The 4-Hour Workweek, Expanded and Update - Timothy Ferriss [83]
The Anatomy of Automation
THE 4-HOUR WORKWEEK VIRTUAL ARCHITECTURE
Splitting the Pie: Outsourcer Economics
Each outsourcer takes a piece of the revenue pie. Here is what the general profit-loss might look like for a hypothetical $80 product sold via phone and developed with the help of an expert, who is paid a royalty. I recommend calculating profit margins using higher-than-anticipated expenses. This will account for unforeseen costs (read: screwups) and miscellaneous fees such as monthly reports, etc.
How do you factor in advertising cost? If a $1,000 ad or $1,000 in PPC produces 50 sales, my advertising cost per order (CPO) is $20. This makes the actual‘ per-unit profit $40.94.
I set a new goal after that experience, and when I was interviewed six months later as a follow-up, one change was more pronounced than all others: silence. I had redesigned the business from the ground up so that I had no phone calls to answer and no e-mail to respond to.
I’m often asked how big my company is—how many people I employ full-time. The answer is one. Most people lose interest at that point. If someone were to ask me how many people run Brain-QUICKEN LLC, on the other hand, the answer is different: between 200 and 300. I am the ghost in the machine.52
From advertisements—print in this example—to a cash deposit in my bank account, the diagram is what a simplified version of my architecture looks like, including some sample costs. If you have developed a product based on the guidelines in the last two chapters, it will plug into this structure hand-in-glove.
Where am I in the diagram? Nowhere.
I am not a tollbooth through which anything needs to pass. I am more like a police officer on the side of the road who can step in if need be, and I use detailed reports from outsourcers to ensure the cogs are moving as intended. I check reports from fulfillment each Monday and monthly reports from the same the first of each month. The latter reports include orders received from the call center, which I can compare to the call center bills to gauge profit. Otherwise, I just check bank accounts online on the first and fifteenth of each month to look for odd deductions. If I find something, one e-mail will fix it, and if not, it’s back to kendo, painting, hiking, or whatever I happen to be doing at the time.
Removing Yourself from the Equation: When and How
The system is the solution.
—AT&T
The diagram should be your rough blueprint for designing a self-sustaining virtual architecture. There could be differences—more or fewer elements—but the main principles are the same:
1. Contract outsourcing companies53 that specialize in one function vs. freelancers whenever possible so that if someone is fired, quits, or doesn’t perform, you can replace them without interrupting your business. Hire trained groups of people who can provide detailed reporting and replace one another as needed.
2. Ensure that all outsourcers are willing to communicate among themselves to solve problems, and give them written permission to make most inexpensive decisions without consulting you first (I started at less than $100 and moved to $400 after two months).
How do you get there? It helps to look at where entrepreneurs typically lose their momentum and stall permanently.
Most entrepreneurs begin with the cheapest tools available, bootstrapping and doing things themselves to get up and running with little cash. This isn’t the problem. In fact, it’s necessary so that the entrepreneurs can train outsourcers later. The problem is that these same entrepreneurs don’t know when and how to replace themselves or their homemade infrastructure with something more scalable.
By “scalable,” I mean a business architecture that can handle 10,000 orders per week as easily as it can handle 10 orders per week. Doing this requires minimizing your decision-making responsibilities, which achieves our goal of time freedom while setting