Employee Engagement: Making it happen for the Customer

I've mentioned unions before in previous posts, and how some folks find unions to be an obstacle to getting things done.  This week, I'd like to give you another example of a success story from a unionized plant.

At the first B2B manufacturing business I worked for, whenever our general manager was going to be away on vacation, he rotated the job of assuming his role among the members of the management group.

Eventually it became my turn to run the morning production meetings and coordinate production schedules and customer orders for a week. Things started out being very much a routine.

We had an order in house for a new product we were doing for the first time for a new customer my team had been developing.  It wasn't a complex product - just a foil lid for a major yogurt producer - but our production team encountered a serious problem.  The foil we had received to run this order had some significant quality issues that adversely impacted how easily we could run the product on our presses and downstream operations.  It wasn't something we could easily replace.  The lead time for this particular grade of foil was 16 weeks, and the customer's purchase order required it to be delivered the week I was in charge.

Our production manager suggested running the order on an older press that wasn't used much, but we had only a couple of operators who'd ever been trained on this press.  He suggested we ask for volunteers to put together a crew to run this order.

The union assisted us in assembling a crew for this old press and managed to finder an operator from among their membership who had once run this particular piece of equipment.

We met with the crew and explained the challenges to running the job and offered whatever help we could.  They agreed to give it a try.

Not only did they manage to run the order, we also managed to deliver it on time to the customer.  The order took longer to run than we would normally have planned, but the job needed to be run slowly so the press crew could maintain control over the substandard foil they were running.

At no time was the customer aware of the problems we had in producing their order.  The product ran fine on their lines.

At our next communications meeting, the management team recognized the crew who ran the yogurt lid job, and they got lots of cheers from their union mates - and a lot of respect from our management team.

In this case, the men on that crew wanted to demonstrate their skill in running a very challenging job.  None of them wanted to let the customer down.  They came through without the traditional union-management rhetoric.  it was just one instance in which union and management showed they could both be on the same side - the side of the customer.

 

Ron Jamieson

 

I'm a leader who transform businesses by igniting the sales and marketing teams to significantly grow revenue and profits by entering new markets, developing and launching innovative new products, and by forming strong alliances with customers and suppliers.

View my complete profile

 

5 Rules For Crowdfunding Success From The Queen Of Multitasking Underwear (You Read That Right)

Set your goal below the actual amount you want to reach. And more counterintuitive crowdfunding wisdom from Joanna Griffiths, the woman behind Knix Wear.

Technology probably isn't the first thing most people think of when they think of underwear.

Joanna Griffiths is not most people. While studying at INSEAD, one of the world's largest graduate business schools, Griffiths saw an opportunity to create a product that did more than the existing options on the market. "Thanks to technology, almost everything has evolved, everything but our underwear," she says. "We created a product truly designed with women's needs in mind: underwear that looks great, fits great, and has technology built in to eradicate odor and wick away and absorb moisture."

I knew that it would also give us the opportunity to gain invaluable customer feedback--before the product had been made. 

Griffiths needed a way to fund her new venture, Knix Wear. She had interviewed hundreds of women about the idea while doing her MBA, identifying demand for a stylish lingerie line for women who exercised intensely or experienced light incontinence, and she decided that crowdfunding would be the ultimate test. "People had liked the idea, but would they actually pay for it?" says Griffiths. "I knew that it would also give us the opportunity to gain invaluable customer feedback--before the product had been made."

The campaign was a success, surpassing the $40,000 goal (by an extra $20,000). During the Indiegogo experience, Griffiths also learned some crucial crowdfunding lessons.

1. Seek out best practices

Before you start your crowdfunding campaign, Griffiths suggests that it's important to study others who have done it well. For her, there were a handful of examples of how to do things right. She drew inspiration from how the Ministry of Supply men's shirt campaign described their technology; she looked to the Saint Harridan campaign for its storytelling abilities; and she liked how the footwear project, Forus, positioned their wholesale packs.

2. Be prepared to hustle

No matter how much experience you have in the crowdfunding space, it requires a strategic approach to reach--and exceed--your goal. From media lists to ambassadors, Griffiths recommends that you plan ahead as much as possible. This means contacting your supporters before you launch to firm up their promotion and participation, and also developing a thorough marketing plan.

3. Adapt quickly to survive

For many in the crowdfunding world, there are no second chances. Griffiths shares how at just two weeks into their campaign they realized things weren't going as planned and they needed to adapt, quickly. "It was extremely difficult to let go of our preconceived notions and admit that we had launched incorrectly," she says. "But that is part of the beauty of crowdfunding," she explains. "Listen to your customers, as it could prevent you from making costly mistakes later on." Thanks to listening closely to feedback, they re-shot their promo video and repositioned their product to get better results.

4. Make your own rules

While it's key to study best practices, it's also important to seek out your own rules, as crowdfunding is a relatively new space and many best practices are still being defined. During the Knix Wear campaign, Griffiths received an email from a major retailer, HBC, saying they wanted to be her first retail partner and were going to pre-purchase product via the Indiegogo campaign. "We were the first campaign to have a major retailer pre-order through crowdfunding and we got them by thinking outside of the box. If we had only looked to what had been done before, we never would have reached that milestone." One of the perks that helped to seal this deal was the $800 retailer multi-pack featured as part of the campaign, which includes 48 pairs of Knix Wear high-tech knickers (retail value $1,600). 

5. Get tactical and practical

Start your campaign on Monday and end your campaign on a Friday, says Griffiths. It will help you to maintain your momentum. She also recommends that you set your goal below the actual amount you want to reach. "It sounds counterintuitive but people like to contribute to winning campaigns, so if your goal is achievable and you hit it early on, you’ll be more likely to hit your stretch target."

KnixWear is now shipping product to its 518 pre-order supporters and planning for a future in stores around the world. 

Amber Mac

Amber Mac is a bestselling author, TV host, speaker, and strategist. She has worked as a technology TV host with tech guru Leo Laporte on G4TechTV and currently co-hosts a popular show on Laporte's TWiT.tv network. In June 2010, Amber wrote a book about how to use social media to build your brand. Power Friending was published by Portfolio/Penguin in New York.

CASE STUDY: COMPETING IN RETAIL– “DAVID VS GOLIATH

By: Richard Peters

The retail industry and retail strategy have been major influences on the marketing and sales operations of a number of the companies with which I have been involved. I marvel at the innovation and creativity shown by some small retailers in the face of what may appear to be insurmountable competitive threats from much larger players. Probably the largest single threatening development facing small retailers are the “big box stores” the most notable of which is Wal-Mart and the niche market “category killers” such as Best Buy and Future Shop in the technology retail sector.

I want to share a few examples, which I believe,  you will find to be inspiring and motivating competitive advantage stories. These are cases where small retail owner/operators have grown and prospered by turning potential adversity into opportunity at a time when their peers were folding their tents in face of what they perceived as impossible odds.

As I write this case study, I am reminded of the bestselling book entitled “Who Moved My Cheese?” If you have not read this book, you must.

CATEGORY KILLERS

I have spent over 10 years helping software, hardware and internet organizations brand and market their products and services. In that time,  I dealt with dozens of retailers who either exclusively or primarily sold computers and related technology. As this industry started to consolidate “category killers” such as Best Buy and Future Shop became the nemesis of small technology retailers.  Aggressive pricing and extensive product selection caused numerous smaller retailers to close their doors.

Here are few examples of small IT retailers who through innovation managed to survive despite the odds. 

1.   As Best Buy and Future Shop were expanding and smaller retailers were closing their doors, one of our IT retailer’s was actually opening. If memory serves me correctly, he had 3 or 4 stores. I noticed that they were located very close to if not directly across the street from a Best Buy or a Future Shop. I asked him about the wisdom of this strategy. His perspective was that the big guys were either an opportunity or a threat and he chose to capitalize on viewing them as an opportunity

His competitive strategy focused on what he perceived were weaknesses or deficiencies in the big store business model. These were:

• When a consumer purchased a computer, TV etc. from a big store, they would invariably end up being sold cables etc. to accompany their major purchase. Often the additional cost of these ad-on items could be a few hundred dollars.  The store owner advised me that the prices being charged for these cables etc. were significantly marked up from what they had originally cost the store. Actually, the cables etc. were relatively inexpensive to the retailer but provided a significant margin opportunity. The same, by the way, is true of the “extended warranties”  often purchased when someone buys a new computer etc. These warranties represent significant bottom line revenue for retailers.
  
  
  This store owner began to advertise that, at his store, the cables etc. were included in the purchase price of any equipment. The owner noticed that while his big ticket items prices were fairly competitive with the big stores, his clients were willing to pay a little more for these major items to avoid the additional cost of the add-on items. In many cases, despite the fact that some of his big ticket item price was higher, when the customer  factored in the “free” cables and accessories, that they would be required to buy a “big store” , the total cost was less at the small retailer. 

•  Another competitive advantage was his “knowledgeable staff” and outstanding customer service.  In his stores he hired what he referred to affectionately as “nerds” who lived and breathed IT. The big stores on the other hand were less inclined to do so. The big operators offered clients access to in-store tech services such as “Geek Squad”at Best Buy who, if they were unable to deal with your issue in the store would visit your home or office and, for an hourly fee, would resolve whatever issues you had.  The smaller operator also offered to send a technician to a customer’s home “free-of-charge” to help them setup whatever new equipment had been purchased as well as resolve issues with existing equipment. He also opened his stores earlier and closed later than the big stores. He encouraged people to stop by on their way to work and on their way home.

The retailer found that people quickly discovered where he was. Word-of-mouth and referrals were a significant source of business. Once new customers did business with him, he found they tended to check with him before visiting the big stores for future purchases.

2.   Another IT retailer had his stores located in close proximity to supermarkets. He noticed that men were less inclined to want to spend time shopping with their wives or partners if they had someplace to which they could easily escape after parking the car and kill time while their other half was shopping. He trained his staff not to pressure people to buy but to create an atmosphere where people could come to relax, check out the equipment, have coffee, relax, ask questions and feel comfortable. He found that he developed a dedicated clientele who felt a loyalty to his store where they had developed relationships. They were even willing to pay slightly higher prices to shop there because of the level of service, customer relationship practices and convenience.

THE WAL-MART ADVANTAGE

Media and public interest groups have ensured we are well acquainted with the plight of small retailers as they face the “big box” effect caused by large operators moving into their markets. Wal-Mart, of course, has come to define everything that is evil about these big box operations. However, there have been instances where smaller retailers have risen to the challenge and turned even Wal-Mart adversity into opportunity.

A few months ago I read a story about a small “general merchandise” store in Alberta which had the misfortune to be located across from a new Wal-Mart location. The store had been operating for years prior to the Wal-Mart opening its doors but the effect of discounts and expansive product lines was taking its toll on the small store’s business. The owner decided that closing her doors was the final option but not the only one. She looked for opportunities that her new neighbor might provide. She came to realization that by altering her product line to consist of products not sold in Wal-Mart, she could take advantage of the traffic coming to Wal-Mart to also visit her store. 

The Wal-Mart parking lot became her store’s parking lot and her business did better with the Wal-Mart next store than it had before the Wal-Mart arrived.

CONCLUSION

In all these cases, the store owners looked out their store windows and did not see potential customers shopping somewhere else but rather people arriving in their neighbourhood looking for opportunities to spend money.

The challenge as these store owners saw it was to redefine the terms of competitive engagement and they chose to “complement” and “supplement” rather than compete.

 




Other case studies by Richard Peters:

• How Your Site R.A.T.E.S.
• Owning The Client Relationship
• Achieve and Maintain Competitive Advantage
• The Anatomy of a Turnaround
• Ancillary Business Opportunties

The 5 Rules for Silicon Valley Success That Can Work Anywhere

BY Victor Hwang

Businessweek/Ian Philip Miller

It doesn't matter where you are or what kind of business you're starting, you can learn to be a better entrepreneur by looking at what makes Silicon Valley tick. Even if you own a small neighborhood business, the ability to innovate, adapt and grow is crucial to keeping your company alive. What looks like a sustainable business one day can quickly become obsolete the next. I've seen this happen too many times over the years.

How do entrepreneurs in Silicon Valley adapt? By staying flexible. That flexibility is maintained through a set of unwritten rules about how people interact with one another. These rules form an invisible social contract that supports entrepreneurs as they innovate and adjust to the ever-changing marketplace.

Here are five unwritten rules Silicon Valley follows that you should too:

1. Trust and be trustworthy. I've noticed it often takes longer to forge new business relationships outside of Silicon Valley. In some places, newcomers are eyed with suspicion for years. In Silicon Valley, however, coffee shop meetings can turn into business partnerships the next day. High social barriers, whether caused by geography, networks, culture, language or distrust, can stifle relationships before they are born. The rate of innovation increases when people break down these barriers and create bridges of trust outside their normal circles. Doing so is crucial because innovation thrives when people contribute different ideas, backgrounds skills and networks.

2. Seek fairness, not advantage. I find that most people treat business as a zero-sum game, where one side wins and the other loses. Investors are often the worst at this. However, the most successful venture capitalists know they should treat their entrepreneurs fairly. Here's a lesson some people have a tough time learning: You can't innovate alone. You need partners to take on the journey with you. Wise businesspeople have the humility to seek out long-term, positive-sum collaborations with others, and are willing to sacrifice some of their immediate self-interest for long-term gains.

3. Pay it forward. Take an up-and-comer to lunch. Introduce others to your network. Return phone calls. Become a mentor. You may think you're getting nothing back, but you are getting something of incredible value: a great reputation. You've become an expert, a go-to person, someone others know they can trust and, just as importantly, think of fondly. You also give yourself the opportunity to hear your own ideas aloud, creating the opportunity to assess whether they are still sound practices.

4. Open doors and listen. I once pitched a deal to another venture capitalist who spent most of the time typing a message on his phone. He missed a great opportunity. Listening is a key to building relationships and assessing needs. You don't want to be the one who blows off the next Mark Zuckerberg, nor do you want to be carrying on a monologue in your interactions. Ask questions and keep learning. Create an environment where diverse opinions and talents are valued and where newcomers don't remain strangers.

5. Experiment and iterate together. Here's a little trick taught to me by my design friends at Stanford: Practice saying "yes and" instead of "no" to every idea. Will all of these opportunities be good or even come to fruition? Of course not. But create a workplace where there are no bad ideas, just early incarnations of good ones. Thomas Edison tested more than 2,000 materials before developing a functioning light bulb. Mistakes don't define you. They refine you. Don't let fear of failure stop you from trying something new or taking advice from others. If things don't work out right, adapt, reload and try again.

Victor Hwang

Victor Hwang is CEO and co-founder of T2 Venture Capital, a Silicon Valley firm that builds startups and the ecosystems that grow them. He is also the author of The Rainforest Blueprint: How to Design Your Own Silicon Valley (Regenwald, 2013).

6 Signs That You May Not Have A Digital Marketing Strategy

Posted by Rilee Chastain

Is your company “doing without thinking,” or do you actually have a strategy?

 

Many different businesses have their own internal strategies and initiatives set in place in order to support their company goals year to year. Some companies like to focus the majority of their efforts on improving their internal team, while others put their main focus on their products and services. These are the building blocks that help your company be successful and thrive as a business, whether you are selling products to consumers or providing helpful services to other thriving businesses.

In addition to internal strategies, many business, both large and small, also have marketing strategies set in place in order to brand their company and connect further with their audience. Unfortunately, often times these strategies are not completely thought out and are set in place without ever thinking of long term goals or results. This kind of “doing without thinking” strategy is actually not much of a strategy at all.

Here are six signs that you may not actually have a successful digital marketing strategy set in place for your business: 

1. You Don’t Truly Know Your Audience
When most people think of the term “audience” in terms of business, they often think of demographics―age, gender, location, education, etc. However, when it comes to digital marketing, you  should be thinking about your audience in terms of behavior rather than basic identifying factors. For instance, look into where your audience spends the most time online or what their online behavior looks like. How are they consuming your information? How are they sharing information that they enjoy? Knowing the patterns and preferences of your audience is much more beneficial for your digital marketing strategy than knowing their age. 

2. You Post Any And Every Kind Of Content
If you find something that is entertaining online, whether it is a funny meme or a helpful infographic, you usually share it with your friends on your personal profile no matter what kind of tone or style it represents. However, this is not the same strategy that you should be following when it comes to sharing content on your company social pages. Instead, you should have defined tone and voice guidelines that are followed across all of your online platforms in order to create a well-known “personality” for your brand. 

3. You Continue To Change Your Overall Goal
When deciding what exactly you want to get out of your digital marketing efforts, you should pick one goal and stick to it. Coming up with a set objective from the get go will not only help you track your performance over time, but will also show you your clear “successes” so you can put more or less effort into certain strategies in the future. 

4. You’re Posting Content On Platforms Without A Plan
While leveraging your content across all of your different social networks can be very beneficial for getting your campaigns and messages out to your audience, you want to make sure that you are making each post fit with the platform you are sharing it on. Content should be specifically tailored to the audience that is on the end of each of your different social channels, that way you are getting quality interactions from each of your posts and they are getting information tailored to the platform they are using. 

5. You’re Collecting Data But Doing Nothing With It
Many companies who do their own marketing will often sign up for services such as Google or YouTube Analytics, but they won’t actually do anything with the data that is collecting on these sites. However, if you aren’t examining your data and looking at the different patterns and trends that appear, how will you ever know what is working and what is not? In fact, by not tracking data, you could be wasting your company’s time and money by pouring effort into a campaign that is yielding no results. Therefore, be sure that you know how to collect and analyze this helpful data so that you know the best way to spend your marketing budget. 

6. You’re Weighing All Metrics The Same
Even if you are gathering the data collected by your different campaigns, you could still be losing time and money if you are using the wrong metrics to measure your success. For instance, if you are mainly looking to improve awareness of your brand, clicks may not matter as much to your overall strategy as number of impressions or views. Looking at the wrong metrics, or even weighing them all equally, could set your campaign off on the wrong track.

Family firms tend to reject outsiders

JACOLINE LOEWEN

The Globe and Mail

Every family business has its battles over growth. Advisers can wax poetic about how to increase wealth, but owners inevitably think they know best and often trust only their children to take charge.

Nowhere are these differences as stark as they are on the subject of embracing professional help to build the business.

The subject remains an awkward stumbling block for too many family firms, which control up to 40 per cent of GDP and 43 per cent of the jobs in Canada. The federal government is keen to see growth and it wrings its hands over the dearth of big Canadian family businesses such as worldwide titans Wal-Mart, Smucker Foods, Samsung or BMW.

A study by McKinsey found that a key reason family businesses survive beyond the second generation is through the appointment of professional management. With an outsider as CEO, a family business tends to live past the third generation. It's particularly interesting to note that these legacy businesses tend to outperform corporations, both public and private. But that sizzle does not sell the steak.

When you ask in-laws or second generation sons and daughters in family businesses to explain the allergic reaction to professional management, they frequently sigh and tell you founders tend not to listen to advisers. To understand the reluctance of owners is to work in their shoes, which typically means 15-hour days. They achieved success by doing it all themselves. It is counterintuitive to seek help, especially when the expertise costs money.

The next generation, in general, is under paid but it is the first line of resource for employment and trust. Families in the jewellery business, for example, have the pressure of working with high-value products that can be easily stolen. Family members may not be the sharpest knives in the drawer, but they fulfill the trust requirement of the job description.

In private, family business owners will explain that any amount of time spent on succession planning, exit strategies or learning about private equity is time spent not earning money. They rarely even approach the discussion of bringing in professional CEOs. There is a higher sense of achievement from the daily work than there is from getting out the red pen and planning. "It is faulty logic," says Tom Deans, who worked in a family business and wrote a treatise on his experience in Every Family's Business.

"That is the common reaction, but as soon as family businesses do put in the tools, they start to run better. Few family businesses have a planning culture. The entrepreneur is a problem solver who is great at putting out fires. This is very different from the problem of how to protect the equity in the business and the retained earnings. The biggest problem, in fact, is the long-term plan for the business."

Family firms turn to their accountants first, and then their lawyers, who are smart but, in fairness, are not business experts. Owners are basically relying on professional technicians who are trained to take instruction, not to take the often- frightening risks necessary to grow a business. Lawyers may not want to forge relationships with professional CEOs, and they may have a light sprinkling of knowledge about private equity partners who, they assume, will ruthlessly bring in their own lawyers and accountants.

Why would these professionals press owners to bring in outside management and risk their relationship? Laissez-faire, mon ami.

Family business should be turning to wealth managers who know how to diversify money and minimize risk. "They must evaluate and anticipate the need to re-invest, divest, partner or exit," says Guillaume Lagourgue of UBS Wealth Management.

Taking on private equity partners for a five-year period reduces risk with fresh capital, but it also forces the awkward truth - maybe it is time for family members to step aside and make room for a professional CEO. With these changes, a family business is far more likely to become a legacy beyond the founder's lifetime. Once an owner experiences the new wealth, in hindsight sharing control seems like a no-brainer.

Bringing professional management into a family business also challenges the family lifestyle, the comfortable power, the good-enough revenues that pay mortgages. The cost of letting go of some of that control will boost a family's wealth for retirement. It could also produce a legacy Canadian family business that does not end up sold as a branch office.

Special to The Globe and Mail
Jacoline Loewen is a private-equity expert for business owners and the author of Money Magnet: Attract Investors to Your Business. She is the director of Loewen & Partners and the Exempt Market Dealers Association.

The Top 4 Reasons Why 'Passive Income' Is A Dangerous Fantasy

 

I’ve been encountering a lot of people lately — particularly young people rightly enthralled with the seemingly limitless potential of the Internet — who have focused their professional lives on developing “passive income.”

You know the fantasy: write some ebook (or better yet, hire freelancers in Mumbai to research and write it for you at $.20/word!) on some niche topic, set up AdWords and Facebook campaigns targeted to the right keywords (you can hire those Mumbai guys to do your keyword research too), put up a cheap landing page (with copy written by… guess who!), press “Go!” on the PPC campaign, and voilà. . . just wait for the money to roll in while you sleep!

Now, with all those dog owners across the globe buying your new ebook on how to help their pit bulls lose weight with Açai cleanses (the keyword research your man in Mumbai did determined that dog training and antioxidant weight loss were hot niches)–you can just check in every once in a while to make sure your outsourced VA is facilitating the transfers from your ClickBank account over to your checking account, and while you’re not working, you can hang out in whatever fine restaurant his Internet research has determined is happening this month on your particular island of Fiji.

I’m caricaturing a bit here of course–but not too much. This is more or less the life plan that many of the “passive income” people I’ve encountered lately have spouted to me.

But there are a couple problems with holding “passive income” as your main goal in business and life:

1. You Can’t Stay Ahead of Competition Passively
If your research really does determine that there is some amazing market niche that until now has miraculously gone unnoticed and unserved—dog owners who wish to help their dogs lose weight naturally, for example—sooner or later, word is going to get out that there’s money to be made there, and someone is going to create a better ebook or info course or product that serves that market’s needs better than yours does, and who markets it better to them than you do. You can’t manage this competition while sipping margaritas all day from your paradise restaurant on Fiji. You’ll soon see your market share go down the drain—just like all those Açai cleanses. . .

2. You Can’t Maintain a Loyal Tribe of Customers Passively
As soon as your customers realize that you don’t care about them (which you don’t, if you’re trying to get away from them as fast as possible), they will eventually go elsewhere, to someone else who actually does care about them and their needs. ‘Nuff said.

3. You Can’t Lead Great Teams Passively
If you’re going to be building a large, scalable business, sooner or later you’re going to need employees and/or freelancers (even if they’re spread out over the world virtually). You’re not going to attract great talent for the long run by indicating to them that you have no interest in being involved in the business whatsoever.

All the great talent will run the other way from a leader like that (i.e., a non-leader.) You’ll end up attracting people who are just looking to make a quick buck with as little work as possible. A mirror reflection of the person hiring them, in this circumstance.

Some people obsessed with “passive income” say, in response, “No problem, I’ll just hire a leader to do all that managing, motivating, and creating stuff!”

What you’re essentially saying, then, is that you’re adding zero value to the equation. You’re not coming up with the ideas, you’re not implementing/executing the ideas, and your not leading anyone to implement or execute them.

Perhaps you’re adding capital, but the start up costs on these kind of ventures tend to be close to zero, so really you’re adding nothing.

Again, no leader worth her salt will be attracted to such an opportunity. And anyone you do hire to lead the value creation, if they have two brain cells, will see that she’s the one adding all the value. Sooner or later she will simply find a way to cut you out of the value chain, either by requiring more and more compensation, or by going off and competing against you (and actively at that.) Why does she need you? You’re not adding any value anyway!

Anybody who can truly create the value on their own, without your active involvement or leadership, probably costs more than you can afford if you’re trying to create some passive income vehicle to fund your Fiji lifestyle.

4. You Can’t Create Meaning, Passion, or Purpose in Your Life Passively
I’ve had several conversations recently with people in their twenties who have built up some semblance of moderate passive income (for now, before the competition gets the better of them, or their team implodes in disarray for lack of care, or their revenue collapses for lack of customer development or innovation.)

These people are (for now) living the dream–they get to travel to Fiji or some other exotic location on a shoestring and hang out on the beach, funded by their little niche ebook or whatever.

Yet none of these people I’ve talked to who have this temporarily successful lifestyle seem very happy. They actually seem kind of restless and lost. I’ve had conversations with several of them to help them determine “what the purpose of their life is” now that they have some amount of money coming in from some little passive venture they don’t even care about that much. It all feels empty to them.

This is the basic mistake they’ve made: they’ve fallen prey to the belief that money and meaning are two totally separate things. They’ve chosen to make their money from something that feels completely meaningless to them (some business they care so little about, they just can’t wait to get away from it and minimize their involvement as much as possible), which they hope will buy them the freedom to do something they actually care about.

This is deeply sad to me. Sad, because these people have given up so easily (or never even entertained in the first place) the idea that something meaningful to them could also be their livelihood.

Think of the people who know who are most fired up about what they’re doing in life. Make a mental picture of one or two such people you know.

My guess is, these people:
A) Live, breathe, eat, and sleep this activity that is their passion. It’s what they most care about. There’s no way they’d give up this active, creative endeavor for a life of reclining on a beach chair. They cannot wait to wake up another day and spend another full day, from dawn to dusk, engaging in this project, building and creating things within this realm, giving this gift to the world. And, my guess is these people…

B) Find their involvement with this activity provides them the resources they need to live comfortably. They may not be mega-rich from it. They may not be millionaires from it. But they are living comfortably doing it, and they get to spend all day every day giving the gift to the world they’re most passionate about.

That is a good life. That is a meaningful life. In turn, what is most certainly not meaningful is some temporary party on a beach funded by some lame ebook you don’t even care about which will soon be competed into oblivion anyway.

Of course, you can make honest money in Internet info-products, or affiliate marketing, or other such areas where people tend to get drawn to “passive income” fantasies. But, to make real money over the sustainable long-haul, you must treat these like any other business. In other words, you must provide real value to real customers with a real need.

And the only way you can do that is actively. If you keep viewing it as a “headache” that your customers want to interact with you or that you have to out-compete and out-innovate your competitors in providing more value to your customers, you’re in the wrong business.

I know a guy you should invest with instead, if what you’re after is easy money. His name is Bernie. He’s hanging out, very passively, in a bar — I mean, behind them.

(Of course, you can also always get passive income by buying-and-holding US Treasuries, which are paying out around 4.2%. The BLS just reported inflation at 3.6%. No one’s going to get rich with that level of passive income net of inflation. And according to Shadow Government Statistics, the real rate of inflation you and I are actually experiencing—including at the grocery store checkout line, at the gas pump, and at the doctor’s office—not the massaged statistics the government puts out, is actually much higher, perhaps up to 11%. So government bonds could actually be not passive income—however meager—but passive losses.)

Why You Should Aim For “Leverage” In A Business You Care About, Not “Passive Income” In a Business You Don’t Care About

 

I asked my friend and business mentor Bryan Franklin, a successful Silicon Valley executive coach, what he thought about “passive income.” I knew he has some strongly negative opinions on the concept, and he did not disappoint.

He went straight for the jugular, pointing out the fundamental flaw common to all intentions to create “passive income”: the focus with such efforts is totally on the wrong thing, he pointed out.

“Every time I’ve seen someone create a business, with the ultimate intention of getting away from that business and its customers as quickly as possible, instead of moving towards that business and its customers, it fails.

“What makes business work is creating value. If you’re going into the business with the intention of not creating value, but of having it magically provide money for you, then you often make really bad choices. The business that you’re investing in or creating doesn’t tend to be creating value for its customers or for anyone. So it doesn’t tend to spit off the cash you’re hoping it will. So many times I’ve seen people pursue passive income, and end up having active losses instead. They just spend a lot of time and money trying to push responsibilities off on other people and having it not work.”

Just to play devil’s advocate, I raised with Bryan the issue that very wealthy business owners often do tend to have something approaching passive income, through their highly-scaled businesses, which they could step away from or sell.

Bryan said, “People who have become very wealthy through business have gotten very good at leveraging their time in their pursuit of creating value. They’ve done that by first creating value, and then automating the process of creating value, so they can scale and provide even more value to more and more people. But it starts with the fact that they already understand how to create value. They understand it so well, that they’re able to create that value and then automate and scale the process of creating more of it.

“The majority of people I see who are interested in passive income and pursuing it, haven’t learned how to create value in the first place. They’re just trying to do gimmicks and tricks and formulas. They’re trying to do the automation part, but they’ve missed the point that the automation only spits off cash if it’s based first on automating something that actually creates value. If you automate something that is worthless—or worse than worthless, a scam — it’s not going to work in the long run.”

Bryan’s answer clarified in my mind an important distinction I’ve seen play out many times.

I’ve spent the last year interviewing millionaire and billionaire entrepreneurs for my forthcoming book The Education of Millionaires. All of them could, theoretically, step away from the businesses they’ve created. Yet, they’re so passionate about their businesses and the value they’re creating in the world, they mostly choose not to.

Does that mean they’re in the lowly-trenches doing rote work in their business? Of course not. It means that, as Bryan suggests, they’ve leveraged their time in their quest to create more and more value. They choose to focus their efforts—often 12 hour days—on scaling to provide value to larger and larger audiences.

They’ve delegated, automated, streamlined, systematized, etc. Not with the intention of sitting on some beach somewhere for the rest of their lives and watching the checks roll in, but with the intention of freeing up their time to create even more value that they’re inspired to create, either by leading that business to the next level of greatness and service to greater audiences, or by starting a new business.

Bryan added: “If you make your choices based on, not ‘how can I get money for free?’ but on, ‘What challenge can I put in front of my face that’s going to have me step up to be the kind of person I’d rather be?’ you’re going to start to forget about wanting passive income, and you’re going to start to focus on what purpose you truly want to create the world.”

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Michael Ellsberg is the author of The Education of Millionaires: It’s Not What You Think, and It’s Not Too Late, which is launching from Penguin/Portfolio in September. It’s a bootstrapper’s guide to investing in your own human capital at any age. Michael sends manifestos, recommendations, tips, and other exclusive content to his private email list, which you can join at www.ellsberg.com.