Turn Unexpected Expenses into Profits: Bitcoin Mining & Energy-Saving Hacks

But if you're going to do it, then why not at least have the byproduct of what you're doing create value in another way?

Hey, everybody.

Roland Frazier and Ryan Deiss here with.

Another episode of Business Lunch. Today we are talking about crypto bros. We're talking about crypto, we're talking about bitcoin, and we're talking about mining, but not in the way that you might expect. So, Ryan, how you doing today? I'm great.

Let's talk about how we're not actually talking about bitcoin mining.

I like it. Yes. So article in the news and I thought this was pretty cool. There's these guys who have a spa that has pools that they were trying to figure out how could they cut expenses and get these pools heated in the winter, but without having to spend so much money because power costs so much. And they came across someone who had figured out how to heat their pool with the heat that was coming off of bitcoin mining computers. And so these guys basically went, talked with the guy, found out everything they could. By some magic in voodoo, they've got their computers, which, you know, I perceive that there's a bed of computers on the bottom of the pool that is somehow running and generating heat without electrocuting everybody. That's probably not the way and probably why my version of it didn't work. But they did figure out some way to get a liquid around computers. And the liquid basically absorbs the heat from the computers as they do their bitcoin mining and then the heat is transferred to around the pool and makes the pool water warm and saves them a bunch of money. I thought that was really, really cool and, and innovative. And it goes to one of the things that we like to talk about, which is turning expenses into profits. That is definitely an expense of bit mining. How do you profit from it? You heat your pools with it and you save all the money you would have spent on energy. What do you think about that? Just what do you think when you hear that, Ryan?

I think it's genius. I mean, because what you're doing is combining, you know, two things that have been around for a really long time. And in my experience, the best of these kind of, you know, arbitrage y expense to profit kind of things are just that, right? It's combining two things that have been around but have not been combined in a unique way. So a liquid cooled computer has actually been around forever. Most computers are cooled by fans, but there have always been like supercomputers. I remember the early gaming computers when I was in college and I was looking to build my own computer when they just still ran insanely hot. I was looking at getting a liquid cooled kind of deal. And so the, all the parts that get hot, they're basically sitting in liquid that cycling around sort of like you have with your air conditioning condenser at your home. So liquid cooled computers have been around for a while. Spas have been around for a while. But the, the genius of saying, you know what, we can combine a spa with bitcoin mining, that to me, is just why I love entrepreneurs. Yeah, say what you will about bitcoin mining, I think it's what it does to the environment. But if you're going to do it, then why not at least have the byproduct of what you're doing create value in another way? Another great example of this, you know, Kingsford Charcoal.

I do.

So Kingsford Charcoal, I think it's still like the number one charcoal brand. They sell the little charcoal briquettes. Supposedly. I haven't done all my own independent research and fact checking on this. This could all be apocryphal. But my understanding is that Kingsford Charcoal was originally essentially owned by Ford or was associated with Ford Motor Co. Because when they would have a car going down the assembly line, the car was, you know, getting welded and sparks are flying everywhere. And the car sitting on, on top of these wooden pallets that by the time the car was done, the wooden pallets, you know, had essentially been all burnt up and charred and they used to throw them away. And somebody finally got the wise idea of, hey, what if we were to take these wooden pallets and give them some additional char, chop them up, bag them up and sell it as charcoal? Right. And that became Kingsford Charcoal. Again, the story could be, you know, slightly apocryphal or different, but I wonder. It's the same concept.

Yeah, I love that. I wonder if that. Because that sounds very similar to Duraflame logs, which was basically the guy that saw all the sawdust from the sawmills and said, what if I put this with wax and created a longer burning log that was. That worked for everybody and then built a huge business off of it. Because I, ever since I heard that story, and that's been a long time ago, I've been wanting to create a Duraflame log kind of situation. So I wonder if we need to just start hanging around factory floors and seeing what are the waste products that are coming off that we can, that we can do Something with. Somebody did.

Yeah.

Did you hear. But somebody did something like that with tires, too. Like the, the rubber things that come off of tire retreads that, that they were basically making something. I don't remember what it was, but.

I'll give you guys a playground. It's a lot of the. Like the playground. Yes. That's a thing. Yeah. And so it's like chopped up, you know, rubber. And so definitely, I think in factories you can visibly see the waste, you can visibly see the byproduct. It's laying there in a pile and you experience the pain of throwing something away that would have previously been. That cost you something when it came in the door. What I love about this bitcoin thing is you don't necessarily see heat, but you at least feel it. But there are so many businesses out there, also known as 100% of every business, that you have waste and you have byproduct. You've got sawdust, you know, you've got charcoal briquettes, you've got heat. Whether you realize it, you know, or not, it is there. And figuring out how to one, identify it and then two, monetize it through a number of different means, like that's the game that we're talking about playing here. Yeah.

And so a few examples. The one that got me onto know E2P, we call it expenses to profits. The first was, I think it was a 2006 article in Newsweek where they were making fun of Jeff Bezos for it. Said the headline was something along the lines of, Jeff Bezos wants to run, you know, the back office of your company or the tech of your company or something. Wall street wishes he would just mind the store. And then aws, Amazon Web Services went on to become a multibillion dollar company and more profitable than all of Amazon's other enterprises and operations combined, which is kind of insane. That's. That's one. And Bezos back then was saying he was looking back to the early 1900s and saying that. And one of the guys that was actually there at those meetings was. Was xing. I guess you don't tweet anymore. So he was xing on.

On X, we still have to call it tweeting.

He was. He was tweeting on the platform formerly known as Twitter. And he said that, you know, Jeff was in those meetings passionate about how in the early 1900s, every factory needed to have its own generator. And that now and that. That didn't make any sense. And so power companies, you know, ultimately were going to come into Vogue and that that's a pretty good business. And that he looked at it as almost like a utility play of saying why should every business have to have a data center? Data centers should be available so that businesses have access to them just like they do power, water, et cetera. And that's, you know, turned out that he was right and he'll probably end up making something of himself. But a couple of other companies that did the same thing, PayPal, developed a fraud system to detect fraud and then started selling that. That generates 50 to 100 million a year for them right now. Walmart created logistics and warehousing systems and now they make those available and they also offer third party fulfillment services just like Amazon does. The Washington Post had a tech stack for handling their content and now they generate about $100 million a year from their CMS, from their content management system that they license out to other people. So this is like big companies do this all the time. But what are the opportunities in your business that you can take a cost center and turn it into one or more profit centers? And I'll give you one more example. A friend of ours, Tucker, Max Ryan and I have known Tucker for a while. He had a business called Scribe. He and Tucker and I were talking and I was talking to him about this E2P and he was like, man, he said, he came up with, I want to say, nine new profit centers. Because what they were doing was a complete high ticket, $45,000, we'll write your book and market it for you package. And that was it. Like that was the only thing that you could get from them. But he had editors and cover designers and book marketers and speaker, you know, speaker finders for book launches and all these other people on staff and not fully utilized.

So they all had capacity.

And so after our talk, he went and he started offering editing services, book design services, book marketing services, book launch, speaker bureau, all that stuff that he already had. And what happened was he created nine new funnels for business to come in that now upsold because the people who need editing probably need marketing and all the other stuff, the people that are doing need a cover design. They're probably going to write another book at some point. So maybe you can get them for the big 45k package, but you definitely can sell all of the up and down level services that you need to get a book out and marketed. And so like this, this to me is something that is an opportunity that sits in every business waiting to be found.

Yeah. And I love all in every single one of those examples, the CEO wasn't sitting there saying, what's another business we should start from scratch? Right, Right. In every case, they started with what they already had that was presently classified as an expense.

Right.

This is not a profit center, this is a cost center. Right. So I mean, Amazon, they already had a lot of database data, warehousing kind of things. They had it and it was a massive cost. And they were like, what if we took some of this excess capacity, open it up, could we transform it into, you know, into a profit center?

It's their sawdust. Right. Like, like what are the byproducts of what you already make right now? What's your sawdust? Identify that or your, your pallets.

Right.

Once you've identified what's the waste in your business, then you have the opportunity to say, how can I transform what I'm already doing into something good.

Yeah. And so I would say if this is an exercise that everybody listening should do. You know, this is a great way to, you know, we call it expense to profit. But even if it doesn't turn into a quote unquote, full blown profit or it doesn't get spun out, you know, you've identified. Roland, I've heard you talk about this before. Taking an existing expense and spinning it out into its own business. Yep. That what AWS did, that's one option, that's one thing to do. But you could also just have that particular thing self liquidate and just offset some of its own costs.

Right.

One of the things that we've done, like at all of our companies, our customer care, our customer support team that is currently a cost center, we're not trying to turn them into salespeople. We've actually found that if we ask our customer support reps to try to do upselling, it really pisses them off. They don't know what they're doing and it winds up pissing the customer off. So we don't ask our customer support team to do upsells because usually when they're talking to people, people are less than happy. What we found is that if we give all of our customer support reps a ps, right, every single month they get a ps. And that PS is, you know, ps. If I did a good job serving today, if you still want to, looking for additional opportunities to work with us. Here's some new things that we have coming up this month. And that would link off to sales, to special offers, to webinars, to events, whatever the business is, whatever the promotion that we're going to have running that month, the new offer we're going to have the just other stuff we got. We will link to that in the ps. What we have found when we've done this in companies is we can offset anywhere from on the low end 25%. On the high end, we've had it fully offset the cost of our customer care department just through the addition of a simple ps. We didn't seek to spin out our customer care team and say let's have this, you know, as a service that we do for other people. I guess you could do that. That would be a spin out. We just said what are some simple things that we could do to offset some of this cost? Just asking the question, you're going to come up with ideas, another one that you had. So there's the, there's the spin out, there's self liquidating also the group buy.

Yeah.

Right. And so that's if you're already going in on something, you're already spending, you know, a fair bit, investing a fair bit. Could you get other strategic partners to come in and kind of go in on this with you so that everybody saves a little bit of money? Yeah. So can you kind of explain how that might work?

Yeah, it can work in a not cool way where you're saying hey, these guys are selling a digital product for $3,000. Let's get 20 people together and all use the same login for it and each contribute, you know, whatever our pro right of share is.

That's not going back to last week's episode. That, that's called fraud. That's stealing. Don't do that.

Yeah, but, but if you were looking to basically there's a lot of companies will do quantity discounts and so if you are using something, if you are, if you have a vendor who will offer quantity discounts, this is the easiest, I think way to look at it, find out what the quantity discounts are and then can you help them get more business by bundling together a group by from a little mini co op that you put together of people that all would like to have the same product or service that they're offering. You want to be sure that they are cool with that. But generally they will be as long as it's not diluting the value of what they, you know, and of what they are offering. Like in the, the not cool one, you're basically saying I'm going to have the same product and the same profit for the seller and I'm going to dilute the number of buyers they're going to get because we're all going to share that same thing compared to a co op buy, which is saying, hey, you sell widgets. And if, if we buy a thousand widgets, you charge this price. But if we charge, if we buy 5,000, you like that because you make more profit and you're happy about that. So if I can bring people in together with me so that collectively we place one order for 5,000, then I'm not taking anything away from you, you're happy. And so that's like, do be aware of the difference between those two things. But you know, I think that's a.

Great way to go.

And you could certainly ask the same thing about user licenses. So for example, if the first user license on a software as a service is $1,000 and everyone after that is $200, you could ask, is it okay if we buy a, a pack of user licenses? You get more money because we've got more user licenses. But our marginal cost for the user licenses is less because we're spreading that the meter drop when that big, you know, upfront chunk out over everybody and sharing the savings. All of those, like when you're distributing the savings, no problem when you're distributing the service without having an additional fee or cost that you're paying so that it's something for the seller. Not so cool.

Yeah, but I'll give you two examples of that. When I was in college, there was this company they, they put on, they, they helped coordinate ski trips for college kids. And whoever the person was that was able to organize and rally enough people to go on this trip, they essentially got to go for free. And, and you know, so had a buddy, he was kind of the party planning committee and he was willing to undertake, you know, the obnoxiousness of getting all the people together.

Here are the dates.

This is where we want to go. This is how much it's going to cost. He rallied everybody together. You know, 20 of us went on this, you know, went on this like ski trip and essentially his trip was covered and we all knew it. Obviously the ski trip company knew it. He was adding value by assembling this group by. We did a similar thing at some of our businesses. A number of our companies, we have licensed partners, so they're not like franchisees, but franchises will do this as well. So we have licensees who, they benefit from us just generally advertising the brand as a whole. Now we didn't want to go to them and say, hey, give us money to advertise but instead what we did is we actually raised the price of our license, you know, $1,000 a year and we took that thousand dollars and now we're saying we are going to spend $1,000 to advertise. You know, take $1,000 to advertise in this. We have more to spend. They benefit from the fact that we're doing the advertising for us and everything works out. So I just, I love this. It's, it's entrepreneurship in its purest form. It's creative and if you will simply just make a list of your top expenses and then just brainstorm what are some ways that we could, this could self liquidate, you know, could we add a little PS could we do little things? Are there group buy potentials on this? Other people who would, you know, kind of want to get in on this, doing it in an honest, ethical way and then maybe, just maybe some of them should be completely spun out into their, into their own business. Maybe you're a bitcoin miner who should also own a health spa, I don't know. But I do know that this stuff works. And when you're talking about inflation, when you're talking about, you know, margin compression, this is a way to get an edge on over the competition if it stays within the business. And you may find out that frankly, your byproduct business is more valuable than your core business.

Exactly.

It does happen.

Well, hope you guys enjoyed that. This is the stuff that we probably enjoy the most when we get to talk about because there's so much creativity and so many applications that we can go back and look in our business. I know now we probably are both going to go back and do that.

Hopefully you will too.

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