Steve O rejoins James Schramko for an Internet business discussion revolving around the SilverCircle Intensive workshop and the key highlights. We cover the advanced elements that cause rapid success when you have these things working correctly in your internet business.
Highlights in this episode
– Doubling your profit in three months
– The importance of measuring your numbers with a spreadsheet
– How to tell what is causing your success
– What foundation steps should you structure your online business with
– The key metrics you need to know to work out your hourly rate
– The super power of ‘veneering’
– Managing a high performance team
James: James Schramko here and I thought it would be fun to invite Steve Ovens from Internet Software Systems back again because he made me laugh the first time. Welcome back, Steve O!
Steve: Good day, James! It’s good to be back.
James: Yesterday, we had an interesting day. I held a small mastermind gathering at my house, and we had half a dozen people talking about some business concepts. I thought it would be good to just go through a couple of them and talk about probably the highlights. What sort of things stood out for you?
‘Repotting’ your business
Steve: The one that really struck me was, everybody who was there was sort of saying “since I started SilverCircle, I had really good growth in my business.” I don’t know if I can really attribute that to SilverCircle. It’s just that it struck me what a strange coincidence it was that there were so many people having great business growth. You used an analogy for that, which I thought was a really good analogy, which was repotting. I think you posted about it on jamesschramko.com yesterday, at the end of the day, where you just said what we’ve done is we’ve moved into an environment which allows us to grow. So it’s the conditions that enable us to grow.
James: Yeah, it’s like literally we smashed the clay pot off the small pot plant and planted it into the ground. The roots can just go really deep and the tree can grow much stronger. I think probably when we’re trying to analyze, firstly we’re very poor judgers of why we do things. We attribute the wrong causations sometimes.
Steve: Yeah, that’s fair.
James: We’re also, maybe, looking for that specific one tactic. I did this one thing, and I got that. Maybe we’re trained to think that because you read enough sales copy or things out there —
Steve: If you just their button, money will start flowing in.
James: Maybe that’s not the full key to it. Maybe it’s more strategic than that and it’s the environmental thing. Certainly, if you surround yourself with other people who are growing in a similar way, if you shed off a little bit of fear, and you get good advice, and you set the foundations right, it’s not surprising to me that people are saying that their businesses doubled even just in 3 months, which is phenomenal and totally expected. [Laughs]
Steve: And fun! [Laughs]
James: It is fun! [Laughs] One of the key reasons, and we should put some context to this, that I think it’s been working well is because the people at the workshop have been going through a series of steps to get to that point. It wasn’t a cold group. It was a warm group.
Steve: Very much so, yes.
James: They have been going on a weekly call for 3 months, and regular catch-ups, a couple of one-on-one sessions where we’ve gone through a spreadsheet. That was partly me introducing back a process that I used to do when I worked for a $100M-a-year business. We were very very keen on checking the statistics and Excel spreadsheets to figure out our market share, our growth per product line, who our repeat customers were. We would intensively market to specific people in the database based on how many purchases they made and to what value. I’ve introduced those sort of things back into my own business, which are the sort of things that we should be doing and I suspect probably very few businesses are doing because they get caught up in all the tactical.
Steve: Caught up in the tactical, and also I think, as you said, we’re poor judges of what has caused something to happen. I think, as entrepreneurs, the danger is that we are also poor judges of how well our business is going. We are the World War I fighter pilot with a hand on the stick going, “I can fly this thing anywhere!” and it’s all going great, until you crash. And the spreadsheet, the numbers don’t lie.
James: Spreadsheets are like having that navigation unit saying, “Turn left at the next cloud because you’re 5 kilometers off course.” [Laughs]
Steve: Pull up! Pull up! [Laughs]
James: That’s it! See that mountain there on the screen? Yeah, it’s got to be pretty. Helicopter licensed flying, they have to actually black out the screen and do like night thing without instruments and stuff, or flying just off instruments and not visibility. I think in our business, if we’ve got the ability to do some analysis and if we know the key things we are looking for, it actually really helps you have a more successful business.
Most people listening to this have an internet-related business on the internet. Of most businesses, this actually probably gives us more access to data than just about anything else. We know the visits. We can measure the conversions. We can split test at any time two different offers, parts or channels – video versus PDF. We can test long versus short emails. There’s so many things we can test in order to work out some of the key things. I wonder what some of the key things we should be measuring would be?
Key things to measure
Steve: Just talking about that, I think it was interesting yesterday. It speaks to the group that was there. When you said, “Who here is doing split-testing? Who is doing conversion optimization?” Half of the people in the room were already doing it, and everybody there was measuring already. That was one of the things, I think, it made the group possible to work as well as it did. Just simply, the people were prepared. I think that until you reach a certain point, you don’t have the context to really get into the strategy of, ‘okay, here’s how we should turn the ship.’ You’re still so caught up in building the ship or just having the tactics in place.
James: Out of a group of half a dozen people, they had robust systems in place because that was step 1. They’ve got Zendesk support. They’ve got LiveChat on their sites. They’ve got proper business setup in terms of accounting and legal structure because they’re all the foundation steps we tick off before we even move into the tactical. It’s like, how is the structure of this thing? And then we design where we’re aiming the ship, what’s the hypothesis, what are we aiming to do there.
And then the second step is we actually drill down into all the core activities and we get the real AHA! moments about how much revenue is coming in, how much did it cost us to get that revenue, and the real cracker is how many hours did we spend to get that. And quite often we need to buy back some hours. When I’m doing this analysis, it is instantly recognizable to me when someone’s going to be in for a whopping hours when the costs are too low. If they’ve got reasonable revenue and their cost are a very low percentage, then they’ve actually got a job. If their cost is a bit higher, then I know that they’ve actually started pushing that time across to a cost and they can scale up much bigger that way because we only get about 200 hours a month. The average person, about 200 hours a month.
Know the numbers
Steve: I remember when we went through it for my business. It was quite confronting for me that the creating software part of my business which I love, but it was just so clear. Once it’s there in black and white on the spreadsheet, you can’t avoid the fact that there’s a lot of hours going into this thing for, I think $12.30 an hour.
James: Right, so you could be better off at McDonald’s.
Steve: Yeah! That’s right.
James: You’re more guaranteed to profit. You don’t have to think about it once you take your apron off.
Steve: Gets rid of the cost.
James: I mean, it is confronting, but it’s something that we should do as a business owner, is to know the numbers.
James: So that was a big takeaway.
Steve: Just breaking that clay pot has meant, for me, that I have been able to move into much more profitable areas of the business. It was great.
James: And you actually know which is profitable.
The Concept of Veneering
Steve: I know it’s profitable, yeah. It’s even given me some ideas on how I can go back and make the software piece more profitable. Now, I’ve got that in my head. In terms of the areas that I thought were great yesterday, I think there were two real standouts for me. We really drilled into that concept. You had a whole talk on that at FastWebFormula 3 called Veneering, and we really drilled into how that can apply to people’s businesses. You could just look in that small room of people, all of us were just sitting there with ‘Ah! Of course!’ Suddenly people, I know talking to one of them, who hadn’t really considered it… It just didn’t seem that it applied to them and for me, as well. I heard you say it but it didn’t make sense. When we drilled into it, I was like, ah! Now, I can see. That’s the big aha.
James: It is the big thing. In fact, a funny story. I think I must have put a snippet of that concept of veneering on my blog before. I had someone unsubscribe and you know how it says the reason why, it said, “You’re operating at a different level than I can comprehend.”
Steve: [Laughs] That’s very honest.
James: It is actually a simple concept but it is also so overwhelmingly powerful. Just as a way of re-explaining it, the concept is that you have your core business engine – whatever that is – and you just wrap a layer on top of it that can have its own brand or identity and function separately from that engine. That layer is the thing that you can actually sell and sell off, and create another one if you want. You can even supply that layer with the engine power or you can replace it with a different engine. It’s really like a car. You’ve built this fantastic engine and gearbox and wheels, and then you put a body on top of it. Someone might buy the car but you can say, you can have the whole car but I’m just going to keep the engine. But you can lease the engine if you want, or replace it with your own. It’s up to you, but you can use it.
Steve: Car companies do that, don’t they? Lexus, Holden and some of the Japanese cars.
James: They do! You’ll find the same motor in many different chassis and they do different things for each person.
Steve: And they’re designed for different target market segments.
James: And they specialize. So if you take trucks, they’ll have the same rolling chassis but they’ll have completely different packs on them. You can have a fire brigade truck that’s forward drive that can go up mountains and has short-gear ratios but then, the same sort of truck manufacturer might make one for long-haul freight that can tow 3 trailers at high speeds and different gearing ratios. They just tailor it according to the market, and that solution is worth a lot of money to the right target end user.
Steve: That’s right. The fire brigade people aren’t going to buy long-haul trucks.
Veneering’s big outcome
James: So what’s the big outcome of veneering? It is basically that you can work on getting your base business set up properly and working efficiently, and more importantly, effectively. Once it’s effective then you can start thinking about how can you create spin-offs or side versions of this by just wrapping a layer on top that someone can really recognize as being useful for them.
If you were a web developer, your core engine might be the web development team but you might be able to create a separate business that is websites for real estate agents like websitesforrealestateagents.com or something like that. Build that up but use your website company as the contract supplier to that business, and have affiliates promoting that business, so they sell it. So someone else sells it, your company supplies it, and then you can actually sell that whole thing off. Just break it off the top of your business. Someone pays you for it and then they can use your website supply if they want or they can go on —
Steve: They can swap their own in if they have a team.
James: Maybe they’re a website company looking to increase their market share into the website market for real estate agents, and they see high value in that. But doing this, you can actually create and sell off pieces of your business without having to sacrifice that core team that you’ve built up, the strong asset, and the wonderful people that you’re working with. You can keep all that but create a layer on top.
Steve: There were two things that actually flow from that. You just alluded to one which is that it gives you the ability to create businesses that you can sell and what that does is bring forward your cash flow. I’m regurgitating your words yeah? [Laughs]
James: [Laughs] This is great!
Steve: That does sound like a really good strategic advice. It allows you to sell the business at a multiple of earnings which brings forward your cashflow. Imagine a typical entrepreneur, building up a business, working for 5 to 10 years or whatever, getting great business going and then sell that business at the end for a multiple of 3, 4, 5 times earnings, then what do you do? I’m going to start again. Whereas with this model, I’m building the engine. Once I got the engine right, I create the veneer level and then that’s a saleable business. I create 1, 2 or 3 of those and I can sell one of them every year.
James: Yeah, even if you did one a year for 3 times multiples over 3 years, you’ve got 9 years’ worth of income.
James: And you still have the core engine. I think you’ve definitely retained that concept. [Laughs]
Steve: Yeah, yeah! [Laughs] But the other thing that actually flowed out of that was it also addresses a flipside problem which is I’ve got this great business or I’ve got this great team and they are doing great stuff, but I’m concerned that I’ve sort of painted myself into a corner with the business that I’ve got. Let’s just say that my business is creating MySpace pages and I’ve got this great team and they do great design and they’re fantastic and everything else. But now, the market has dropped out of MySpace and I suddenly realize that my whole business depended on MySpace.
James: So what do you do, Steve?
Steve: What do you do? And this is a thing, because as an entrepreneur, if you think, I’m locked in to that thing that I’m doing at the moment. But of course you’re not locked in. You can just say, I’ve got this core team that are really good – what are the skills the team has got? They can do great design. They know how to look at a third party platform and evaluate how they can customize it to make it look sexy. Awesome! I’ve got skills and I can deploy those to solve other problems.
James: They do an inventory of all the skills that are in there and then you recognize what other businesses need those skills, and you could stick another layer on top of that engine and aim it at a different market. Like a lot of ski boats on the rivers here where they’re towing skiers are using Holden engines that are straight from a car.
James: Exactly the same engine, and they just stick them in a ski boat. You’ve literally gone from the MySpace car to a whatever the new Google+ ski boat.
Steve: Google+ is going to be big! [Laughs]
James: Was there anything else that you thought was interesting that we covered in the workshop yesterday, Steve O?
Steve: Nah, it was pretty boring. [Laughs]
James: Nice lemon tart. [Laughs]
Where core values come from
Steve: Yeah, the lemon tart was good. The other one, and it always is something that comes out every time you do a workshop but it’s worth restating, is just the importance of giving the core values right in the team. Just that little wrinkle, not a wrinkle really, but the little thing that you said yesterday that was fresh for me was where did those core values come from. It’s not your typical thing that the managing director goes off with a couple of the other directors, comes back and says “These are our values,” and we create a value statement, a mission statement and stick it on the wall and nobody cares. Where do they come from?
James: Well, that worked well for all good dictators. [Laughs]
Steve: Absolutely! [Laughs]
James: But sometimes they get assassinated. [Laughs] The core values, they’re the team values that everyone agrees on and are stakeholders in. A values-based leadership, a values-based company cannot just hire on values but they can control and monitor the performance and the culture of the entire business based on how well they match to the values. To the point where people can actually even self-regulate, they can recognize when their performance is not actually meeting the values of the business and there’s a misalignment. Quite often, everyone around them is like, ‘Hey! You’re not doing it, you’re not part of our culture the way that that’s happening,’ so they actually tuck back in.
Steve: You’re right. I can imagine at a certain mass of people, and it wouldn’t be a big number, there would be a strong social influence that would come to play.
James: Well, it’s a peer group, and it’s a way that peer group can identify.
Steve: This is how we roll!
James: Yeah, this is who we are. This is what we’re about. It’s bigger than one person. It also takes care of superstars who think they’re God’s gift to the Earth. The key is for the owner of the business or us, or the leader to not think that they are special or above the values either. The values should actually be reflected
Steve: They should reflect your own values.
James: Yeah, they should.
Steve: Because that’s the business you’re going to build.
James: Exactly, and when the business takes on a personality, an extension that leverages something good and creates value on a bigger basis, it’s really quite a special thing.
Steve: We also talked about, some of it is really strong in your business which I thought was great, is how open you are with the team. And again this comes from those core values of openness and transparency. Communication is a big deal. Just the fact that we share the logins to all those systems, and the team are aware of the numbers the business needs to do and all those things, so they are very much stakeholders. Obviously I’ve been privy to some of the team conversations that you just heard of. They love working as part of your team.
James: Yeah, and they’re just absolute superstars.
Steve: They’re rockstars, mate!
James: And I think probably a lot of employers aren’t giving their employees enough credit for what they’re capable of. It’s really the switch between command and conquer which I think probably should have leveled out maybe the 70s or potentially the 80s. I certainly still had bosses in the 90s [laughs] that really thought they were Jesus. Aside from that, it’s sharing and recognizing you don’t actually know all the answers. You don’t have to know all the answers as the owner or the leader. You just have to be able to facilitate those good ideas being generated and create a risk-free environment for people to innovate and contribute without feeling that they’re going to be attacked or reprimanded or buttoned down or contained. I’m sure anyone who’s had a job and a bad boss can relate to what I’m talking about here.
You want to be an employer of choice. Somewhere where somebody wants to come to work, where they want to feel a part of it and I think once you get the people side of the business right, it allows you to grow. Perhaps some of the stuff we’re talking about might feel like it’s above the scope of an internet marketing blog. But if you question why the term “internet marketer” started to become a grubby term, it’s because some bandits out there have been doing the old wild west snake oil thing and that’s not how you run a business. That’s how you run a scam. And I think they’re slowly dying and disappearing, and what you’ll see is the people in the internet space or the digital space. We can clean it up a bit. When SEOs become inbound marketers, and relabeled. Ultimately, the people who are going to have thriving businesses and who actually make profit and design a business around the lifestyle that they want will be the ones who understand some of the better strategies like veneering, and who can lead a team, who are happy to actually be a part of it, and that’s essential. And also you’re pay attention to the numbers and you’re actually responsible for what’s going on, and actively making clever decisions about it.
Steve: I think the real difference when you boil it down, and this is a change. This is me summarizing you. Internet marketing is just a channel. It’s not a business by itself. The people who will succeed are the people who are running it like it’s a business. They’re solving real problems for real people. They just happen to be using the internet to do it.
James: Steve O, it’s been great to catch up and I think it’s a testimony to the workshop that we’re across these topics so well. The process that we were talking about, by the way, was the Wealthification program, which is something I’m putting together to help internet marketers, in particular, become better business operators. It is also a business market and product but I think internet marketers really need to get a hold of that. I might post a teaser video up on internetmarketingspeed at some point if you want me to do that. Just post a comment on this iTunes for us.
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