One of the most common questions I receive is, “How did you make a million dollars at such a young age?”
This is a popular question. In a recent book, “The Middle-Class Millionaire: The Rise of the New Rich and How They Are Changing America”, the authors take a look at households with a net worth between $1 million and $10 million, which they call “Middle-Class Millionaires.” In the book, which was written by interviewing more than 3,600 middle-class millionaire households, they drill down to the same question: “How can you become a Middle-Class Millionaire?”
I read the book and was surprised to find that many of the ideals espoused by middle-class millionaires are ideals that I share. Below, I will outline five ways of thinking that helped me to sell my business for $1.1 million at age 26.
- I worked on my business every day — and held myself accountable. When I set my recent goal to only work 2 hours a day, I knew I would be surprised at what it revealed. The most surprising revelation, however, was that there were some weekdays I wasn’t working at all! I was frittering away far too many hours consuming information: blogs; Twitter; news articles; TV. There were also days filled with errands and hanging out with friends — fun, sure, but completely unproductive.
Conversely, when I started Simpli, I had a full-time job, but I worked nearly every day on getting our website up and running, posting on forums to promote the business, and answering customer emails. I talked the ear off of anyone I met — and listened to their needs, so I could add features to our website.
Defining what you have to do on your business — and then working on it every day — is the first key to success. You can’t have any excuses in this area. You can’t say, “Oh, well, it’s midnight and I just got home, so that can wait until tomorrow.” If you work an hour a day, consistently, every day on your business, you will be way ahead of most. Get rid of the excuses and focus your energy on your eventual success.
From The Middle-Class Millionaire: “Middle-Class Millionaires tend to be very disciplined when it comes to their commitment to success. They put themselves first and don’t indulge the idea that they deserve to lose. You need to block out the notion that you deserve to lose. If you don’t, there are just too many temptations to take the path of least resistance and quit.”
- I ignored promises of “multiple streams of income”, and instead focused on my primary business. This might well be heresy, especially in the Internet marketing community, but I recommend that you focus only on one business.
I recommend working only a few hours a day when you start — thus outsourcing everything that is not your specialty. If you try to start 10 businesses while only working 2 hours a day, none of them will go anywhere. Focus on a tiny niche, and start there. You can always expand later, when your first business is successful and you are ready to grow into another business.
With Simpli, we started by offering every type of hosting, but by the time I sold the business, we had a lean, mean lineup of tightly focused hosting solutions. I found that my energy was spread too thin by having an “everything” hosting company. If you choose to only work an hour or two a day, which I recommend, spend that hour or two on one business.
From The Middle-Class Millionaire: “More than 53 percent of the middle-class individuals we surveyed believe that ‘diversifying the ways you make money’ is important to their financial success. This view is shared by only about 15 percent of Middle-Class Millionaires, who are far more likely to extol the virtues of ‘concentrating all your efforts on one moneymaking endeavor.'”
- I didn’t give up when my business failed to make millions, month after month. I started my business in July 2001 — an unbelievably bad time to start a web hosting company. We had just gone through the dot-com boom and many of the largest web hosting companies in the world were going out of business. Datacenters, once full and humming, were being shut down and sold for pennies on the dollar. I remember the huge resistance I got when I started the business. “The hosting industry is saturated.” “What makes you think you’ll do well when billion-dollar firms are shutting down?” “No one wants to host with an unknown company.”
By May 2003, almost two years after I had started the business, my hosting company was making the whopping sum of…[drumroll please] $461.55/month. This, after I had spent over $20,000 starting the business! Some would look at those numbers and cry, or decide it was time to pack it up and go home. But I knew I was on to something. Demand was still growing. My company had a good reputation. People were starting to come to me and ask for hosting — I did not have to go throw myself onto the forums and offer the lowest price any more. Plus, I graphed our revenue curve and it was going up consistently. Every month, we made a little bit more money than the previous month. I decided to stick with it.
By May 2007, we had a blockbuster month in which we did over $76,000 in sales, and we were in acquisition talks with three other, larger hosting companies. But it took years of growing to get there. The point? Don’t give up. If your revenue is going up consistently, you’re doing something right. It just may take a few years to see the fruits of your labor.
I could have taken my $461.55/month in revenue and called it quits. But then I would have had to start over from zero. If you have any customers at all, chances are you have the seed of something good. It’s up to you to figure out what that seed is and how you can best use it to build a million-dollar business. But don’t give up.
- I learned that business is a game of negotiations. The web hosting business is cutthroat and competitive. I could demand a premium for my company’s web hosting service since we attended to our customers’ needs with great support and personal service. At the same time, I aggressively scouted for deals on everything from server hardware to colocation space. I got a deal for colocation space in 2006 that was so low that the salesperson who sold it to my company was fired because the deal she sold us did not make any money for the parent company. I negotiated an under-wholesale-price deal for the first 18 servers I bought with my initial $15,000 investment.
I quickly learned how to get the lowest list price. “Is that the lowest price you can offer me?” I would ask right before I signed a deal. That one sentence alone saved my company hundreds of thousands of dollars. Some companies knew my reputation and would immediately offer us a discount on services or products.
From The Middle-Class Millionaire: “An ability to negotiate is essential for success in any competitive field–even if you’re negotiating for a raise. More than 65% of Middle-Class Millionaires describe their negotiating approach as ‘do whatever you need to win’; only 32 percent said that ‘it should always be win-win.’ Among the middle-class, ‘win-win’ was slightly more popular.”
- I paid for the high end and charged my customers a premium. On a scale of 1 to 10, where 1 is the horrible datacenter with constant outages, and 10 is the premium datacenter with very few outages that costs 25 times as much as a 1, I went for a 7 or an 8. Some companies went for the 10 — they were always more successful than those who picked the 1s. However, I felt the most profit was in going for the “better than average” datacenter and then adding our premium service as a “plum.” I still agree with that philosophy, but if I had to do it all over again, I would pick even nicer datacenters. We had some nasty outages even on the 7-8 part of the scale.
This is relevant to any business. When starting a business, pick good providers. Don’t go for the cheap stuff. You’ll only end up hating yourself later. The most money to be made is to find the top providers (the “10”s) and negotiate to get them to discount their price to the 7-8 level.
Charging more for your services allows you to invest in your business. You’re not charging enough if half your potential customers don’t complain about the price. If only 10% of your leads are complaining, you’re far too low on the value scale. Always charge more and then convince your prospects that you’re absolutely worth it. Then deliver on the promise. It will take far fewer customers to grow a successful business that way — and you will be a lot happier.
It’s not as hard to build a million-dollar business as you may think, but it does take time and persistence. Being successful doesn’t necessarily take education, money, or even many hours a day of free time. “The Middle-Class Millionaires succeed by helping other people succeed,” writes Lewis Schiff in “The Middle-Class Millionaire.” What unique talents do you have that would help others succeed? How can you package and brand those talents?
How can you become the next Middle-Class Millionaire?
- The Middle-Class Millionaire by Russ Alan Prince and Lewis Schiff.
- Advice for Entrepreneurs: Throw out that five-year plan, build something now, and don’t take any money at 37signals. “An entrepreneur getting started doesn’t need a $100 million idea. A $1 million idea is enough.”
- Why Your Business Isn’t Doing As Well As It Could Be: “Most bloggers and writers don’t make a lot of money online. Most make only a few cents a day. Here’s the top ‘no-no’…”
- Hitting the jackpot doesn’t mean instantly becoming happy. “When you sell your business, win the lottery, or make a drastic ‘good’ change in your life, you’re suddenly confronted with an onslaught of you.”