Kyle’s Note: The 7 Day Startup book is so interesting because many of the ideas and strategies were not feasible even 10 years ago. This guest post by Taylor Pearson explores the forces of change that made the 7 Day Startup possible. You can use these same forces to create and grow your own business. Over to Taylor:
In October of 2012, I met Dan Norris at a conference in Bangkok, Thailand.
He was ranting to a group of entrepreneurs, “I’m done with services. Products only. I’m building an online dashboard for business owners.”
My first impression? Kind of derpy, strong Australian accent, drinks lots of beer.
I watched him fail at 83% of the projects he launched over the next year.
Looking back now, if anyone was the derp, it was me.
When I interviewed Dan at the beginning of the year for the book I’m releasing this month, The End of Jobs, I had a moment of realization.
WP Curve wasn’t a new idea. It wasn’t even a new idea for Dan. For 6 years, Dan had run a web design agency which offered their clients “small monthly WordPress jobs.”
Six years running a web design agency offering a similar service WP Curve now offers, Dan never got back to the income he was making before quitting his job.
The Long Tail, a concept popularized by Wired editor Chris Anderson in his book by the same name, explains that because of technology, primarily the internet, the traditional rules around business and entrepreneurship have changed.
In 1998, Derek Sivers was a musician living in New York. In his words, he’d “already made it.” He had bought a house from his music and was living his childhood dream of being a musician. He thought it might be cool if he could take his music and sell it to people over this thing called “the internet.” He spent 3 months building a website, getting a payment processor and shopping cart set-up, and eventually managed to actually sell some of his CDs.
When his friends heard he could sell his CDs online, they asked him if he would sell their CDs online. Derek’s a pretty nice guy, so he said: “Why not?” Then their friends asked. Derek started charging musicians to post their CDs and turned his hobby into CDBaby.com.
CD Baby was eventually acquired by Amazon for $22 million. CD Baby’s success was because it was one of the first companies built around the concept of the Long Tail. It leveraged the internet to make it possible to sell CDs for independent musicians who, in the past, had never been able to get their record into record stores.
This was revolutionary for the music industry. Derek described it as though he were in the 60’s at Woodstock: “Woah man, the shackles are off! Those record labels can’t hold us back anymore.”
In a world where distribution is controlled by record stores and the costs of holding inventory are non-trivial, there’s a cutoff point where it stops making sense for the record stores to stock shelves with your CD. A record store has to pay for more shelf space, so if a record doesn’t sell a certain number of copies, then they can’t afford to stock it.
Because CD Baby was selling online, the cost of holding more inventory, of listing more CDs for sale, rapidly approached zero. Once they’d built the website, the cost of adding another product page was negligible and decreased with each product.
If you wanted to get your CD sold by a traditional distributor, you had to pay a few thousand dollars to get it set up. It took 9 months or more to get paid because the artist wasn’t paid until the stores had returned any albums that didn’t sell. You didn’t know who your customers were, so you couldn’t market or sell future albums to them.
To sell with CD Baby, it cost $35 to set your CD up on the site. You were paid every week and you were given a list of your customers, including their email addresses, in order to sell to them.
These aren’t incremental changes; they’re order of magnitude changes.
Cost: ~$3000 →$35 = 85.7 times cheaper
Time to get paid: 9 months → 1 week = 39 times faster
Customer Communication: None → You own every customer’s contact info
How was this possible?
CD Baby revolutionized the music industry by escaping the limitations of the short head and “revealing” the Long Tail.
In The Long Tail, Anderson recounts the story of a friend whose band, Birdmonster, saw the benefits of the Long Tail made possible, in part, by Derek and CD Baby.
For bands looking to get started, there’s no way around hustling for gigs. While most bands are forced into pestering club owners for gigs, Birdmonster searched for clubs that had already booked headliners but still had “TBA” for the opening band. Using Google, they would search for and contact those clubs. They used the direct relationship they had created with their fans over email to encourage them to follow their popular Myspace page, then used that page as a way to show club owners they had fans who would come to the show, making it easier to get gigs.
Once they had a good record of live gigs and a stable fan base, Birdmonster recorded 3 tracks in a local independent music studio and used inexpensive software on their personal computers—the kind that a decade earlier was only available commercially—to edit the music and list their album on CD Baby.
CD Baby made the album available for sale online, where it could be bought or streamed just like any musician from a major label.
They emailed the song tracks to a handful of blogs, who reviewed the album and drove more fans to the band. As they started getting press, managers, labels and industry insiders started calling them for deals.
Birdmonster turned them down.
A music label exists for 4 main reasons: talent scouring, financing to rent a studio (like startup capital for a business), distribution and marketing.
From Birdmonster’s angle, they could do all those things themselves, but better and cheaper.
They already knew they were talented since they’d been getting gigs. Since they could edit the music on their own computers, they didn’t need financing to rent a studio. CD Baby provided distribution to all the top services like iTunes and Rhapsody, and weekly payouts instead of payout 9 months later like traditional record distributors. The effect of their Myspace page (it was the early 2000’s) and a personal email to well known blogs was greater than anything record labels could provide in terms of marketing.
What happened to Birdmonster in the music industry, the internet has done for entrepreneurs at large. We’re now seeing the Long Tail phenomenon come to businesses as a whole.
The Long Tail has made entrepreneurship more accessible than ever. (CLICK TO TWEET)
The Long Tail (or what’s making entrepreneurship more accessible)
Just like scientists sequencing the human genome were unable to predict how fast technology would enable the project to accelerate, the same has occurred with the technology needed to start a business. The barriers to entry have come down dramatically faster than most people have realized and are what have enabled WP Curve’s rapid growth.
There are 3 primary forces of the Long Tail which have driven this shift that’s making entrepreneurship more accessible than ever.
1. The Democratization of the Tools of Production: Product creation costs are decreasing – Just as cheap software let Birdmonster produce music from their laptops, cheap tools have allowed entrepreneurs to start and run a business from anywhere with little to no capital up front. The WP Curve product was created in 7 days and is run with around $1200 per month in SaaS subscriptions.
2. Democratization of Distribution: Everyone is a media company – Thanks to digital distribution like Youtube, podcasting and blogging, the newly revealed markets are easier to reach and market to than ever. This blog has over 20,000 subscribers, 250% as many as the average circulation of a non-daily newspaper and requires none of the traditional infrastructure of the latter.
3. The Creation of New Markets – There are more new markets willing to buy those things. In all markets, there are more niches than major players. Just as a record store could only stock so many records, traditional retail markets could only support so many businesses. The internet has changed the rules, revealing new markets and businesses everyday. There are over 70 million WordPress websites that could use the WPCurve service. In 2002, the technology only existed in WordPress founder Matt Mullenweg’s imagination.
The internet had made it possible to start a business just by being clever and ambitious. If you wanted to open a retail store 20 years ago, you had to buy a lease on Main St., which meant either coming from a family that had that money or convincing a bank to give it to you. Fast forward to 2015, and there’s a new kind of real estate company: Google.
If you can make the best site, you can get the best “real estate.” So if you can figure out what “best site” means, you can have similarly powerful real estate as someone on Main St. did 2 decades ago for tens of thousands less.
There are more markets that are getting bigger, and they’re easier to reach. The Long Tail is getting fatter, longer, and more accessible making entrepreneurship more accessible and more profitable.
The 7 Day Startup teaches entrepreneurs how to identify, build and test startup ideas in a week.
The book, which Dan originally planned to give away for free on his website as a PDF, shot to the top of the Amazon Best Seller list for Startups and has sold tens of thousands of copies less than a year after being released—a feat few books achieve in their lifetimes.
Why was the book so popular?
The 7 Day Startup lays out a simple, step-by-step plan for how to launch a business in 7 days.
The book is based on Dan’s experiences having launched and failed at over a half dozen businesses. If you aren’t an experienced entrepreneur, you’re making assumptions when you get started.
This had always been the case. Inexperienced entrepreneurs had always made lots of assumptions and frequently lost lots of money. Experienced entrepreneurs had always developed better gut instincts.
What’s different now is that you can launch a business in 7 days for less than a few hundred bucks and grow it into a real, valuable asset.
WPCurve is the case study. Launched in 7 days, it’s on track to hit $1 million in revenue within 2 years of getting it off ground.
What’s changed in the last 10 years and how has Dan taken advantage of it?
The 3 Factors of the Long Tail:
- The Democratization of the Tools of Production
- The Democratization of Distribution
- The Creation of New Markets
Why geography is irrelevant
Let’s look at how law firms work now versus how they are changing and will work in the future.
Right now, you have a local lawyer who you do business with because he’s geographically close to you, but he probably doesn’t have a deep understanding of your business model or industry.
If you were able to work with a lawyer that intimately understood the needs of your business, it would be better for both the lawyer and you.
You wouldn’t have to pay for the lawyer to educate himself on the details of your industry and business. The lawyer would be able to give a better product at a better price.
An online marketplace like UpCounsel will let you find a lawyer with specialized skills who is an exact fit for what you need. You could have a lawyer that specifically did immigration visas for entrepreneurs moving from Australia to the U.S. In the past, UpCounsel wouldn’t have been a viable business because a lawyer that specialized couldn’t get access to a large enough market within 20 miles of his office. The internet along with tools like blogging, podcasting and forums, has revealed that market.
This is better for consumers, entrepreneurs and lawyers.
Why would you do business with a big advertising agency when you could work with a web marketing agency that intimately understands your industry and business model?
You get all the efficiency improvements, and so do they. The consumer pays less for a better product, and the entrepreneur makes more money. This is the same deal WP Curve cuts with it’s customers.
What used to require hunting through sites like UpWork for a developer, hoping they didn’t get someone to hire them full time, or if they were bad, having to fire them and go through the whole process again is now handled by WPCurve for a predictable monthly cost.
It’s no wonder a lot of people have tried to take the WPCurve model to other industries like Design Pickle has for design. It’s a win-win deal.
Jake Puhl runs Firegang Dental Marketing, an agency offering digital marketing services specifically for dentists. Jake previously did digital marketing in a local geographic area (Cincinnati) but decided to work exclusively with dentists.
By working with a single type of client instead of a single geographical area, he gained a lot of efficiencies that he could pass on in value to the clients both in terms of reduced costs and improved results.
Because he understands the industry, getting clients is easier: They have a smaller group to work with and word of mouth is more effective. Marketing is easier because other dentists easily identify with existing client case studies.
Fulfilling a job is also done more effectively. Instead of having to go through a period of learning a new client’s business every time, they can hit the ground running and start generating results for their clients faster. Dentists all face similar issues in their marketing, so their processes are more streamlined and efficient.
In the past, geography kept these kinds of businesses from existing, but that’s no longer the case. Jake can be based in Seattle and work with clients all over the world.
If you’re a dentist, would you meet in-person with someone down the street that doesn’t understand your business model or industry at all? Or would you rather do a video call with someone on the other side of the country that has an intimate understanding of your business, and knows exactly how to help you get what you’re looking for?
While many people would certainly still say the former, more and more are starting to say the latter. The dentist gets a better value, and a business that couldn’t have existed a decade ago is now a major opportunity.
Andrew Youderian is an entrepreneur running Right Channel Radios that sells CB Radio equipment. His business is dropshipping, meaning he sells and markets products from another manufacturer. When someone goes to his website and buys, he puts in an order with the manufacturer, who then ships it out the customer. He’s not making the product himself —he created value in his sales, marketing, and customer service processes.
Buying CB radios involves a range of different factors depending on how you’re going to use it. If you don’t have a lot of experience with CB Radios, It’s hard to know which radio you should order, and as a result he has created educational resources to help people do that.
Google was necessary for his business. If you’ve got lots of questions about how to buy a radio, you google them and find Andrew’s site. Then you see his helpful articles and figure out which is the right radio for you.
Twenty years ago, there wasn’t enough demand in any single geographic area for a CB radio store, and, even if there was, it would have taken a significant amount of capital to set it up. Once he created the guides for potential customers to read, it costs him pennies to leave them up on his site for anyone to find. If he had to pay a sales or customer service person to explain it repeatedly, his business wouldn’t have been profitable. The Long Tail revealed that niche and Andrew took advantage of it.
How new markets create new markets
As the world economy continues to grow, new markets are created, and when they fracture, they create even more new markets. AirBnB was built on the back of Craigslist. Because people would post their rooms for rent on Craigslist, AirBnB would copy their new listings into Craigslist postings so people would find out about AirBnB if they were searching for rooms on Craigslist.
They took 1 section of a bigger marketplace—short term housing on Craigslist—and built a company around it. Just like Jake and Andrew, they were able to serve that “small” market better than Craigslist and ride the growth of the market up.
Twelve years ago, WordPress didn’t exist. Today there are tens of thousands of business like WP Curve built on the back of the WordPress ecosystem.
Let’s use Eventbrite as an example. Eventbrite is a company that sells event tickets. While they own that particular market, they’ve opened up whole new markets. You could build a WordPress plugin that does exactly what Eventbrite does, but target it specifically at people in the construction industry that have WordPress sites. That market didn’t exist until the last few years when lots of businesses got on WordPress and became adept at utilizing online services to sell tickets to events.
Why every API is a new company
This same phenomenon can be seen with Application Programming Interfaces (APIs), which allow 2 connected pieces of software to talk with one another.
Consider this scenario: You have an eCommerce business that is run using Woocommerce, a popular shopping cart platform for WordPress. You manage your accounting using Xero, the cloud-hosted Accounting software.
Right now, if you have an eCommerce store on Woocommerce and use Xero, you have to manually copy all that order data over. When someone places an order on WooCommerce, you get an email with the order details, which you then have to upload into Xero.
Let’s say that takes you an hour a day.
If someone came to you and said, “For $100 per month, I will copy all those over for you, and you’ll get 30 hours back each month.” Does 30 hours back for $100 sounds pretty good? Yes please!
You could start doing it yourself and create a process document in Google Docs (free) for exactly how to copy the orders from Woocommerce into Xero. Then you could hire someone on UpWork to follow the process you outlined. You could then turn that document into computer code. Now you have a software program that people are paying $100 for and you just built a software company.
You can expand to other ecommerce shopping carts like Shopify and Big Commerce, or into other accounting software like Quickbooks Online.
These are all opportunities where jobs are going to be replaced by software, and you don’t want to be the one with the job—you want to be the one who owns the software or the processes that could be turned into software.
What’s more, these trends are accelerating. In 1958, there was a 61-year tenure for an average firm on the S&P 500, it narrowed to 25 years in 1980—now it’s 18 years. At the current churn rate, 75% of the S&P 500 will be replaced by 2027. Markets are moving faster. Not only is it easier to enter them because the tools of production are democratizing, but there are also more to enter.
The democratization of the tools of production means it’s easier to make something. The creation of new markets means there are more and more people to sell those things to, and the democratization of distribution means those people are getting easier and easier to reach.
Entrepreneurship has become more accessible than ever
The difference is between people who ship and people who don’t.
In the last 36 months, I’ve watched Dan launch ContentClub.co, WebControlRoom, Inform.ly, WPCurve, 7 Day Startup, How To Go Viral, Startup Chat, Black Hops Beer, Helloify and a God-help-us number of WordPress plugins.
If I’ve learned anything from Dan over the past 3 years, it’s to ship. And that’s why Dan has had the last laugh.
The Long Tail has changed traditional notions about business. Long business plans, raising startup capital, leasing office space and other traditional notions are no longer necessary…You just need to ship.
It’s cheaper than ever to ship, you can do it in 7 days, and you may just launch yourself into a business that’s on a high 6-figure run rate inside of 2 years.
There is only 1 option remaining for businesses today: ship fast, be remarkable, give generously. (CLICK TO TWEET)