This summer I wrote a post on growing my software company to $15M ARR (
reddit thread) that you all seemed to enjoy. So I thought I'd share my latest writing.
Back when I did web design people would often pitch me an idea for a business that would be "Uber for X" or "Facebook, but for Y" and I always struggled to explain how what they chose was an insanely difficult business and all the skills they would need to learn in the process.
This article is my first draft of an attempt to lay out the roadmap to building wealth and the pitfalls and principles you'll encounter along the way.
I'd love to hear what you think in the comments!
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In college I first heard Jason Fried from Basecamp talk about how making money is a skill—like playing the drums or piano—that you can get better at over time. That resonated with me immediately. I wouldn’t expect to be able to sit down at a piano for the first time and immediately play a concerto. We could outline the progression to mastering a musical instrument, so we should also be able to do the same with earning a living.
What lessons do you need to learn to go from odd jobs around the neighborhood to owning a real estate empire? From working as a freelancer to selling your own digital products? What about from working at Wendy’s to owning a SaaS company earning over $1 million per month? That last one is my own path.
There’s a reliable progression that anyone can take to earn more and build wealth. In fact, I like to think of it as a series of ladders side by side. Each one can climb to different heights in both the quality of business and potential earnings.
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Ladders of Wealth Creation Diagram (this is important and explains the concept visually) -------------------------
In this model the potential earnings increase the higher up each ladder you climb. They also increase as you move left to right to more advanced ladders. But the difficulty increases with each move as well.
Each step requires that you learn new skills to overcome those new challenges. Let’s break down a few of those skills and opportunities at each stage:
TIME FOR MONEY
Our first ladder is trading time for money. This is how most people you know earn a living. It may start with an hourly job working for Starbucks, but then transition into a salaried position working at a company.
At the most basic level you need the skills of:
- Showing up consistently
- Being reliable
- Learning new skills on the job
Every job, even the most entry level, require those three things.
Then in order to take the next step up the ladder you will need to specialize in certain skills (design, copywriting, legal, becoming a nurse, etc) to gain a salaried position.
YOUR OWN SERVICE BUSINESS
If you choose to make the jump to the next ladder of running your own services business there’s an entirely new set of skills you need to learn that build on the last step. Things like:
- Setting up a company
- Finding clients
- Creating proposals
- Pricing services
- Hiring employees
- Establishing an online presence
- Accounting, finance, business operations, etc
Looking back there are so many things that seem easy and intuitive now (such as filing for an LLC with the Secretary of State) that were daunting to me at the time.
This is also where many business owners expand beyond their ability and start to lose the lessons they should have mastered from the previous ladder like being reliable and showing up consistently. Which is how a friend of mine with no plumbing experience bought a small plumbing company and doubled revenue in the first year with two simple changes:
- Following up with customers
- Doing what he said he was going to do
As business owners we underestimate just how much there is to learn so we get overwhelmed and start dropping the ball on the basics.
PRODUCTIZED SERVICES
Up until now each sale has been made by talking to customers or an employer directly in person or over the phone or email. But to truly reach new levels of income you need to learn a different lesson: how to sell without ever talking to the customer.
Our goal is to scale sales to new levels. That means removing every possible bottleneck. On the productized service we’ll remove the sales bottleneck, then on the next ladder we’ll remove the product delivery bottleneck.
A productized service is when we take a set offering (e.g. search engine consulting) and bundle it up as a set offering with a fixed price (an SEO site audit for $1,000).
A few examples include:
- A designer moving from designing websites at $100 per hour to charging a $2,500 for designing a 5 page website.
- A video editor charging $250 per video instead of $50 per hour.
- A handyman charging $50 per visit rather than an hourly rate.
Because the project scope and price are fixed the service provider will make more on some projects than others, but the profits will average out.
On this ladder we need to learn:
- Writing sales copy that can make a sale without talking to the customer
- Designing a sales page (or hiring experts to do it for you)
- Processing online payments
- Standardizing systems to deliver repeatable quality with each service
If you choose to move further up this ladder you can add recurring revenue and employees to scale further and add predictability. For example, my brother-in-law Daniel used to edit any video for $30 per hour, but now he’s launched a recurring productized service to edit up to four vlog episodes per month for $1,000.
First he answered the question, “how many hours will this take?” by moving from hourly to a fixed per video cost. Then he clarified exactly who it is for by specifying vlogs, rather than just any video. And finally he made it recurring by moving to a monthly price, rather than a per video price.
Now he has a predictable income stream from a handful of clients and a waiting list for those who want to sign up when he has more availability.
SELLING PRODUCTS
A productized service works to remove the manual work from making the sale and selling a full product continues that trend by also removing the manual work from delivering the product.
Physical products fall into two categories: handmade and manufactured.
- Handmade – Handmade products are great to get started because you can make a few without spending a ton of money, but then they are closer to productized services in that each one takes time to make, so you can’t scale seamlessly yourself.
- Manufactured – Manufactured products are hard to do at a small scale, but if you can sell enough of them you can make them in bulk and then you can scale an impressive business.
A product takes far more work to create up front, but then each individual sale and the fulfillment of that sale happens without much (or any) additional effort from the business owner.
Examples include:
- An ebook on how to learn a new programming language
- A video course on new cooking techniques
- A new tripod for vloggers
At this stage there are an entirely new set of skills you have to learn in order to sell products in bulk:
- Customer support at scale
- Gathering customers at scale
- Supply chain (if it’s a physical product)
- Fraud as nefarious people use your site for credit card testing and more
That’s just a few of dozens of skills you’ll need. With that intro to the ladders of wealth covered, let’s turn to principles that will help you navigate this new concept.
8 principles to grow your wealth and income over time
- Extra time and money need to be reinvested
- You can skip ahead, but you still have to learn the lessons from each step
- Apply your existing skills in a new way to build wealth
- There’s a difference between working for a better wage and truly building wealth
- Using an earlier rung on the ladder to fund the next one
- Moving between ladders often means a decrease in income
- Each step is easier with an audience
- It takes longer than you think, but the results can be incredible
1. EXTRA TIME AND MONEY NEED TO BE REINVESTED
On a recent trip to Seattle I talked to my Uber driver between SeaTac and downtown Seattle. The conversation ranged from travel, our favorite islands in Hawaii, his love for music and gadgets, what he does for work, and why he’s driving for Uber on the side.
He has a solid career working downtown for the City of Seattle and Uber allows him to earn a little extra on the side driving a couple mornings a week. It’s fantastic that services like Airbnb and Uber allow those on with a set salary to earn more on the side.
So what was he spending this extra money on? Well, he loves gadgets and wants two things:
- To replace a broken speaker in his home theatre system.
- To buy a DJI Mavic drone.
Those are both super fun purchases and it’s great he’s able to work extra to make those happen. But it reminded me of why most people don’t build wealth: increased earnings never go into wealth.
All across society extra money—whether from a raise or working extra—disappears into lifestyle inflation or temporary purchases, when it could be put to work so much more effectively.
The drone would be really fun, but there are so many small parts and fancy electronics that it’s bound to break after a couple years—and that’s if you don’t fly it into a tree before then.
If you want to build wealth that thousand dollars should be spent on new skills or invested in the stock market, retirement accounts, or another business, rather than burned on the latest gadget.
2. YOU CAN SKIP AHEAD, BUT YOU STILL HAVE TO LEARN THE LESSONS FROM EACH STEP
At ConvertKit we run one of the largest affiliate marketing programs of any SaaS company, bringing in nearly half a million dollars in revenue each month. But it’s a pain. None of the software available to manage these systems works well and as a result we spend at least one day a month doing manual work.
My brother-in-law, Philip, saw this manual work and decided to build a better platform for SaaS companies to run affiliate programs. His new tool, called
LinkMink, is gaining traction, but still early. After working on it for nearly two years he can’t help but feel frustrated he and his co-founder are only at a couple thousand a month in revenue.
I can relate to this. 2 years into starting ConvertKit we were at the same level. It sucks how slow SaaS can be.
But then I started thinking about Philip’s path. He’s got a bachelor’s degree in business, has worked as a designer, then as a software developer. Then he started working on LinkMink.
His path has been:
- Hourly work for a company (in a wide range of jobs as anyone joining the workforce has)
- Salaried work at a company (both as a designer early on, then a web developer)
Okay, so far this is great. On our income-earning ladder he has gone from the first rung to the second and done it quite quickly. In just four years going from an entry-level position to a fantastic salary.
Somewhere in there he also did a little bit of contract design work, so he picked up the basics of invoicing, finding clients, and marketing your services.
So let’s look at his next step, which was too… Start LinkMink.
Starting a software-as-a-service app isn’t the next step on the spectrum. Hell, it’s not even in the next 10 steps!
Running a SaaS company is incredibly hard with so many moving pieces: development, servers, customer support, legal, payment processing, etc. No wonder it’s taking a while!
It’s not that he can’t do this or that he even made a poor choice in jumping to this step: simply that he has a lot of lessons to learn and he chose to learn them all here, rather than slowly in incremental steps throughout the journey.
Because of that, he should set his expectations that this will take longer and feel harder than it does for other people.
Those downsides are balanced by the fact that it can also have an incredible reward because recurring software is one of the greatest business models on the planet, which is why acquiring companies and investors will pay an incredible premium to own them.
3. APPLY YOUR EXISTING SKILLS IN A NEW WAY TO BUILD WEALTH
My friend Patrick bought a house that needed plenty of work and immediately dove into renovating it himself. Since he works construction full-time he was well equipped with the skills to transform this fixer-upper.
But the real magic and value wasn’t in the main house, which he is remodeling for his family, but in a detached 1-car garage that is accessible from the back alley. Originally this building was so run down that you wouldn’t even park a car in it, but after 6 months of work on nights and weekends Patrick renovated it into a beautiful little 300 square foot studio apartment.
Just a couple hours after listing it for rent on Airbnb he had his first booking. His first month booked up immediately generating over $1,800 in revenue. When combined with his job working on a construction crew, this new revenue stream was a 50% increase in his monthly earnings.
Because Airbnb already exists he has a product to sell (a cozy place to stay), in an existing marketplace, to a steady stream of buyers.
The best part is that not only is this making him money while he works construction,
and that the extra work he put in will raise the resale value of his house, but really that for as long as he holds on to it, he has steady cashflow to more than cover his mortgage no matter what job he does.
4. THERE’S A DIFFERENCE BETWEEN WORKING FOR A HIGHER WAGE AND TRULY BUILDING WEALTH
While I love working on the computer and creating digitally, often I want an escape from that and to see projects come together in real life. Like many people I’ve been fascinated by tiny houses for years, so this year I decided to pull the trigger and build one myself. While it’s been a lot of learning and quite challenging at times, the break from sitting in front of a computer to start creating in real life has been so rewarding.
Since I’m a complete novice when it comes to home building, I’ve relied on experienced friends like Patrick for the trickier parts, such as installing a double-swing french door.
After finishing his own tiny studio and helping me build my tiny house Patrick said, “Maybe I should quit my construction job”—which is something he’s wanted to do for a long time—”and build tiny houses for other people.”
While it’s a solid idea, and would certainly be more fun than working for a construction company, I talked Patrick out of it. Not because I want to crush someone’s dream, but because it would be a step backwards on our earning a living ladder.
Patrick was on the first ladder of hourly or salaried work for a company. The next logical step would be to start his own company doing similar work. That actually takes him to the next ladder.
Then if he were building tiny houses specifically he could specialize and sell them more as a product—not just labor for x dollars per hour, but actually selling the completed tiny house for a fixed price. Which would mean any efficiencies gained would be his to keep.
Wait, those all sound like good things and steps forward, so why discourage it?
Because Patrick actually has a solid footing on a much more advanced ladder: selling products. His Airbnb is selling a product into an existing marketplace. He’s making money while he sleeps! So instead of using his time and skills to create another hourly or project based income source, he should build a tiny house for himself, put it on Airbnb, and double his product revenue.
5. USE AN EARLIER RUNG ON THE LADDER TO FUND THE NEXT ONE
The one downside to jumping ahead is that it often costs money before you will get money back. Because he did all the work himself, Patrick’s studio renovation only cost about $10,000. While it’s a great return, $10,000 is a lot to come up with!
In the same way Patrick’s biggest obstacle to running another airbnb unit is actually initial capital to get started through buying land and building materials.
That’s where the early rung on the ladders can help. You might stay at your software job longer to stockpile savings to fund your living expenses longer, or you might pick up extra shifts as a bartender to help save for your next set of building materials (which is what Patrick did). Often it requires extra work on one rung of the ladder to fund the jump to the next one.
WHEN IS IT WORTH IT TO WORK FOR A WAGE?
You may have heard the quote, “you shouldn’t trade time for money.” While true that there are better ways to build wealth, early in my career I found that advice quite discouraging. That was the only way I knew how to make money and apparently it was wrong!
You
should trade time for money, especially early in your career when it’s the only option available with your current skill set. So rather than writing off entire methods for earning a living, let’s break down five examples of when you should trade time for money:
- When you are just getting started. Early in your career, the important thing is to make enough to pay rent and buy groceries. Don’t look down on any job that allows you to do that. Once you have a stable foundation you can start to pursue better opportunities.
- When you are learning a new skill. If you can get paid to learn a new skill that will grow your earning potential you absolutely should! Let’s say I want to be a YouTuber and are just getting started. Working as a camera assistant for an ad agency would be a great way to learn more about cameras and video while still paying rent.
- As a step in getting to a higher rung or on to the next ladder. It always takes time, money, or both to move to a higher rung on the ladder. If you spend conservatively and save any extra money you can have enough to buy the tools, training, or time necessary to get to the next level.
- To build relationships and find mentors. The right people will shape your mindset and opportunities. You should absolutely trade time for money if it means expanding your network to people who can help you jump to the next ladder.
- When the work is rewarding and meaningful in its own right. If you found work that you find meaningful and fulfilling, you should do that. Even if some expert says you shouldn’t trade time for money. A lot of money is far from the only kind of wealth.
The most important thing is that you aren’t just treading water as you work for a wage. As much of that money as possible should be saved and invested to help you jump to the next ladder.
6. MOVING BETWEEN LADDERS OFTEN MEANS A DECREASE IN INCOME
I hope this has been helpful and inspiring so far, because I’m about to hit you with some bad news: while income increases as you move up any one ladder, it often decreases when you jump between ladders. Sometimes that drop may be only for a few months, other times it could be a few years. Let me give you an extreme example.
In 2013 I earned over $250,000 from selling books and courses on design. My income head been steadily increasing for the last few years and I was damn proud of my blog and business. But then I decided to make the leap and switch from selling ebooks to starting a software company—one of the most difficult rungs on the product ladder.
My income immediately and substantially dropped as I focused on ConvertKit. So how long do you think it took to set a new one year income record? A year? Two years?
Nope. I didn’t earn over $250,000 in a year again until…2018. 5 years later!
Software can take a long time to get going and for years after we got traction I still reinvested everything. Now, because of the exponential growth of ConvertKit (more on that later), I’m now earning far more than my previous record of $250,000.
As you eye the next ladder to make the leap from a stable job to freelancing, or from a successful freelancing business to your next product, plan for a valley to follow your current revenue peak.
This is especially hard when you’re used to being successful in one area and then you start over in a new area and lose the signs of progress and forward momentum.
IT DOESN’T HAVE TO BE ALL OR NOTHING
You can start your blog while still helping freelance clients. Build the habit of writing while you still have your full-time job. Or do what I did and use book and course revenue to help fund building a software company.
A side project is an incredible way to bridge the gap and cover the dip as you move between ladders. Just one note: I said, “
a side project” not “side
projects.”
It’s so easy to get carried away with dozens of exciting ideas, working on each one as motivation and inspiration are there. But if you keep that cycle going it’s so easy to be spread thin between so many projects that will prevent you from making any one of them actually successful.
7. EACH STEP IS EASIER WITH AN AUDIENCE.
While the dip is always going to be frustrating, imagine that instead of making the leap alone you had dozens, hundreds, or even thousands of people cheering you on at each stage. Each person enjoying hearing about your journey and eager to help you make the next step.
Sound too good to be true?
It’s not. It’s called an audience.
By sharing your journey publicly—and inviting friends, family, and complete strangers along for the ride—you will create your own fan club who are actively rooting for your success.
That’s exactly what I did when I made the jump from selling ebooks about design to starting a software company: I talked about the entire journey through what I called The Web App Challenge. A public challenge to build a customer-funded SaaS product from scratch to $5,000 in recurring revenue in six months.
While I didn’t hit the goal—only achieving just over $2,000 per month—the people who rallied around to support my public journey were incredible.
That next endeavor that you launch, whether it’s creating handcrafted products for the farmers market, starting a new coffee shop, if you share your story and give people a way to follow your journey, they will. Some will buy your products, others will tell their friends, and still more will cheer you on.
An audience is actually easier to build than we make it seem:
- Have a goal. The goal could be to make your first sale at a farmers market, write a book, renovate an airbnb, pay off your debt, landing your first four design clients, or just about anything else. The point is for it to be clear who you are and what you are trying to accomplish.
- Document your progress. This next step is a little harder—not because it’s difficult to document progress, but because it’s difficult to do consistently. Choose a cadence and write updates reminding people of what you are trying to accomplish and sharing your progress, learnings, and challenges on that journey. That could be through a monthly blog post or even just through more regular Instagram posts.
- Ask for help. Finally, understand that everyone wants to help, so let them! If you need advice on how to price your products or how to setup your business, just ask. If someone in your small audience doesn’t know, they most likely know someone who does. Throughout my journey I’ve been blown away by how many people step up with advice, introductions, and support whenever I’ve asked.
So as you plan your next big step to build wealth I encourage you to set a clear goal, share it publicly, and give your community the opportunity to rally behind you and make it happen.
8. IT TAKES LONGER THAN YOU THINK, BUT THE RESULTS CAN BE INCREDIBLE
A few years ago my friend James’ grandmother passed away in her 90’s. She had grown up in the small town of Council in central Idaho. When she was 60 years old her husband, my friend’s grandfather, passed away. Leaving her alone. She was financially secure through two paid off houses, one in Boise, the other in Council, but she still had a long life ahead of her.
She always loved cute little houses and decided to buy one to rent out as a new hobby to fill her time. A couple years later she bought another and rented it out as well. Then another and another.
By the time I met her she was 80 years old and in the 20 years since she started, she had acquired more than 25 cute little homes throughout Southwest Idaho. None were very expensive, probably around $100,000 each, but combined they turned into quite the real estate empire. Each returning a great monthly cashflow that she rolled into buying the next property.
In addition to this she bought a one hundred acre ranch on the Boise river outside of town.
What had started as a hobby to pass her time and distract from loneliness turned into a real estate empire worth over $5 million.
The takeaway is not necessarily to buy more houses (though that has been a great path to wealth for many), but that consistently reinvesting time and money into wealth creation rather than lifestyle inflation can have incredible results if allowed to play out for long enough.
The unique shapes of increasing income
I mentioned earlier that the further to the right on the income ladders you go the more difficult they become, but also the greater the upside. It may be hard to understand exactly why that is, so let’s explain it with three visuals:
- Stair step
- Linear
- Exponential
STAIR STEP
Stair step diagram Most people will experience a stair step approach to income in their life. As they move from an hourly position to a salary that comes with a raise, which would be a step up in income. Then each additional salary increase will be another step. In some careers these may be small and often, in others they may be spaced out over more time and be quite large (residency to a full doctor or making partner at a law firm).
You can also supplement a salary with an additional project (a rental property, buying an e-commerce site, a recurring consulting agreement) that will result in another stair step in your income.
While this model isn’t the best possible, it is how nearly all wealthy people built their wealth. You won’t have unlimited upside, but over 40+ years it is one of the most reliable paths to wealth.
LINEAR
Linear diagram Enough stair steps that are close together will simply look like a linear growth curve when you zoom out. So while a raise every few years will look like a stair step, a freelancer steadily able to increase her rate will look linear. In the same way that adding a rental property once is a worthwhile stair step, adding one per year is linear.
The most common linear growth that I see in my work is in selling digital products: as traffic increases, so do sales. It isn’t exponential because traffic is still the bottleneck, but each new blog post or search engine ranking brings a few hundred more people to the site each month. Over time that drives more sales and income increases.
EXPONENTIAL
Exponential diagram Exponential growth comes from when each sale of a product truly makes the next sale come more easily. It requires a product that you can sell repeatedly (whether physical or digital) that can be created at a large scale. Meaning you can’t be selling your time.
Exponential growth often starts slowly, taking months or years to reach any kind of meaningful revenue. But fast forward a few years or a decade and the growth can be absolutely astounding.
Software companies, marketplaces, and large e-commerce companies have an incredibly high ceiling and can grow insanely fast in their prime. But that usually takes time, significant skill, and meaningful capital.
My own journey to building wealth
The one thing I can guarantee is that your journey won’t be linear. Mine own journey involved jumping all over the place. Let me show you:
- Woodworking (2003 — 13 years old). The very first way I made money—other than my parents paying me for work around the house—was making wood carvings on a scroll saw a family friend had given me, and selling them around the neighborhood. Each one making between $10-$40, depending on the complexity. While after that it would be a few years before I would revisit products, I still find it interesting that I had such an early foray into products. Most important skill acquired: the courage to knock on a stranger’s door and sell them something.
- Wendy’s (2005 — 15 years old). I was in a hurry to grow up and wanted to start taking college classes. I needed money in order to pay tuition. So I picked up the phonebook and started calling businesses asking how old you had to be to work there. Most said 16. Wendy’s was the first to say they’d hire at 15. Working the drive through we would compete with other local stores to set the fastest drive through services times. I worked the cash register and learned to type on it without looking in order to make sure I wasn’t the bottleneck. Most important skill acquired: how to work very fast.
- Freelance web design (2006 — 16 years old). I learned web design in high school and started to make money designing websites and logos. In 2007 I dropped out of college to do it full time. My biggest success was building a web application for $10,000. Most important skill acquired: how to find, work with, and charge clients.
- Lead designer in a startup (2009 — 19 years old). In 2009 I was hired on full time by one of my clients (a 14 person venture backed startup). I stayed for nearly three years, growing to lead their product design team. I spent my time designing in Photoshop, learning to code iOS apps, and working with a large team as the company eventually grew to over 80 team members. Most important skill acquired: an introduction to leading a team.
- Building and selling iOS apps (2011 — 21 years old). While working for the software startup I started building iOS apps on the side. Then I went out on my own to freelance and continue to build my own apps. As my first venture back into products since the days of selling handmade goods door to door, I had to learn to write a sales page, code apps, market products, and launch into the iOS app ecosystem. Most important skill acquired: building a product and selling into an existing marketplace.
- Selling my first book (2012 — 22 years old). After building quite a few iOS apps I turned to writing a blog and then eventually writing a book teaching how to design apps. The book was quite successful, selling nearly $20,000 worth in the first week! This launched my entire journey with building an audience and self-publishing. Most important skill acquired: how to build an audience.
- Building a software company (2013 — 23 years old). My next—and final—venture was to focus on software again and build the email marketing company I wish I had when I started growing an audience. Today ConvertKit earns over $18 million per year. Nearly seven years after starting ConvertKit it is what I’m still doing and plan to do for at least the next decade. Most important skill acquired: how to work relentlessly on one idea for long enough to reach its full potential.
Over the years I’ve done so many different things, but each one was a step towards learning the skills required to earn a living and build wealth.
Considering leveling up your income and wealth?
As you’re considering making the jump to the next level, ask yourself these questions:
- What rung am I on in my journey to build wealth?
- Which ladder is this new idea on?
- How far is it from the rung and ladder I am on currently?
- What new skills would I need to close the gap between where I am now and where I want to go?
- How long will it take to acquire those skills and get initial traction?
- Do I have the runway (both in time and financial security) to make that jump without putting my finances in danger?
These aren’t meant to discourage you from making a move. Instead, the answers to these questions will give you awareness to make you more likely to succeed in the journey ahead.
Let’s close with one final example.
The Patel Motel Cartel
Did you know that 50% of motels in the United States are owned and operated by people of Indian origin? One of my favorite articles I’ve read in the last year was in the New York Times and was actually written back in 1999, it’s titled,
A Patel Motel Cartel? In the 1950s families from India started to immigrate to the United States. Because it was so expensive they often relied on money from family to help them get settled.
Once in the United States they got jobs, earned more, and paid it forward to others in their family to help them make the same move. The money was never repaid, but always paid forward.
But the real magic came with what they did next. Instead of pursuing normal jobs a family would pull together all the money they could (from their own savings and from extended family) and use it as a down payment on a small motel. The family would then move into it and run it full time. Spending their days and weekends working the front desk, cleaning rooms, and making beds.
Over time as it grew into a meaningful business they would have some free capital to pay forward to another relative who would do the same thing.
They worked hard hosting thousands of guests and carefully stockpiling money. Whenever the stockpile grew large enough it didn’t go into increasing their lifestyle, but instead into the next opportunity, which was nearly always another motel.
By 2003, when the article was written, Indian immigrants owned half of all the motels in the United States. Not only were they continue to earn great revenue from each booking, but the land has appreciated over the decades to become incredibly valuable, making these families rich.
My three favorite things are that they:
- Rallied together to make one family succeed, and in doing so raised the tide for everyone.
- Never paid back the money, but instead paid it forward to the next family member to create opportunity for them.
- Always poured the money into the next revenue generating asset (another motel) rather than inflating their lifestyle.
While he doesn’t come from a culture where that kind of assistance and collaboration is common, my friend Patrick is well on his way to creating wealth through following the same model as he leverages his construction skills to build more Airbnbs.
Philip is doing the hard work to launch a SaaS company—learning all the skills necessary to jump 3 ladders in a single move. His company, LinkMink, is now growing quickly and we even switched ConvertKit to their platform a few months ago.
And I’ve used the skills I learned from each ladder to build a company to nearly $20 million in revenue.
No matter where you are in your journey, whether you are searching for a job, living paycheck to paycheck, launching your first business, growing an audience, starting a side project, scaling your company, or looking for the next venture to invest in, I hope this article helps to serve as a roadmap of what’s possible.
Building wealth is a skill. A skill anyone can master given enough time and a relentless desire to learn and work hard.
Hey - Pat from
StarterStory.com here with another interview.
Today's interview is with Colin McIntosh of
Sheets & Giggles, a brand that sells eucalyptus bedding.
Some stats: - Product: Eucalyptus bedding.
- Revenue/mo: $76,000
- Started: May 2018
- Location: Denver, CO
- Founders: 1
- Employees: 4
Hello! Who are you and what business did you start?
I’m
Colin McIntosh, Founder & CEO of
Sheets & Giggles, a pun-based, eco-friendly bedding brand that launched in May 2018 on Indiegogo with our first product: lyocell bed sheets made from eucalyptus trees.
Our bedding is softer than cotton, more breathable, and more moisture-wicking, and it also uses up to 95% less water than cotton sheets to make. (Major trade-off: it’s generally more expensive than cotton, and you have to take better care of it [no bleach, cold wash, low heat, etc.].)
In our first 6 months in business, we received over 6,000 orders and nearly half a million dollars in revenue, and in September we won first place at Denver Startup Week 2018. In October, we began shipping preorders and got about 4,500 out the door, and we’re still catching up with demand! Nearly ⅘ of our customers are women, and more than half are in their 20s and 30s.
What's your backstory and how did you come up with the idea?
From 2015 - 2017 I ran biz dev at a Techstars-backed wearable tech startup in Denver. We raised a $3M seed round, grew to a full-time team of 25, and were in most major retailers in the US… and then it all abruptly ended in September 2017. It was pretty devastating, and I can’t really go into the reasons why it ended, but leaving retail partners at the altar without holiday inventory was particularly upsetting for me as the partner lead.
After that experience, I decided that the timing was about as good as it was going to get for me to found a company: I had a great CO network, had just been through Techstars, was on the founding team of a company that launched two crowdfunded physical products at nationwide retail, and had built a skill set in marketing and distributing physical products. That said, I didn’t have much money in my bank account (working at startups will do that to you), and I didn’t want to raise VC right off the bat, so I knew I had to do a crowdfunding campaign.
My criteria for a new business I decided that I needed my own physical product brand to sell, and I started by listing the criteria for my new company. I wanted:
- A large commodities market (so I didn’t have to build a category out of thin air), but one that I could differentiate meaningfully in.
- A highly fragmented market with no clear leader
- A market with no brand loyalty or affinity
- A market with little brand differentiation
- A product that was traditionally physical retail that I could help bring online with a DTC model
- A product with a low-complexity supply chain (i.e., no electronics or software components)
The domain I really believe that a good brand name and .com can make or break a company, so I looked through all the domains I owned to see if anything matched. I owned SheetsGiggles.com, and I thought “Does bed sheets fit?” and it did, almost perfectly.
(Side note – I owned the domain because in the summer of 2017 I was watching
War Dogs, and Miles Teller’s character tries to sell bed sheets to retirement homes that all reject his product. I couldn’t believe that his character didn’t do market research and validation before buying all that inventory, so I told my girlfriend to pause the movie so I could write a full business plan for a bed sheets company named Sheets & Giggles, and I bought the domain that night. She and I have since broken up because, well, yeah… who does that.)
In short, I built a business model I felt very passionately about, and then designed a product that I thought plugged nicely into that model.
Validating the product In February, I then validated that people would actually pay a profitable price by initially running a few hundred bucks worth of Facebook ads to a
landing page I built with Kickoff Labs and Shopify. (Link is to an old page that’s still the same, though the CTA changed after April to funnel traffic to the Indiegogo vs email capture.)
With the help of a crowdfunding agency I trusted, I targeted crowdfunding lookalike audiences, told people the expected price and launch date on Indiegogo, explained the product with some punny copy, laid out a few fun pictures we had taken at a photoshoot that cost us $500, and asked for their email.
To this day I’m still a little shocked, but 46% of people gave us their emails during this time, and we collected over 11,000 emails from interested buyers in just 8 weeks.
We also used this prep time ahead of the crowdfund to lock down a manufacturer and send them initial designs and order quantities, and on May 1 we launched on Indiegogo with nearly 500 customers on day 1 and $45,000 in day 1 funding (on a $25k goal).
Take us through the process of designing, prototyping, and manufacturing the product.
Because I didn’t have any textile experience, I had to hire outside consultants to help me design, develop, and test our products.
I gave them my high-level criteria (lyocell for sustainability, has to be super soft, has to be premium, must be durable, must be made by a socially conscious manufacturer, etc.), and they created my tech packs and other designs for me.
We sourced our manufacturer at market week in NYC in March 2018, and we left with a handshake agreement with an Indian company who hit all our criteria more so than anyone else. I had a blast visiting them to inspect production in June (fun fact: India is hot in June). We had massive fabric rejections due to poor quality in our first production runs, which lowered our overall sales potential for the year and set our ship date back, but we had to make sure our product was perfect.
The unboxing experience I also had a particular vision for our packaging centered around one goal: because we were a DTC company and wouldn’t do physical retail in year 1, we needed to focus entirely on an incredible unboxing experience that made the product feel as premium as possible.
Outside: a white box, nice wax coating, logo front and center with no other copy, easy to open, nice and sturdy.
Inside: make people smile from the get-go, have a social call-to-action, include free extra surprises (a knapsack that wraps the sheets and an eye mask), put funny copy all over the place, and add a donation bag that people could use to donate their now-defunct cotton sheets (sheets & blankets are the #2-most-requested item at shelters behind socks).
Describe the process of launching the business.
We founded S&G in October 2017, but we started work in earnest on January 2, 2018. I actually have a
longer blog post on our site from Week 2 about what we did from October - January.
We spent our first 3-4 months building a brand identity map, getting the bare bones website set up, getting a logo finalized, refining our messaging, and setting goals for “what success looks like.”
I also hired a part-time intern and a marketing agency that would help with our crowdfunding campaign (that’s now my agency of record), and I hired a PR agent in Denver that I knew through the grapevine.
I brought on a small 2-person product team to design the products I had envisioned, and in March we found and signed our manufacturer in NYC at Market Week (met with a bunch of manufacturers for interviews, described what we needed, got to know people, sampled different fabrics, and left with a handshake deal).
In February, we did our first photo shoots, and in March we did a video shoot in preparation of our 30-day Indiegogo that was planned for May 1. Luckily I knew people locally in Denver that I could ask for photography and videography help, and all in all we spent about $3,000 making our initial collateral for the Indiegogo.
We had a single set of white sheets that we used for all our lifestyle and product shots, and because I’m an idiot I didn’t even wash them or iron them, so we’ve got visible creases in all the pictures that we use to this day :p
Prepping for crowdfunding campaign We budgeted 10 weeks to get ready for our Indiegogo (that’s a must), and we spent that time running Facebook ads to landing pages that were set up for email capture.
Working backwards from a $100K goal and an estimated $100 average backer value, we knew we needed 1,000 backers, and we knew that we had to get about 30% of those (300) in the first 24 hours to be successful.
Assuming a 3% conversion on our email list, that meant we had to get 10,000 emails to ensure 300 day 1 customers. I budgeted $1 - $2 per email lead, and I hoped to convert at a high enough rate to come in under that (ended up being $0.89 per lead).
Building our email lists During this prep time, we used
Kickoff Labs for our landing page software, and we ran a social sharing competition so people would share our landing pages organically as well (we got about 15% of our leads organically).
We ran about 50 different ad variants to about 12 different landing pages to find out what converted the best (different images, headers, subheaders, text, value props, calls-to-action, layouts, etc.), and then we picked the best combo of 4 ads and 2 landing pages that converted best.
We ended up capturing 11,000 emails in 10 weeks at about 46% conversion, which was insane – that’s when I knew we were on to something.
Building hype and the launch We sent out one email per month to our list to keep them engaged, got customer feedback in the form of surveys (which colors to they want, most popular sizes, etc.), and that informed which colors and sizes we chose to make for our launch (had to hone in on 25 SKUs tops to ensure limited logistical complexity).
Ahead of May 1, we sent out “72 hours” and “night before emails,” and on May 1 we ended up raising $45,000 on our first day from over 400 backers! (We also did a ton of product development and testing / approvals, designed and approved packaging, placed our first PO in April with a deposit to our manufacturer, and spent time planning out the cadence of our Indiegogo communication and marketing.)
In June I traveled to India to inspect production and our facilities, and I made sure the production quality and pace was what we needed to succeed. Love our Indian partners.
We began shipping thousands of preorders on October 1 (pretty much all 5-star reviews!), and now we’re just holding on for dear life through the holidays.
Since launch, what has worked to attract and retain customers?
Social media engagement I think the single best thing we do to drive conversion is answer all Facebook comments and messages within minutes. I have the Pages Manager app on my phone (it’s terrible but it at least works), and when people comment on our ads we respond immediately to almost every single comment with on-brand straightforward answers, questions, jokes, pics, gifs, etc.
I honestly think that some people are deciding to buy before they ever click on our ads based on our answers to questions and interaction with commenters.
A lot of people (especially customer service folks) don’t understand that you’re not just responding to the person who asked; you’re writing marketing language to convert the thousands of people who will read the comments before clicking.
SEO We have about 50-50 paid/organic traffic right now. On the SEO side, we’ve worked to become the #1 result for “eucalyptus sheets” (ahead of Bed Bath, even) and top 5 for “lyocell sheets,” which are both small but very targeted organic search queries. Good steady revenue flows.
We also have a ton of word of mouth with our customers and are starting a
referral program that gives people 10% cash back for sales they refer when they share S&G with others and $10 off for their friends that use their link. (It’s already been used by large media outlets with good success.)
Only funny emails We also almost never email our list of customers or broader email list. If we email people (maybe once a month), it’s something objectively funny that will make them laugh (and may not even have a CTA), or it’s worth their while in the form of a targeted sale. (I.e., “Hey you love your sheets, did you know they also make a sheety gift?”)
Purple Friday Our most successful day post-Indiegogo has been Purple Friday (PF), which we did on 11/16 (Friday before Black Friday). We got over $22K in sales in one day, and to accomplish that we ran a 30% off sale (normally 15% off for preorders) and pushed 24-hour ads to Facebook to spread the word to our followers, general audiences, existing customers, and prior site visitors.
We also sent out an email about PF to our existing customers that focused on giving the gift of S&G to someone eco-conscious in their life. This strategy allowed us to preemptively tap into holiday purchases without competing with everyone’s Black Friday (BF) sales; we were able to elevate our brand “above” the insanity of BF; and we were still able to double dip and participate in Black Friday and Cyber Monday because of the natural increase in conversion on those days (but we didn’t send out emails about those days).
Customer service We bend over backwards for customer service; I literally put my cell phone on the
contact page and get about 10 calls a day.
- Defects? Free replacement.
- Delayed shipment? Amazon gift card.
- Follow us on Twitter / Insta / FB? You’re gonna get free money, free pizza, and free sheet.
Reviews And of course, the social proof that comes from
reviews has been crucial.
In my opinion, our reviews are responsible for upping our conversion rate from 4% in August (no reviews, pure preorder) to 5% in October (first reviews) to 6% in November (more reviews).
How are you doing today and what does the future look like?
We operate profitably, and in 2018 we’ll grow at a 25% compound monthly growth rate (60% from last month).
We’ll probably end the year at about $600K in revenue (constrained by inventory), with 65% gross margins and about 10% net margins when it’s all said and done.
Our cost of acquisition is under $30 for the year, we’re converting at over 5% on SheetsGiggles.com right now, and 100% of our sales come through the site.
Average initial cart values are about $140, and lifetime values should be > $1000 if we play our cards right (38% of Americans buy new sheets every year).
Our day-to-day operations revolve around production management, customer service, digital marketing, website improvements, content creation, fundraising, and logistics.
Next year, we’ll expand our product lines to new sizes (Twin, Split King), add new colors (red, green, beige), and add our first non-bedding product: a eucalyptus lyocell throw blanket. We also plan to dip our toes into international sales next year with the UK, Australia, and Canada, and likely the EU too (gotta start translating the pun somehow).
Short term, I start paying myself in December (sheet yeah, only took a full year...), and next year we plan to grow 4-5x in revenue. To accomplish that, we’ll expand to a couple new channels without going overboard or doing physical retail (Amazon in January, and HSN or QVC would be my Q3/4 target).
I can talk for hours about why we’re not doing physical retail. Main reasons:
- Their margin share requirements for this category are ~40-60%, which means our “cost of acquisition” for that channel will at least be the margin cost, which is 2x our standard CAC.
- For little-known brands that don’t “sell themselves,” merchandising costs add up super quick. I.e., if you’re a new company and need to educate people on your product to sell through, you need to spend money on displays, which can wind up being hundreds of dollars per store. If you’re in 1000 stores and you’re merchandising correctly, you’ll spend over $100,000 before you sell a single unit.
- You need to train sales associates to talk about a product well, which costs money and will give you little long-term ROI (high turnover in sales associates). I can’t tell you how many bedding stores I’ve walked into and asked questions about competitors’ brands, only to be given totally incorrect information with poor sales efforts (I’m weird and do this too often).
- Your packaging needs to “sell” the product in person, or it at least needs to grab someone’s attention and make them stop. Ours is a clean white box with our brand name on it; it would be DOA at retail until we revamp it.
- Return policies can cripple a startup. If we sold 50 units into 100 stores on Nov. 1, that’s 5,000 units and hundreds of thousands of dollars, right? Nice. Except if on Jan. 1 each store still has 25 units on hand, those 2,500 units are coming right back to you, and you better have kept half the money you from that PO in escrow. Otherwise, you’re cooked. (And if you think you can negotiate away return rights, they’ll just dump your remaining inventory on Amazon, stealing the buy box away from you and harming your brand in the process.)
- Philosophically, instead of rushing into retail headfirst, I think it’s strategically wiser to spend a few years building a well-known brand that will sell itself at retail and that will give you more supplier power when negotiating with retailers.
As for what long-term success looks like, I envision storming the last Bed Bath & Beyond in a sort of Helms-Deep-style raid.
Through starting the business, have you learned anything particularly helpful or advantageous?
Habit: I always try to have an action bias, and I try to focus on getting items done that “unlock” my team members’ work. If someone needs me to write some copy that allows them to do 4 hours of work, I’ll take care of that first thing in the AM. Or, if someone needs to be trained on logistics software to do customer service, I know my life will be made easier if I train them ahead of tackling my must-do’s for the day.
Lesson: We should have been a C-Corp from day 1 (we were an LLC at first). Corporate transitions cost attorney fees.
Unforeseen problem: Political season drives up the cost of Facebook ads big time (50% increase).
Lesson: Don’t hire people you know are assholes just because you need someone to do the job. Suffer and do it yourself, or delay the launch, but don’t hire assholes. It’ll hurt you more in the long run.
Lesson: You get lonely, and personal relationships will suffer. Make time for family; why even start a business if you can’t spend time with important people in your life?
Good decision: Stay heads down on building a business that’s revenue-positive and growing, and investment will come to you.
What platform/tools do you use for your business?
Google Sheets is my everything; I obsessively update my pro forma before I go to bed every night with daily numbers.
Shopify is an amazing platform and I love that they calculate and collect local sales tax for you.
Bold Cashier + Bold Upsell are the best apps on Shopify for upselling
after someone has already made a purchase, which is incredibly valuable (about 20% of people add something else to their cart after they’ve already given you money, which increases average cart values).
I use Judge.me’s Shopify app for my product reviews – best cheap app by
far and allows people to post verified reviews, pics, videos, edit reviews, etc.
Hypervisual Page Builder is the perfect Shopify app for building out landing pages that convert.
Streak is great – I track leads (out of stock requests, etc.) all from Streak.
Lastpass for password management.
Slack for team comms.
MailChimp for email.
My logistics software… I would not recommend and we’re switching. Open to suggestions.
What have been the most influential books, podcasts, or other resources?
It’s embarrassing, but I don’t really read books at this point. I hate that I’ve become this person who just works when I’m awake, and I need to make time to read more. I do love the
Dan Le Batard Show podcast – it keeps me up to date on sports and pop culture and is my lifeline back to Miami, where I’m from.
Rand Fishkin did a 40-minute talk in September of this year that was
stellar and that I think is a must watch for someone starting a business. He’s learned a lot the hard way, and you can almost hear the desperation in his voice basically telling you “learn from my mistakes.”
The best thing I ever heard from him is something like “If you make $10M in revenue, you hear crickets. If you raise $10M, your family comes out the woodwork, your friends trip over themselves to congratulate you, your team throws you a party, you become the toast of the town, TechCrunch writes an article about you. This is how we train people to
raise money and not
make money.”
My best resource has been and continues to be the Techstars network (went through Techstars in 2015 in Boulder). I’m on the Colorado Techstars alumni board and love that I have access to the network for mentorship, investment, amplification, and recruitment.
Advice for other entrepreneurs who want to get started or are just starting out?
My #1 thing is: build a business model first, not a product. So many entrepreneurs spend time and money (lots of time and lots of money) building a solution for a problem they perceive without ever validating that it’s a viable business.
Make sure you feel passionately sure that the business model is sound – sustainable margins, strong product-market fit, engaged potential buyers, and long-term growth potential.
Spend a few hundred bucks on Facebook ads to a landing page that describes what you’re building – are people giving you their email to lock in to the Kickstarter price? No? Then you have to go back to the drawing board before you spend more money and figure out if your value prop isn’t good enough, if the product vision needs improvement, if your proposed price is too high, or if your marketing just sucks. The last thing you want to do is to spend $100,000 building something over a year of your life and then find out nobody wants it.
I genuinely think that people do the opposite of this because when you work on a product, no one can tell you no. In your mind’s eye, it’s going to be a huge success, and you can stay heads down on building it. You can envision a perfect future. The moment you begin selling and someone tells you no, that rejection stings worse than anything in the world, so I think people avoid that inflection point (sales) for as long as possible to avoid possible rejection while they work on building the “perfect” MVP.
Going headfirst into sales / gathering leads can actually really help you, though. You’ll gather a user base who can give you feedback on how they want you to build the product, and more importantly you can go to an investor and say, “I have 500 leads signed up who will give me money if I can give them this thing. Give me money to build this thing.” It’s a much stronger value prop than “I want to build this thing and here’s why it makes sense,” and it doesn’t cost you that much to do (costs far less than product development).
Are you looking to hire for certain positions right now?
Yes, I’m hiring in marketing (someone who can do everything including creative, copywriting, and digital), supply chain management, logistics (inventory management, international freight, and domestic shipping), and customer care.
Where can we go to learn more?
SheetsGiggles.com or
@SheetsGiggles anywhere on social, including
SheetsGiggles on Reddit. (I have a weirdly
viral post on resumes on Reddit from back in February.)
My email is
[email protected] if anyone wants to drop me a line (787 unread and counting… sorry if I don’t get back right away!).
Liked this text interview? Check out the full interview with photos.
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