Wednesday, January 24, 2007

The Micro Business Experiment- A Different Approach to Making Money

What is the Micro Business Experiment?

Simply put, I'll be experimenting with lots of small business ideas to see how much money I can make by using the least amount of effort and time.


Recently, I've become more and more aware that making a salary is a poor way to make a living. When you make a living by working an hourly or salary paid job, you are effectively trading your time for money. Unless you are making a very high hourly rate or salary you just can't get rich.

So, strictly speaking, getting rich only happens when you:

  • inherit money
  • win the lottery
  • own a business

Historically speaking, owning a business is the way to go since the odds of being born into the right family or winning the lottery are very low.

Why do business owners make a lot of money? Is it because they provide something that people want? In large part, yes. I also believe it's because they are leveraging the time of everyone who works for them. If a company operates around the clock, the owner is making money while he or she is at home sleeping. This means that they don't have to be physically present at every sale, or mentally engaged at every step.

Think of a hot dog vendor. Hot dogs are cheap so the vendor gets a high margin of profit. So, why aren't those guys rich? I think it's simply because you just can't sell that many hot dogs quickly enough. The vendor has to be physically present to prepare the hot dog then trade the hot dog for money. If you could buy a whole fleet of hot dog carts and have a fleet of employees sell the hot dogs for you, then you would be rich because you'd be leveraging all that time and effort.

So now what?

Well so far, I've identified that I want something that's not going to trap me into a situation where I trade my time for money. Ideally, this job would not require much capital to get started and would be very low risk. Unfortunately, I've never heard a job description like that, unless of course it's coming from a pyramid scheme company.

The truth is, there is no quick way to get rich without taking on large amounts of risk or working insane amounts of hours. So, the question is, how can anyone make money and avoid all that at the same time?

My plan is to start a micro business. I'll pick one that requires next to nothing to start up and will require very small investment of time to set up and the smallest amount of time possible to maintain it. I FULLY expect it to make very little money, maybe $1.00 a day once it gets going. And that's if I'm very lucky.

Sound crappy? It does when you think about just one micro business. My strategy is this: I'm going to do it again and then again, and again and again until I've got a large portfolio of micro businesses.

I think that micro businesses can work by using time and patience to my advantage. Opportunities that take little money and little effort will probably net me pennies. What if I take advantage of an opportunity that makes me pennies over a relatively long period of time, let's say, 10 years? How much can I make off of that opportunity? If I make $1.00 a day, then that will turn into $3650.00 for doing something that takes very little effort. If it took me 3 hours to set it up, then I'd say that's a pretty good haul for 3 hours worth of work!

The second part of my strategy is to keep the amount of time it takes to set the micro business up and then manage it to an absolute minimum. If I can do this, then there's no reason why I shouldn't be able to spend the time I do have (which is not much) building more and more micro businesses. So, let's say I build 20 micro businesses which each make me $1.00 a day. At the end of the 10 years, I will have made $73,000. If I do a good job of keeping my time spent building the micro business to an absolute minimum, then I should be able to far, far exceed 20 micro businesses in a year or two.

It all comes down to this: instead of putting all my eggs in one basket, I'm going to put lots and lots and lots of little eggs into lots and lots and lots of little baskets. I'm going for safety in numbers, by taking advantage of very small returns and therefore small amounts of risk.

You may ask yourself, what kinds of businesses make money doing this? Well, lots, actually! I work for a credit card processing company which makes fractions of pennies off merchant credit card transactions. How does my company make any money? Well, because they have an enormous portfolio of nearly 30,000 merchants. All those fractions add up, especially over time.

Once a merchant has been set up for processing credit cards at their store, the company begins to collect very small portions of money from each transaction and best of all, is free to spend it's time and energy finding new merchants to sign up. It's a good strategy and it's one that really does work.

Unfortunately, I can't start a business like that unless I have the right contacts (which I don't), a large amount of money to hire a staff, get an office, start advertising (which I don't have) - so that kind of business is not one I can start unless I'm willing to invest a very large amount of time and money.

But what I CAN do is mimic the model on a much smaller scale.

Experiment Guidelines

I will be starting a different micro business once every week and posting the details about the business, how much time and effort I spent and an updated progress report on how much income it brings in.

What Next?

The first question that comes to mind is of course, what kind of opportunities are like that? Well, domain parking is one. I bought for $5.00. So far (as of January 25th, 2007), I've made a grand total of $0.09 on it. Talk about pennies!

But you know what, I've got my very first micro business, and I can move on to the next one that will bring in just that little bit more.


Tichy said...

Great idea! Did you start any other Microbusinesses in the meantime? Have you made any money on the thumbnailer yet?

John said...

Unfortunately, Tichy as of 4-17-07, I have made a grand total of $12.00. MY experiment hasn't gone the way I wanted it too - I think there are some parts of it that are fundamentally flawed. That said, it's been a GREAT experience. I've definetely learned some new things about how I work.

Tichy said...

What aspects are flawed? I actually considered mimicking your approach and thought that perhaps we could start a micro business community ;-) I have thought about something similar before (ie where I live there is a business competition to start a business with 5€ investment), but didn't take it to the extremes you did. In any case, your blog inspires me to finally realise some of my "code one day" business ideas.

John said...

For one, I think the reason why more people don't do this is because it's very hard to create something of value in a short amount of time.

Take my Sudoku site for example, it didn't take me very long to put up, but nobody visits, so I'm effectively making no money off of it. In the long run, it wasn't worth it. If I wanted to make it worth it, I'd have to spend lots of time promoting it, which defeats the entire purpose.

I think the experiment is showing me that it's better to pick small projects and work through them to test the waters. It's a little different than code something and throw it out there without any more thoughts.

I have to be a little more mindful of the projects I choose and have to spend more time than I'd like.

Either way, it's fun to implement an idea and put it out there.

Thanks for your comments!

Tichy said...

At the moment your Sudoku site does not seem to work? Have you promoted it in any way at all, or have you just relied on Google pointing people to it?

Too bad it didn't work out yet - I seem to remember someone else on YCombinator writing about a Sudoku side project that earned him some money.

How many Microprojects have you started? I count only two? Sorry to be pestering you about this, I am just curious...

John said...

You are definetely not pestering me! The site is back up - thanks for letting me know.

I would love to talk to you more about this - if you want, email me at john at todotoh dot com so we can have a more direct conversation.

Anonymous said...

I believe that in a world where there exists, and is a need for more microbusiness startups, the term or title "magnate" (a magnate is a person of great influence, importance, or standing in a particular enterprise or field of business) is evolving to include a much larger portion of the population. As microbusiness owners, we utilize our core competencies, and improve upon them to capture a specific niche market. As our core competency is improved upon we become experts in our individual field of practice (butcher, baker, candlestick maker). We become people of importance and standing in a particular enterprise and field of business. We become magnates - micromagnates.