The 4-Step Process To Profitable Businesses
Last year, I ran a course for a small group of ForeverJobless subscribers to calculate the potential success, and potential profit of their ideas. Many of you have read my Millionaire’s Math post on EV(expected value). The course was designed to help people avoid wasting time or money on a bad idea, and if it was a good idea, calculate the EV of the idea(the potential profit) before they started. I have a 4 step framework I use that I’ll share with you below.
I’ve decided I’m going to open this up to you this month, and have turned the course into an incubator. So, instead of just providing videos on how to go through the process to see if you have a valuable idea, and how to calculate the EV on that idea to predict profits, I’m actually going to create a private community where ForeverJobless Incubator members will be able to post their ideas and get feedback directly from me, as well as other members. Most courses I see focus on having people launch a product or service. That’s NOT a good goal. Most people in those courses rush out an idea, most of them fail, and the course is over. The end. They “successfully” launched, which was the goal. But their project was not successful, so they need to launch a new idea, and they still need help. I designed the Incubator so that you could take new ideas through as many times as you needed. You aren’t rushed to push out an idea quickly, as that leads to bad decisions. You take your ideas through the Incubator at your own pace, until you have one that’s worth launching. I’ve successfully used this framework many times myself, and I include case studies in the Incubator where you can see the exact process I used for the ideas, and my EV calculations.
In How To Get Lucky in E-Commerce, you may remember example #4 where in my due diligence phase I uncovered what the issue was with the product, and how to solve it. This led me to starting a successful business that eventually led to a $68,000 sale. In the Incubator I share what the actual product was, as well as the exact calculations I used to determine the business would be a success, BEFORE I launched it.
How did I know when to do due diligence?
Like I mentioned I have a framework I use to calculate the potential profit of my ideas, and it’s a 4-step process that helps me not only to avoid getting into a bad opportunity, but to make sure I don’t launch anything unless the EV is equal to, or greater than my desired profit goal.
Most people launch ideas that either won’t work and could have easily been predicted ahead of time, or ideas that may work, but even if successful won’t hit the profit goals of what they’d like to make.
If you want to make $5,000/month, and you launch something with an EV of $2,000/month, even if you “succeed” with the idea, you fail, since you won’t reach your desired income. Succeeding at something that doesn’t help you reach your goal, only eats up time and keeps you away from working on something that would help you reach your goal.
If you’re like the majority of people, you may just be guessing about whether or not your idea will work, and then launching an idea that you probably should have passed on. Or, you might be sitting on the sidelines forever with your idea, because you don’t want to fail, and don’t have a framework to follow to know if your idea will work or not.
Today I wanted to share the 4-step process that I use, so you can have a framework for deciding which of your ideas are worth launching:
1. Do you have a valuable idea?
Most people do not truly solve this before they jump in. They go straight to marketing.
“Wait, I thought marketing was important?!”
Marketing is extremely important. The problem is, almost everyone I come across attempts to figure out marketing before they’re ready to. All they’re really doing is wasting time since they usually haven’t solved what’s important first.
There is no point in knowing how to reach a market if you don’t have something worth reaching them with. This leads to wasting a lot of time and money.
2. Can you reach your market?
If you have a great offering but can’t reach your audience, you’re not going to be very successful.
If you had the best food in the world, but no one knew your restaurant existed, you’re probably going to go out of business. The same applies to any business you want to launch. If you solved step #1, you’re way ahead of most other people, but you still need to solve the marketing for it if you want a profitable business.
3. Due Diligence
This is where you find out anything/everything you can about competitive offerings, and the market. You want to verify that your initial assumptions about your offering are correct, as well as your ability to reach your market. This is also where you’ll start gathering the information needed to to be able to calculate your EV.
4. What is your expected value?
This is where you figure out what your expected profit is before launching your business.
You should not attempt to launch a business without knowing what your EV is. Would you dive into a pool if you didn’t know how much water was in it? Of course not! You risk your safety. You shouldn’t launch a business without knowing how much potential profit is in the idea either. You risk losing lots of time and money.
You may be thinking:
“What if I don’t know how to reach my market?”
“What if I don’t even have an idea?”
“What if I don’t know the one thing to focus on? My time is limited and there’s too much to do.”
These are all common problems people run into.
Fear of failure or anxiety are some of the main reasons why you may not be launching your idea, despite your desire to have a successful business. They often lead to being in the same spot, year after year.
With the new year having just started up, it’s time to eliminate the obstacles that are holding you back from launching a successful business.
In the next few days I’m going to send you another email that will help eliminate some of the obstacles you may be dealing with, so that you can finally get a profitable business off the ground in 2015.
I’ll also share a short case study to give an example of how I made $68,000 from my 4-step process.
First, please post a comment below and let me know which step you’re on. What would help you get past that step and launch your business?
Or if you have a business, but it’s not going 100% like you want it to, is it possible you didn’t completely solve one or more of the steps? If so, leave a comment below and let me know which ones you are most worried about, and what help you’d like regarding those steps.
Leave a Reply
51 Responses to “The 4-Step Process To Profitable Businesses”
David
I’m on a few of the steps. 1 and 3 but I’m ready to start seeing them one by one on what we should do to validate each one.
Thane Madsen
Billy,
I am somewhere around steps 2 and 3. I don’t have a specific marketing plan for my local service idea but, I do know that it can be marketed. This is why I am slightly in step 3. So far in due diligence I know there is only one current competitor, and they have been in business for around 15 years. I also know their service is currently terrible, to the point that they have lost all business with the largest local entity which was in turn their largest customer (maybe 15-20% of revenue). I don’t know the questions I should be asking and answering to complete my due diligence. I know this is a business opportunity, but I don’t know what information I need to calculate income potential.
Thanks for any help,
Thane
Billy
Sounds like an opportunity worth exploring Thane.
“one competitor” + “15 years in business” + “terrible service” = most likely a gap in the market waiting to be filled
Have you tried approaching the customer that just left them and find out what it would take to get their business?
Siim
Hi Billy!
As always you are talking the right things, but I would like to know what sites are you using to get ideas or see the problems which you can solve for the customer? If you are using amazon then how do you NOT get information overload – do you have some kind of process how to go through different markets and identify niche markets which have the biggest potential? Or do you just start with the market you like and go on from there? Or are there some better sites than amazon?
Billy
Good to hear from you Siim!
I’m not using any specific sites to come up with ideas. It used to be difficult for me to come up with ideas when I was starting out because I never practiced. Once I learned, now I see opportunities all the time. Like anything else, it takes practice. It WAS information overload when I started since I didn’t have a process at the time to go through them. Now the process takes away a lot of the headache.
Gulzaar
I think I’m on step 1 – do I have a valuable idea. The notes app on my computer is filled with potential ideas that all turn out to be dead ends when I think about them a little more. I’m still in the process of figuring out which niche/space has the most potential to offer value.
Ahmed
On your podcast you mention that some ideas are (too weird, too out there, or just ahead of its time) for someone to launch a minimum viable product. You mention the founder of Amazon and his idea as an example. So how could someone like him determine EV?
How does that podcast episode and this blog post reconcile?
Billy
You could calculate EV on any idea, but the likelihood it’s going to be super close when dealing with ideas so extremely large with so many unknown variables such as Amazon is small. Many ‘huge’ ideas such as Amazon are likely to fail, but when they work, make an obscene amount of money. You could get a rough idea of what you expected to happen, and a very, very, very rough idea of the % of times it would go according to your initial plan(yet with so many variables a lot would change as you went along, especially w/how competitors and potential competitors responded), and from that you could calculate what it was worth to you, and compare to other opportunities to see if the high payoff when it worked was worth the much higher % failure rate. You’d go in knowing your failure rate would be much higher than a normal business, yet if you were potentially going to make 100x as much(or 10,0000x in absurd cases like Amazon), you decide if it’s worth it. A lot of people get failure rate and EV confused(not speaking of you). EV has the failure rate built in if done correctly. Then someone can look at it and see if the EV is worth it.
Example, if someone was expecting to fail 50% of the time, but when they succeeded they knew they would make $20,000/month, most people would do that deal, despite the possibility of temporary failure with that project. The EV would be $10,000/month. The problem is most people never get to the point of calculating that their EV is $10,000/month, and just see a “risky” project. The same person may pull the trigger on a deal that will “succeed” 95% of the time, but when it works it only makes $500/month. Clearly a pretty horrible EV decision, but most people never get past the failure fear to see the EV.
Elon Musk said he EXPECTED Tesla to fail. He launched because besides wanting to work on a cool project that could impact the world, he knew when it worked he would make a massive amount of money. He understands EV.
I kind of rambled/went on tangent but let me know if I answered your question.
Ahmed
Yes thank you for taking the time to explain. Perhaps I am still missing something though.
The thing is EV takes a lot more than just being “good at math”. I feel like for a noob they won’t be able to calculate EV correctly unless all they intend to do is sell stuff on Amazon, Ebay, etc. But if they intend to do a “real” business with marketing, employees, product management, etc. then it would be difficult for the noob to calculate EV unless he already had business experience to begin with. How else would he really understand what these things mean and what the realistic estimates are in whatever industry he chooses to get into?
I actually had a chance to sit down with a professional accountant who calculates the EV for companies looking for investments/loans. I believe he works for some investment firm. It was mind blowing stuff. My company hadn’t been tested at the time and he ended filling alot of gaps just from his experience of what a realistic projection would be and how much certain expenses would cost on average.
I am not sure what my point is but perhaps I am trying to say that calculating EV for a business is easier said than done. You can have an idea of what the future holds based on the past, but if a noob has no past experiences to go off of in the first place how can accurately predict the future? You can calculate EV but you can’t predict the future…
Ahmed
I think what I am trying to say is that in some cases a test run has to take place and time and money must be put in to even be able to properly calculate EV in the first place. At least that is what I feel like for my case but maybe I am wrong…
fernando
Step 1. Dont have a particular skill or hobby where I feel I know more than the top people out there. Therefore, i dont see how can i add value.
Also, making money just for the sake of it sounds a bit deppresing.
Thanks
Billy
I don’t know many people who make money just for the sake of it. Some people make money to provide for their families, some people make money to give themselves/their families a better future, some make money to be able to travel more, some so they can quit their job, etc… Making money just to make money would not be very fulfilling. It’s the increased freedom and choices that making money gives you.
Kenny
Hi Billy,
thanks for the articles, they have been very enlightening and useful. I am currently in the brain storming of ideas phase but have not settled on one. As i hold a full time job, i only have after-work hours to manage a sideline business and i am not prepared to give up my job yet unless i am confident the business idea is viable and generate returns that justify going full time on. An e-commerce store is one of the current ideas that seems viable to manage as a sideline business but the barriers to entry is low and may be hard to generate a decent profit in the long term unless one has a niche in it with differentiation from the rest. Perhaps if you have ideas of business models or advice to people who intend to start a sideline business at the same time holding a full-time job that will be extremely helpful.
Thanks & Best Regards,
Kenny
Billy
“An e-commerce store is one of the current ideas that seems viable to manage as a sideline business but the barriers to entry is low and may be hard to generate a decent profit in the long term unless one has a niche in it with differentiation from the rest.”
That quote tells me you are closer than you think Kenny. Most people are not thinking of these things. This will allow you to see the good opportunities a lot easier. The same business/blog/book/podcast/service/product that everyone else is already doing is usually what is promoted, but those people will have some disappointment coming their way with the results they get, since they are not adding any value to the idea, just copying someone else’s and hoping for the same result. Just the fact you’re already looking for opportunities to add value will pay off for you.
Alex
Validation of my ideas.
I have trouble with bouncing from one idea to the next.
Jon McClure
Completely agree Alex. I just heard you should keep a journal of all your great ideas but still focus on the project at hand. Finish what you start. As the snowball of success picks up then bring out the idea book and really begin the journey to being a serial entrepreneur!
Alex
Thanks for the tip John. I do keep what I call a “portfolio of initiatives” in my Evernote just for ideas. What I am referring to is overcoming the desire to jump into something more exciting when I get burnt out on a current project. I’ve decided to keep a record of my EV math for each new idea and compare it to my current project. If the math isn’t there then why switch? I think this will alleviate some of the problems I am having.
Fiona
Perhaps you should try setting yourself a minimum time period to focus solely each project before you embark on another. A period in which you will only focus on that idea and give it a proper shot, say 1 or 2 years.
If any other ideas come to you during that time write them down, and keep them safe for the end of the minimum period you have decided to commit to the first project. It is much less distracting when you decide to give your current project your all and not get sidetracked by other things. Plus by the end of the time period you should have an idea of whether it is going to earn you what you want it to earn or whether you’d be better off exploring other ideas.
Jon McClure
I’m on step 3! Great post.
Billy
Sweet! Thanks Jon. Good luck w/the final two steps!
abi
I’m somewhere between 1 and 3. I have an idea and the marketing plan is easy and straight-forward, but I’m not completely convinced that the idea is going to be a hit and I’m not really sure how to test the market without spending money to develop a prototype.
Billy
If you’re unsure on the value of the idea, it has the potential to make the marketing potentially very difficult. Is it a new idea, or something others are already doing?
abi
It’s a slightly new take on an older and proven idea. I have a digital rendering of what it should look like – it’s really simple. I’m just not very confident in approaching customers (B2B) with just a picture I guess, but like I said, I would like to validate the idea before I spend money on a solid prototype.
Kieran
I’m on step #1 and moving towards step #2 (same problem you’ve highlighted above!). I’ve not really validated my business idea to ensure this is something enough people will pay for to make this a worthwhile venture if I’m honest.
My business idea is a life coaching and professional organisation consultancy. I have one client at the moment (“launched” on 01 January), basically so that I can work with a real person to develop my coaching skills. My validation thus far has been so many people at work and in my personal life asking me how I get so much done etc and finding my advice valuable so I figured I’d try to monetise it since there is obviously(?) value.
What would help me get past this step and into a hard launch and a successful business would be having the confidence that this idea has been validated as much as it can be, then marketing ideas considering there is nothing like this where I live currently.
John Ramos
Hi Billy, great post as usual.
I am trying to build an online book company to help students fulfill their maximum potential. Right now, I’d say I’m on Step 2 or maybe 3 as well. I’m still growing a blog/website audience, but at the same time shaping products according to the feedback I get.
My goal right now is to build a respectable audience (few hundred visitors a day) and then start marketing a book and publish it. I think I have some pretty unique and innovative concepts to include in my books, so that there’s an instructional and entertainment component to them.
Billy
Awesome John! Thanks for sharing.
Phil
Thanks Billy. Excellent info here!!
I’m on step #1 – trying to identify a niche that I can provide enough value to make it a win-win situation for my future customers and me.
Phil
Derek
I need to figure out step 1!
Joe
I need to complete steps 1 & 4. Which seems out of sync now that I read this. The idea is marketable, proven, and clears due dilegence, not sure if I can add value to make it less of a commodity and not sure how much I could make….
Billy
Try working through it starting with one, and see if there’s any way to improve the product. If so, it’d make the rest of the steps easier to do.
Andrew
Definitely step 1. I find I get lots of ideas, but there is usually a large amount of information missing to the idea – be that technical limitations or other unknowns. Having a system or the resources to chip away at that would be huge. Would love to know your thoughts.
Also, Fernando, who makes money just to make it? What about the value it would bring to your life. Be it in stress reduction, the experiences you could have, or the good you could do. Nothing depressing about that idea.
Mark
Great post Billy as always!
I believe I’m somewhere between steps 1 and 3 (like a lot of people seem to be).
I have the idea and truly believe it brings much value to the market. Aside from pitching the idea and getting feedback from family and friends, I haven’t found a way to validate the idea in a monetary sense. In order to provide the service or even test the idea on a small scale, I don’t see how it wouldn’t cost a ton of money. The idea is a high end shoe rental service similar to what Rent-The-Runway does with dresses.
Thanks in advance for the advice!
-Mark
Billy
What is it that led you to this idea, and why do you feel it’s a big need for the market?
Let me know what you’ve tried so far.
Chris
I believe my idea has successfully passed all four steps.
1. The response to my testing has shown me that it is valuable, and I have received pre-orders.
2. I can absolutely reach my market.
3. My competitors have the same problem as my customers and my pricing is more flexible than theirs.
4. The idea has a positive EV with additional protections put in place to limit risk even further.
Billy
Sounds like we may be reading a success story soon
Chris R
I hope so! Although its probably going to take a little longer than I’d like.
Scott
I’m at step 4 with my current business, and have expanded my vision so that now even the best-case EV is way below what I want. My plan is to continue until I recoup my investments and then use the subsequent profits to fund a new business. I’m at step zero for the next business though, and I’m looking forward to more details about due diligence and calculating EV.
Billy
I’d try and calculate how much time it would take you to recoup, and calculate what that’s worth to you.
Often times you can make more freeing your time and mind to work on a more profitable idea.
Props to you for figuring out now that what you’ll make from your venture is less than you want. Will free you up for better opportunities.
Matt O.
I would say im at step 1 – trying to identify what kind of a problem / need that I would be able to help others in solving / fulfilling, thus creating a product / service around it providing value to the potential customers.
Billy
Well you’ve definitely got the right mindset Matt. You’re on the right path for sure.
Maria
I have a working service business with a valuable idea and a handful of customers. While I could certainly do more due diligence on the competition and my service offering, where I’m stuck is (1) finding new customers in my target group and (2) finding the EV in this whole deal. My income fluctuates *wildly*, which makes that calculation tricky, at least to me. Any ideas how to get a handle on those things? Seems like I can’t grow the business until I identify some metrics I can measure and then improve, but I keep getting stuck on these two.
Billy
What have you tried so far with reaching new customers, and why does your income from the business currently fluctuate so much?
Maria
Hey, Billy. Thanks for the response.
To reach new customers, I have:
– posted twice daily to Craigslist, two different ads targeted at two groups of people (6-10 customer acquired)
– added profiles to Thumbtack, Elance, and SideJobr (1 customer)
– joined half a dozen FB groups, participated in discussions, offered help when appropriate (5 customers)
– pinged friends and acquaintances (3 or 4 customers)
– pinged former customers (a couple of additional jobs)
I offer a monthly retainer, but currently have only 1 customer (though I’ve had as much as 4). Some months, I make a retainer or two, plus a side job or two, with a lower income of around $300. Other months, I’ll clear $2k. I’m automating parts of my customer service to improve retention, and hired VAs to help with small stuff.
Current goal: increase monthly retainer clients to 15 by end of Q1.
Carlos
I’m on step one at the moment. Trying to figure out if my idea is valuable. Making a prototype, then will give them to people in the industry that can do something with it. 🙂
Andrew
Thanks Billy for the great post!
This is Andrew from South Korea.
I’ve been enjoying listening to your Podcast from Episode 1 to 190.
I’m currently on Step #1. I’ve tried various ideas and it ended up costing me time and money with little EV in return. I used to have a mindset of just making a lot of money, but I want to find a niche product/service relating to my strength and passion that I really want to pursue as a long-term business. I’m still in the process of figuring out which niche product/service has the most potential to offer value.
I’m looking forward to the upcoming Incubator program 🙂
Billy
Thanks for listening to all the podcast episodes Andrew, glad you’re enjoying them!
Finding an idea within your strengths is a good idea, as it will make it easier for you to provide value, thus, easier to make money.
Gerod
I really need help with Step 2.
TJ
I’ve been working on my idea for over a year now. I feel like I have wasted quite a bit of time and money.
My question is this: Your steps are very clear and obvious. What isn’t obvious is HOW to do those steps. How do I research the market and know what is going on? How do I know it will be profitable and my offering is good? Each step is required, but at the same time, I have no idea how to do them.
I think that is the real reason people just dive in. They figure diving in is better than doing nothing since they can’t figure out how to do those other steps.
Kieran Sammon
I have launch, still working on step 2 and never went through step 3.
John P.
I’m actually on step 2, but having a difficult time. Prior to reading this, I jumped ahead a bit with the idea and completed step 3. The problem I have with step 2 is that I’m not exactly sure how to solve that problem. I know who my target audience is for the product (a physical product), and I know that it is both new/different than whats available, and useful/desirable for the target audience. How to reach them in a broad enough sense as to make this idea profitable is difficult though. I also hold a full time job, so its tough to find the time to really get this business underway (though I’m doing my best to dedicating as much time as possible to it moving forward). Any suggestions on what the primary focus for a new business with physical product in mind in my situation would be much appreciated. Thanks for all the great guidance thus far!
Victor Evangelista
I never launched anything. I’ve been a dreamer for a long time. I’ve been learning some stuff, but not actually doing what’s essential. I once figured fear of failure was probably my biggest block, as I’d love to leave my job and being successfull as an entrepreneur could lead to that, so I think I just expect too much out of my big idea, so I’m scared it won’t work. Also, I’m concentrating on too many things, but I’m convinced I can drop some of them.