuff from distributors, marked it up, and sold it at a profit. Why couldn't I do that, too? It turned out, I could. I got a reseller's license from the state of Illinois. This allowed me to buy stuff cheaply from distributors.
Follow These Steps to Starting a Business

Starting a business involves planning, making key financial decisions and completing a series of legal activities. These 10 easy steps can help you plan, prepare and manage your business. Click on the links to learn more.
Use these tools and resources to create a business plan. This written guide will help you map out how you will start and run your business successfully.
Take advantage of free training and counseling services, from preparing a business plan and securing financing, to expanding or relocating a business.
Get advice on how to select a customer-friendly location and comply with zoning laws.
Find government backed loans, venture capital and research grants to help you get started.
Decide which form of ownership is best for you: sole proprietorship, partnership, Limited Liability Company (LLC), corporation, S corporation, nonprofit or cooperative.
Register your business name with your state government.
Learn which tax identification number you'll need to obtain from the IRS and your state revenue agency.
Register with your state to obtain a tax identification number, workers' compensation, unemployment and disability insurance.
Get a list of federal, state and local licenses and permits required for your business.
Learn the legal steps you need to take to hire employees.
Startup Resources
There are a number of available programs to assist startups, micro businesses, and underserved or disadvantaged groups. The following resources provide information to help specialized audiences start their own businesses.
You can save money when starting or expanding your business by using government surplus. From commercial real estate and cars, to furniture, computers and office equipment, find what you need for your business in one place.
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