Product_Creation_101_Cash_Flow_vs._Scalability.mp3

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This is Ryan Daniel Rand, and welcome to the Freedom Fast Lane. Hey. It is a new year, and in the new year, I know a lot of people are thinking about businesses that they're going to start and the changes that they want to make in the new year. So I want to take some time and actually talk about the product creation process. Because when you're starting a new business where you're looking to take things in a different direction, the question always comes up about where, where the heck do I turn, where do I go? What direction do I take my business, what do I want my business to be about? And whether you're a new entrepreneur or a fairly seasoned entrepreneur, I think you're going to get a lot out of this episode because there's so much confusion about what you need to do at the start of a business in order to ensure that it is successful. And you hear so many different opinions about what you need to be thinking about and what need to be focused on in order to make sure that your product or your business is really successful. And what I have figured out is that the success of your business isn't so much dependent upon whose advice you take or which mantras you follow when you're building a new product or a new business. It all comes down to coming up with a strategy and a solution that is in tune and in line with the goals that you set. And that is going to be a major part of of our conversation today. But first, I want to break this down a little bit because I believe that business comes down to basically two things. It comes down to having a product and then selling that product, or maybe having a way for people to give you money and then getting that message or that ability for people to give you money out into the marketplace. But put simply, having a product and selling that product. I once did an interview with Eben Pagan, who I think is just a business genius, and he broke down your activities on a daily basis to growing a successful business, to simply working on your product and working on your marketing, because those are the two things that make up business. Your product and your marketing. And in this little circle that we all live in, in this Internet business world, we focus so much on the marketing piece, but so little on the product piece. There was a great video released by Frank Kern a couple of years ago in which he mentioned how so many people get caught up in the tactics, so many people get caught up in the copy, so many people get caught up in the bells and whistles and completely neglect the number one marketing piece that you have, which is having a really great product that really is the best marketing piece in the world, is just having a product that works, having a product that works really well. But then on the same hand, we also hear people talk about minimum viable products and producing a product that is good enough, but doesn't create too much thought or too much overthinking in the process in order to prevent you from taking a sale. So what is the solution? What, how do we, how do we go about this? Well, I happen to be of the opinion that there are basically two paths to business. There is the cash flow path and there is the scalable business path. And they're very different. And neither is better than the other. Neither is superior to the other. It just comes down to what your end goal is. Now, for most entrepreneurs when they're starting out, they're only thinking about how do I make that $10,000 a month so that I can be free of my job, so that I can be full time in my business. But this is a little bit of a conundrum because the way that they are thinking is how do I get as much cash flow as possible? But then they're saying, I want to get as much cash flow as possible so I can put all my thought into growing a real business. But those are kind of contradictory thoughts. And we see this play out in practice. We see a business will start out as a cash flow business and then it starts to get bigger and you think about hiring employees and growing it as a real business and then it implodes because we couldn't have the cash flows in order to.

Handle all the new expenses and, and the new people and the new overhead. So I'm of the opinion that we need to either keep them separate or there needs to be an intentional transition from one to the other. And it needs to be strategically done. And very few people strategically transition from a cash flow business into a scalable business, or what I have sometimes called a real business or a sellable business business. They're very different mindsets and we can't confuse the two or we will drive ourselves crazy. But most young entrepreneurs or people who are just starting out are going for cash flow. And there is nothing wrong with that. You've probably read the Four Hour Workweek by Tim Ferriss. If you haven't, you probably should. And he talks about, for him, he just wants to have cash flow businesses and he sees the best way to do that as having a product. He just says product creation is the number one way to cash flow. And that approach is totally cool. If you want the four hour work week, then you're building a cash flow business. And it's totally cool. If you want to buy the Cleveland Indians like I do, you need a scalable, sellable business. Very different paths, very different mindsets for each. And yet we tend to confuse, confuse the two. So people who want to build a cash flow business are listening to the advice of people who are building scalable businesses on hiring and systems and all this stuff. Not to say that any of that is bad. I'm just saying they confuse the goals. And then there are people who are building scalable businesses looking at people making a million dollars a year from their cash flow business and they go, hmm, this guy's got it right. So there's again, forgive me for beating a dead horse as I usually do on these shows. There is a confusion of goals. And if you aren't clear about what you want your business to do for you, then you will listen to advice that will confuse you rather than serve you. So again, most entrepreneurs are building cash flow. Experienced entrepreneurs or people who already have cash are looking to build scalable or real businesses. Both are fine.

But what usually happens is that new entrepreneurs will go after cash and then once they've got their cash, their mindset starts to switch to having new businesses later or transitioning into having real or sellable businesses. I say all of this to preface the idea of product creation, because your product creation or business creation process will match your goals. There are different approaches to the product creation process depending on if you are building a cash flow business or if you are building a scalable business. Here's how it looks. If you have or looking to build a cash flow business, the cash flow approach is simply to find what is already selling and to sell it better. Now, you see this very prevalent right now on Amazon. It was very prevalent clickbank and other information products. I think that will be popular again because I believe the information product world is going to make a return in 2015. And it is simply looking at what is already selling and selling it a lot better. When you see someone do that or you are doing that personally, you're probably going after cash. You're doing it for a cash reason. You're looking to increase cash flow or generate cash flow very quickly. It is the process and a very healthy, very, very workable process of looking at channels where sales are being made, identifying where the markets and opportunities are, and then duplicating that process but doing it better. Now this is totally fine. I'm not looking to demean cash flow businesses. I have cash flow businesses. In fact, let me give you a couple examples. There's different approaches based on what you're going for. And for me, I have a supplement business. And when we were rolling out the supplement business, we looked at the biggest markets. For example, that company has a fish oil and the fish oil is a big market and we sell a lot of fish oil. And I've got no dreams of selling this business. I just want this business to pay for my life. So my other businesses are all gravy. On top of that, we went after an opportunity. It was an opportunistic business. We saw that there was a lot of volume in fish oil. We said, okay, what marketing do we need to do in order to displace all of our competition and go to number one? And then we started executing a plan to get us there so that we could have a lot of cash flow. That is the cash flow approach. I have no long term marriage to fish oil. It's just a cash flow play for me. That's all I care about in this process is the fact that it is going to produce cash flow. I'm not looking to create a world changing supplement in this case, I am looking to give the market what it wants and go to the top of that marketplace so that it produces fish oil or the produces. It produces cash flow. Yes, it produces fish oil, we sell fish oil. But the minute that I confuse this cash flow stream with a scalable business, I start to confuse the direction of my business. There's all this advice that goes around in entrepreneurial circles and yet the context of the type of business that it's for is so often lost. For example, there's a great quote from Henry Ford where he said, if I gave the market what it wanted, I would have invented a new type of horse and buggy. Meaning that Henry Ford was a market disruptor. He went in and created something completely new. He was an entrepreneur in the true sense of the word. He invented the motor vehicle and as a result changed the world. And that is a scalable business, obviously. And that mantra is a great thing to focus on. If your goal is creating a product in a business, is to have a scalable business that you sell that disrupts the marketplace. But it's horrible advice if you're looking to have a cash flow business. If your goal is just cash flow, if it's to just be financially free, then it's terrible advice to follow because you are confusing the goals. So let's break this down into the two goals, specifically, what you need to do in each of these paths. If your goal is cash flow, then in order to create a product that is going to make a lot of money, all you need to really do is go to a channel where money is being transacted, where sales are being made, and find out what's already selling and go give the market what it wants and do your marketing better. That's all product creation is. If you want to have a cash flow business, whether it is a physical product, an information product, a piece of software, go out, find out what's already selling, do it a little bit better, and market it differently. It helps to sell this if you have one specific tweak that allows you to stand out from the marketplace in order to attract a certain segment of the market. For example, a buddy of mine, Brian Owens, I was on a phone call with him, a coaching call with him once with one of his students. We were doing a two on one coaching call and someone was asking him, how do I make a splash into the Internet marketing world? How do I become one of those guys that teaches Internet marketing? And Brian's advice was spot on. He said, if you want to be one of those information guys that teaches people how to make money online, all you have to do is focus on one specific area and market yourself as that inside of the overall space, a sub niche, if you will, of the Internet marketing space and go be that guy. You'll sell tons of products. My buddy Travis, who's been on the show, he talks about his success as an information publisher where he had a digital product, still has a digital product, teaching people who have just broken up how to reconcile with their ex. And he talks about how that was originally the sub market he was going after in order to have a backdoor into the dating market. So if your goal is cash flow, it is finding what's already selling, doing it a little bit better, and owning one specific difference about your product. Here may be a more clear example. Sean and my yoga business. I've had my partner Sean on the show. We've documented exactly how we grew our yoga products company. We are now selling that company. We started this company, we saw that there were lots of yoga products being sold on Amazon. We went out and created the highest quality yoga products we could possibly find. And then we decided to, when appropriate, make everything environmentally friendly. And that meant reducing packaging. That meant.

Using materials that were recyclable and when appropriate, just doing what we could to Be environmentally conscious. And we use that in our marketing. We marketed ourselves as an environmentally conscious yoga products company. And that was the angle that we took and it served us very well. We had plenty of customers who purchased our products solely for the reason that we were environmentally conscious, or at least tried to be environmentally conscious when appropriate, when it was possible. So if your goal is cash flow, all you need to do is find out what's selling in a specific channel, the channel that you're going to go into. Make a product that serves that market, that serves what already is selling, that serves the crowd that is already buying. Go give them what they want, give it a little bit of a different angle. That is really how you make a cash flow business or at least a product that is going to serve that goal of cash flow. If your goal is, is not cash flow, or if you've moved on from just wanting cash flow and now your goal is to have a scalable, sellable, seven figure exit business, then your goal is not cash flow, it is market disruption. It is finding a need and filling that need. Now we've heard that phrase before, go find a need and fill it. That is the logic of a scalable business. That is the logic of thinking out of the box of what is already created. Now the entrepreneurs that we admire, the Steve Jobs of the world, they fall into this category. But if you think that these types of businesses, cash flow when they first start, you are sorely misled. These types of businesses take much longer to build, much longer to scale, but they become much bigger in the long run.

Let's look at it from the perspective of a venture capitalist, venture capitalist being somebody who is investing in a business, getting equity in that business and hoping that when that company sells, they have a large exit and that's where the profit is made. VCs are not looking for cash flow businesses. Venture capitalists are not looking to buy companies that make tons of money. Most of the time they're not buying my fish oil company, they're buying market disruptors. Why are they looking for new ideas? Because A, the people with the new ideas don't have a market that they can go to and sell because they're not in a cash flow business. And second, they know that that type of a business is scalable to the point where it's going to have a handsome payday when the, when that company exits, when that venture capitalist gets paid back. So they're not looking for cash flow businesses, they're looking for market disruptors. They're looking for scalable businesses, they're completely different paths. I have a buddy, my best friend in the world has a company, a tech company that he is building as a scalable business. And it doesn't cash flow positive right now.

Yet it is an extremely scalable business that is disrupting the market and it's an online tech company. And what he's discovered is that businesses like that don't sell because of the amount of money they're making. They sell because of the number of users that are using their product. People that are using the product. That is what determines a company is going to have a large exit. On the scalable side of, of this conversation with the cash flow business, obviously you're just in it for cash. So you could have one user. As long as that user is paying $1 million, you don't care because your goal is cash flow. And that is your, your, your only goal. We hear the question a lot and the debate had a lot about should I follow my passion? And I like to say if your goal is cash flow, then probably not from a product creation perspective. Now there are people out there who have YouTube channels where they're talking about politics or baseball. Those are both channels I would probably start. And they're making handsome amounts of money from the advertising that is coming from YouTube ads and that is awesome. But from a product creation standpoint, if your goal is cash flow, then you should probably not follow your passion. If you're building a business to have cash flow, then your goal is to follow the four hour work week to build a business that may be boring to you on the surface, but produces a lot of cash flow so that you can go live your life and your passion. People who say that my passion is business, they're not building cash flow businesses, they're building scalable businesses. People whose passion is money or cash flow or their ego are usually building cash flow businesses so that they can party and look cool. They usually burn out, by the way.

So if your goal is cash flow, no, don't follow your passion. That is my advice. Go get cash flow, build a boring business, look at channels, look at what's already selling. Go do that thing, do it better, make a tweak to it and enjoy your cash flow.

It's almost a model that can't fail. Like this model is easy.

That is how to have a full time income in business in 30 seconds. It's not that difficult.

But most people are taking advice from people who build scalable businesses or believe in that business model and applying it to a cash flow business, and it often is a mismatch.

Now, if your goal is to disrupt the marketplace is to make a major change and not necessarily to have a lot of cash flow, then maybe you can follow your passion. Maybe here, for example. This is a silly example, but there's a Seinfeld episode where George Costanza goes to the Yankees and gives them the idea of cotton uniforms. And because they breathe better, the athletes will perform better. And for one day, of course, they do perform better until the uniforms shrink and then it's so tight on their skin that they can't perform anymore. What type of a business was George Costanza going into? In that model, he was disrupting the status quo, or at least attempting to. He failed miserably, but he was attempting to disrupt the status quo. So in this silly example, he falls into the category of building a scalable business. If he wanted to have a cash flow business, he would go be a ticket scalper because that's where people are already spending money. He can go in and participate in the marketplace. A silly example. My point being that if you're really passionate about something, the chances of you building a cash flow business out of that are slim. Because if you're passionate about something, then.

You are in the position where you can look at where the obvious needs are and go fill those needs, which is a status quo disruption strategy, not a cash flow strategy. I feel like I'm talking in circles. So let me recap. The product creation process is simple from the perspective of if you want a cash flow business, all you need to do is look at channels, find out what is selling, go do that, but better.

And give yourself a unique marketing spin on it. It's a little bit different if you're coming from the perspective of disrupting a marketplace. Every time you watch Shark Tank, you are looking at market disruptors or people who are attempting to be market disruptors who are following this following the scalable business model. Most of them don't have cash flow. When they have cash flow, the sharks are very surprised because they've gotten through that initial stage. That is very difficult. And therefore it's a proven concept and they can't wait to invest in it.

And they're following that scalable business model which is so hard to cash flow at the very beginning. If your goal is to have a scalable, sellable business, do not confuse your strategies with cash flow strategies because they're completely different. And this is the question that we have to answer before we go into the product creation process, because it's very easy from a cash flow perspective because you can go find out who the manufacturer is of any product and go get them to make an exact replica of that and put your own better logo on there, call it a white label and sell it. Find out where your competition is selling it and just go exact copy it. That's easy. If you're creating something new. You don't know if there's a market for it, you don't know if that's what people want. You're creating something from new. You are an entrepreneur in the true sense of the word and your goal is to identify where there is a need, a market, and go fill that need and then market your solution to that target market. That is your goal. If you are a market disruptor and I bring this up and repeat myself in this philosophy because there's so much business strategy and knowledge that gets shared and yet the context of the goals of the business is so often lost. So what sounds like good advice can actually be very backwards advice to somebody who has a completely different goal. Without having that outline, it's impossible to know where you're taking your product or even how to create your product in the first place. I'd love to hear your thoughts over at the blog@freedomfastlane.com as always, if you if you've been listening to Freedom Fastlane and you're getting value out of this, let's make this official. Head over to itunes and subscribe for free so that you don't miss any of the action or the upcoming shows at Freedom Fastlane. And the upcoming shows are going to be very good. We're going to be doing a series all about investing here in early 2015. Thanks for listening to the show and I'll see you on the next one.