Josh Kaufman: Launching a Business or Side Hustle | E106
Josh Kaufman: Launching a Business or Side Hustle | E106
Want to start a business but not sure where (or how) to start?!
In today’s episode, we are talking with Josh Kaufman, best-selling author, researcher, and speaker. Josh’s TEDx talk on The First 20 Hours is one of the top 25 most-viewed TED talks published to date, with over 22 million views on YouTube. His research has been featured by The New York Times, The BBC, The Wall Street Journal, The Atlantic, Fortune, Forbes, Time, BusinessWeek, Wired, Fast Company, Financial Times, HarvardBusiness.org, The World Economic Forum, Inside Higher Ed, Lifehacker, MarketWatch, The Independent, Bloomberg TV, PBS Next Avenue, CCTV, and CNN’s Sanjay Gupta MD.
In this episode, we chat about Josh’s first book, Personal MBA, signs to find a viable market if you are starting a business, and the characteristics that all good products/services have. We’ll also talk more about how to test out your business idea, actionable steps to decide pricing, learning curves, the aspects of rapid skills acquisition, and more. This is a jam packed episode that we made it into two parts – so make sure to catch both!
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Check out our website to meet the team, view show notes and transcripts: www.youngandprofiting.com
04:15 – How Josh’s Degree Shaped His Career
07:43 – Why Josh Decided to Write His Book, Personal MBA
11:50 – How to Find a Viable Market
19:41 – Signs to Look for if There’s Real Opportunity
26:16 – Good Characteristics of a Product or Service
29:56 – Exceptional Product/Service in the Pandemic
32:24 – Best Ways to Test Business Ideas
35:38 – Steps to Decide Pricing
44:20 – Different Objections to Anticipate
Mentioned in the Episode:
Josh’s Website: joshkaufman.net
Josh’s First Book, Personal MBA: https://personalmba.com/
Josh’s Second Book, The First 20 Hours: https://first20hours.com/
Josh’s New Book, How to Fight a Hydra: https://howtofightahydra.com/#home
#106: Launching a Business or Side Hustle with Josh Kaufman
[00:00:00] Hala Taha: You're listening to YAP young and profiting podcast, a place where you can listen, learn, and profit. Welcome to the show. I'm your host, Hala Taha, and on young and profiting podcast, we investigate a new topic each week and interview some of the brightest minds in the world. My goal is to turn their wisdom into actionable advice that you can use in your everyday life.
No matter your age, profession, or industry, there's no fluff on this podcast and that's on purpose. I'm here to uncover value from my guests. By doing the proper research and asking the right questions. If you're new to the show, we've chatted with the likes of ex FBI agents, real estate moguls, self-made billionaires CEOs, and bestselling authors.
Our subject matter ranges from enhancing productivity, how to gain, influence the art of entrepreneurship and more if you're smart and like to continually improve yourself, hit the subscribe button because you'll love it here at young [00:01:00] and profiting podcasts. This week on yap. We're chatting with Josh Kaufman, a bestselling author, researcher and speaker who's proven shortcuts have helped millions of individuals and businesses find a way to educate themselves and reach their goals faster than ever thought possible.
Josh is TEDx talk. The first 20 hours it's been viewed over 22 million times. This makes it one of the top 25. Most viewed Ted talks published to date. His research has been featured by the New York times, the BBC, the wall street journal amongst many others, and he's published three bestsellers along the way, the first 20 hours, how to fight a Hydra and the personal MBA, which is now in its 10th anniversary edition.
Josh was so smart and so interesting that I ended up chatting with him for almost two hours. And as a result, I've split this episode into two parts to make it more digestible for you all in part one or this episode, you're currently listening to number 1 0 6. We [00:02:00] concentrate on Josh's breakout book, the personal MBA, this personal MBA book is literally taught in MBA courses around the world because it's that good?
I get so many questions from listeners asking about how to start a side hustle, how to start a new business. And especially because of COVID, we have more time on our hands. We're all at home, and everybody seems to be wanting to launch a new business. And that's why I decided that part one is solely focused on launching a new business with Josh.
I cover everything from how to test an idea, how to find a good market, how to price your offering, selling tips, and more part two, where episode number 1 0 7, we switch gears and we talk about something equally as interesting how to learn any new skill and just 20 hours without further ado. Enjoy the first part of my conversation with Josh.
Hey Josh, welcome to young and profiting podcast.
Josh Kaufman: Thanks Hala. It's great to be here.
Hala Taha: I'm very excited for this conversation. I think the topics that you discuss are super [00:03:00] relevant for my audience, and everyone's going to love what we're going to talk about today, because it's a lot of what I get asked all the time.
I always get asked, how do I start a side hustle? How do I start a business? How do I learn a new skill? And we're going to talk about all of that today. So super hyped for this conversation.
Josh Kaufman: Yeah. Like likewise businesses fun to talk about. So let's do it.
Hala Taha: It is. So Josh, you are a very diverse person.
You launched the personal MBA. It was a book that, was a breakout success. You put it out over 10 years ago, and it's now in its 10th edition. It's still a bestseller. A decade later. You also have a really big popular Ted talk. It's called the first 20 hours. And it's one of the most popular Ted talks out there, but I was doing some research and I noticed that your college degree is very different from what you do.
Now. You went into school for business information systems, which is relevant, but real estate and philosophy as well. And some of the stuff that I talk about on this podcast is related to skill stacking and [00:04:00] acquiring skills over your experiences. And so I want to understand how has your college degree helped shape your career in life?
And have you used anything from your college degree later on in life as a successful author and speaker?
Josh Kaufman: Yeah I think there are a couple of things I've always been. Curious by nature about how the world works. And part of that is reading and researching, but it's also projects and like doing things to understand.
And so my background is in technology, as you said, I have a business information systems degree. It's so funny. I'm actually doing more programming now, post degree for my own business, because I have a need that I can now solve with technology than I did at any time, either during college or in my corporate career.
Post-college. But I think there's a lot of value and this is reflected in the third part of my book, the personal MBA, being able to think in systems and understand the [00:05:00] world in a process oriented way or in a systems oriented way is very valuable, very useful. It helps you solve problems.
It helps you understand what's going on. In a way that is difficult to do in any other way. And so I think it's, if I took anything from that technology or engineering background, it was that systems orientation for me, the real estate was funny. Real estate for me was less of a, an interest in the nuts and bolts of at that time commercial real estate, like the actual transaction level, but a way a very applied, very practical way of learning finance.
And when you take a finance course in, in college, it's all at this very abstract level, here's a balance sheet, here's an income statement, here's a cashflow statement. And a lot of the concepts make sense but it's really hard to visualize what's going on, but when you imagine something like.
I'm [00:06:00] going to build a commercial office building, and then I'm going to have X number of floors to lease. And it's going to cost a certain amount to build it out. It's going to cost a certain amount for insurance and taxes and you create something called a pro forma, which is like the business plan for a building.
All of a sudden, all of these very abstract financial concepts start making a lot more sense because they're attached to something tangible in the real world. And yeah, I studied real estate, not because I wanted to buy and sell real estate, but because it was a very practical, useful way for me to learn finance and philosophy is, and continues to be a big thing that I think about.
So the personal MBA really is a book about business philosophy. Like when we're doing business, what are we doing? What is the point? What is the purpose? What are the things that we can pay a lot of attention to. And what are the things that we don't need to worry about so much, or are distractions from the core of this thing that we're doing when we're running a [00:07:00] business.
And so yeah, that, that approach to really trying to understand at a fundamental level, what we're doing and what's important, and what's not, that is in the same way that engineering was an influence in how I think about business philosophy definitely is too.
Hala Taha: That's all very interesting. And like I said before, you're very well known for writing this book called the personal MBA.
It's a very popular book. People read it in business school, and I'm curious to know, did you go to business school and how did you decide that you needed to write this book and that there was demand for a book like this?
Josh Kaufman: Yeah I was very fortunate. So I went through an undergraduate business program that was structured, like of master's administration degree.
All of the classic things, the case studies, the, strategy that, all of those things. I got in the context of my undergrad. And as a result, I was exposed to the best of what business academia had to offer through that [00:08:00] experience. I worked in the corporate world for a number of years, and so I got the big company managerial executive management experience or worldview.
And the thing that I noticed and this was something that really stuck out at me when I was going through school, which is, nobody really took a step back and try to even define what is a business when we're businessing, what are we doing? It seems like the general perception of, businesses are things that make money.
And if you're making money, you're doing a good business. And the way to become a better business person is to make more money. There was not that attempt to take a step back and really examine what are we doing? Why are we doing it? What's important. And so I was working in, at one of the largest corporations in the world, Procter and gamble just out of college.
And I was working with people who had just graduated from top 15 MBA programs. And I [00:09:00] wanted to have a greater degree of confidence in my ability to really truly know what I'm talking about to have good suggestions, to make good decisions. But for me at that time, it didn't make any sense for me to quit my job, go back to school, borrow a bunch of money.
I just, I needed to understand I needed to be able to do better in, in my job. And so that's where the personal MBA came from. I started doing reading and research on my own, and this was in, in the early heyday of blogs being a thing I'm dating myself a little bit, but it was an exciting time to be on the internet.
So I was doing this project fundamentally for myself. But I was also sharing the things that I was learning with other people and lo and behold, the world is wide and there are many people in the world who are interested in this sort of thing. It's helpful. And so that's when I realized that this is an idea, this is something that has the potential to help a lot of people.
[00:10:00] And so that's what turned the personal MBA from a side project into something that, that became my my full-time work.
Hala Taha: It's so cool how you had the passion and you were trying to solve a problem for yourself, and then you realize that so many other people had this problem, and then you turned it into a business.
So it's like like the same things that you preach in your book. You actually did yourself with the personal MBA, which is so cool. So in terms of that book, I definitely want to dive in deep. Anybody who listens to my show knows that I don't just talk about this or that. I really dive deep into one or two topics.
And so the topic that I want to talk about today is starting a business. I've had a couple episodes on this. I had a YAP snacks episode called. Five steps to launch a side hustle. And I just started a business that's very successful. It's called gap media. And so I thought it'd be great to pick your reign in terms of how to start a new business.
Cause I know so many of my listeners want to know how to do this in the right way. And a lot of people are starting a new side hustle and COVID, and [00:11:00] it's like the hot time to start a new business now. So I'd love to start off with markets. So one of the first things that you have to do when you're thinking about a new business idea is to have a viable market, to target a market that you know, would have demand and in your services.
So what's the best way to go about determining if your market is a good enough market, if it's a viable market for your business idea,
Josh Kaufman: Yeah, there, there are a couple of very useful ideas I talk about in the personal MBA directly related to this one, which would you've highlighted brilliantly is that you have to have a market to begin with, or the businesses is just not going to work.
So if there's not a waiting group of people ready and willing to pull out their wallet, checkbook and credit card and say, yes, please, I will take one. You're going to have a hard time. And so they, there are a couple of things that really help in the process of [00:12:00] finding a market. That's going to be large enough to support whatever it is that you want to do.
The first, and this is related to an idea called the iron law of the market, which is, I think was best framed by Marc Andreessen, the now venture capitalists but the founder of Netscape and just as markets that don't exist, don't care how smart you are. You can have the most brilliant idea.
You can have the best technology. You can have the best of everything. And without a group of people willing to pay you, you have nothing when it comes to the actual operation of a business, the easiest shortcut, which sounds obvious when you hear it, or if you think about it, but it's pay attention to what people are already spending money on, because, there's a 100% certainty that people are buying this particular thing.
And if you can offer it in a better way, in a new way, with a bit of a twist or to a market that is not used to buying this sort of thing, very often the biggest competitor to a business is not another [00:13:00] business. The biggest competitor is non-consumption people just not doing this yet, not purchasing this in this way.
And so I like to say a lot of early stage business formation looks a lot like anthropology. You're going out into the world, you're asking questions, you're looking at what people are doing and what they're not doing and what they may be could be doing if they just knew that there was a better way of solving this particular problem.
And the early stages is you're going out, you're examining what people are doing. And you're just trying to find opportunities. Things that could be a little less frustrating, a little more efficient, a little more flexible, a little more enjoyable. And this is an idea called the hassle premium.
And so usually the more annoying something is, for a broad definition of annoying, the more people are willing to pay money, perfectly good money to make that annoying thing go [00:14:00] away. And so sometimes in, in the development of a business, sometimes you're solving a new problem that hasn't been solved yet.
But then also sometimes you're taking an existing problem and you're just making it a little bit more fun, less annoying, less of a hassle from there. It gets to a point of almost triage. You're going out into the world, you're looking at all of the potential opportunities. And if you're in this frame of mind, it's very easy to come up with a list of 500 things that you could potentially build a business out of the way the world is full of opportunities like this, the question becomes which of those opportunities are your best shot.
What are the ones that are going to be the most straightforward, the most rewarding, the most interesting. So what should you spend your focus on? And there, there are two things that really help with us. The first is understanding the [00:15:00] fundamental structure of a business, what a business is and what it does helps you imagine.
Before any of this exists, just imagine in your own mind what a business in this area might look like, and this isn't an idea. It's the first thing that I cover in the book, it's called the five parts of every business. And so a lot of particularly early stage entrepreneurs, like I need to write a business plan, how do I write a business plan?
What's a book, good biz. Tell me all about this. It's very simple. Take a sheet of paper. You're going to write five headings on it. And these are the headings, value creation, marketing, sales, value, delivery, and finance. And so value creation is you're making something valuable for other people.
So what are you making and who are you making it for? That's value creation. Marketing is if people don't know that you exist or your thing exists, they're not going to buy it. So how are you going to get their attention and make them interested in this thing you have to sell [00:16:00] marketing sales is once you have their attention.
You need to convince them to pull out their wallet, checkbook or credit card and give you money for it. That's the sales process. How are you going to do that? Once you take someone's money, how are you going to give them the thing that you promised? Because if you don't, you're, it's a scam. It's not a business.
And so what is it? What is the delivery of the value look like? And finance is very simple. So for value creation and marketing and value delivery, you're spending money for sales. That's the part of the business where money's flowing in. So finance is just the process of looking at how much money is flowing in from sales.
How much money is flowing out in value creation, marketing, and value delivery. Are we bringing in more money than we're spending? Because if that's not the case, we're in trouble, something needs change, but then also, is it enough? Is it enough to make all of your time and effort and [00:17:00] attention worthwhile?
Can you use the information you have at your disposal to make a better decisions about either how to spend money or how to bring more money in. And so really when you look at those five steps, value creation, marketing, sales, value, delivery, and finance, that's what a business is. That's what a business does.
And if you don't know the answer to any one of those five steps, that's a blank that you need to fill in before the business is going to work. And so for any business idea, this is the best place to start. You need answers to these questions. You need to have a clear picture of what this looks like and how it's going to work.
And then from there, you can start to evaluate one idea versus another, do we think the market for this is better than that? Do we think that this is something that we could build once and sell for a long period of time? Or are we going to require a large amount of investment ongoing. These are things that I talk about in the [00:18:00] personal MBA called the 10 ways to evaluate a market, which is, once you have a clear idea of what's going on, then you can start to ask some more specific questions of is this the kind of thing that seems like it's going to be a good fit for me, but you always start with a clear picture of what the business idea is first.
And then you build on top of that by asking some more specific questions.
Hala Taha: Oh my gosh, I'm so glad that you took us back and you walk through the elements of a business and what we need to think about, because I think that's so important. And I think that a lot of people start businesses without thinking those things through.
And then they realize that their business has no margin that their business expenses or are, they priced it wrong and they're not making a profit. And so I think all of that is really important. So thank you for walking us back. Now, let's say we did map those things out. How then can we decide?
Or what are the signs that we should look for when it comes to our market? So like deciding if [00:19:00] there's people that will actually want to buy our product, how do we go about understanding if we found a good market?
Josh Kaufman: Yeah. Let's go through some of the 10 ways to evaluate a market in more detail, because there, there are a lot of specific, useful things to think about in this process.
The place I always start is urgency. Is this something that people are going to buy right away without hesitation, without caring too much about the price without knowing all of the details? If so, you're in good shape. So for example, let's say cures to cancer. That's something that the entire world is going to buy right away.
No hesitation. Doesn't don't care how much it costs, right? Give it to me. Now, there are a lot of business ideas that fall on the extreme, other end of urgency. Oh yeah. That's cool. It's interesting. When you're talking to customers, it might feel like a certain amount of apathy of huh.
Okay, cool. And so having, when you're evaluating an idea, the more urgency you feel from [00:20:00] customers, that's a really good sign that you're on the right track. Things like market size, go into this category as well, right? Are you selling to billions of people or are you selling to 10? If you're selling to major world governments selling to 10 customers might be frankly, a good business.
If you're selling, billions of dollars of goods, but in general, the larger, the potential market size, the more people who want this sort of thing, the better the market is the same thing goes with pricing potential. And so the higher, the price, generally speaking, that you can charge the more money that, that flows in and the more you keep of that as profit.
The more flexibility you have in terms of your pricing structure, the more opportunity there is, there are some related ideas to that too, which is cost of customer acquisition and cost of value delivery. So how much, in terms of marketing and sales activity, do you have to spend upfront in order to get a new customer and how much [00:21:00] do you need to spend to actually deliver the value to them on the backend?
So you could think an ideal business is there's a huge market. I can sell for an enormous amount of money. It costs me almost nothing to get a new customer. And it costs me almost nothing to sell to that customer. Once I have them that's an ideal situation to be in. Those are the big ones.
And then there are some, I call this quality of life factors. How unique is this? Is this something you and only you can provide? So YAP Media, for example, Is you, nobody else can do that. There are other things that might compete for the amount of attention, but there's not going to be another Hala.
That's not a a concern. The more unique you are, the better speed to market, which is from the time you're, you're doing this evaluation right now, how quickly can you have something out and selling to the market? And generally speaking faster is better, right? Versus something that you would need to invest in potentially for decades [00:22:00] before you have something to sell.
That's a barrier, the same thing goes for upsell potential. And so sometimes there are very attractive businesses where the thing that you're selling upfront is not necessarily the thing that's going to make you a lot of money over the long-term. It's a way to sell other things on the backend so that the classic.
Gillette, razors and blades model, right? Like they, the initial upfront sale of the razor is not as important as selling refills to the blades over a period of decades. There are a lot of businesses that fall into that category. In some senses, you can lose money on the initial sale and then just make up for it because the lifetime value of that customer is so high that each additional customer brings in thousands and thousands of dollars in revenue.
Insurance is a really great example of that. And then the last thing, which is one that I think an enormous amount about, [00:23:00] which has evergreen potential. And so when you make this thing for sale, is this something that you need to continue to invest a lot in order to keep it relevant and to keep it selling?
So technology is the extreme example of this companies like Intel pouring. Billions of dollars into a chip fabrication factory. That's going to be relevant for two years and then those chips will be obsolete. And then they'll have to build another one on the other extreme, a example of this, it, books are fantastic for this because you write the book once and you just print lots of copies.
And if you write it well and correctly, it continues to sell for a very long period of time. And you can update it if you want to, but you don't have to, it's going to continue to be relevant over a very long period of time. And yeah, in general, I really like to think about businesses. Starting a business is a lot of work.
And so I like to think about what are the things that I could [00:24:00] invest, time, attention, money, and energy into now that are going to be just as relevant 10 years, 20 years, 30 years down the line without additional effort required on my part. Because that makes every offer that I make every business that I build an asset that keeps ticking in the background.
And then instead of continuing to invest in keeping that thing running, I can build another one. And then another one. And just over time, build this portfolio of businesses and products that continues to do well. And I think at least for my personality and the way that I like to go through life, that's a really fun way of running a business that I think is underrepresented and much more possible today than it ever has been.
Hala Taha: Oh, my gosh, Josh, you are so smart. I could just hear your voice all day telling me business advice, honestly, like I'm sure our listeners are loving this episode. So earlier in the [00:25:00] conversation you were talking about how it's really tough to get people, to learn something new, to introduce a product that is not on the market.
And you guys essentially have to educate them about this problem that they never knew they had. And that's like such an uphill battle. It's easier to go with a product that people already know and use and create a better mouse trap for a lack of better words. Talk to us about some of the characteristics of a good product or service.
Josh Kaufman: Yeah. So I think this is something that I talk about. I think if I'm remembering correctly, it's chapter four in value delivery, there's this idea of quality, which is all about this. Like what is quality? What makes a good thing? Good. And the definition of this. Actually comes out of the engineering sciences.
So the engineering definition of quality is fitness for purpose. Does it do the thing that you're using the product to do? If so, yeah, that's great. If not [00:26:00] you, that it's not so great and you need to improve that. And so there was a professor at Harvard business school. His name was David H Garvin. And this would have been like the late eighties ish, where he came up with a list or a framework of okay let's go, let's take another step.
And it's try to define quality. And he broke it down into eight factors. Performance features, reliability, conformance, durability, serviceability, aesthetics, and perception. So like performance is pretty straight forward. Does it do the thing? Great. If it doesn't do the thing, not great features is how many things does it do.
If it does more than one thing that's awesome. You're getting more value for, from the product. If it only does one thing, it better do that thing really well, reliability is can I rely on this? Is it going to break? Is it going to malfunction? Am I going to get a result that they didn't expect?
Conformance is a more specific one. Like how well [00:27:00] does it meet the established standards? So are defects common. If this is an interchangeable part, how interchangeable are the parts? Can I rely on swapping things out if I need to durability? How long will it work? Serviceability. If something goes wrong, can I fix it or is, do I need to throw it away and buy another one?
And then the last two are becoming more and more important. Aesthetics is, do I like it? Is it beautiful? Is it pleasurable? Is it attractive? Do I feel good when I'm using the product or the service or the offering in the way that it is intended? And then perception is the fuzzy reputational or social factor?
Does it make other people perceive me in a certain way? Do I get a certain amount of status? Do the results that I get from using this thing outperformed my expectations of it, or do they underperform? Is it not as good as I expect it to be? [00:28:00] And so that's where you start getting into the the fuzziness of things like brand of all of the surrounding factors of an offer.
Do I feel good? Does it make people perceive me differently? Is this something that, that I get some intrinsic social value out of using, or is this a very utilitarian thing? And so I really like in general, I really like frameworks and checklists and things like this because there's a lot going on in business.
And so being able to think of light okay, what is a good thing? Here are seven or eight factors that I can think through real quick and figure out, okay, where are we in a good spot? And where could some investment be fruitful?
Hala Taha: And now with the pandemic and the whole world changing, do you find anything different in terms of what creates an exceptional product or service right now?
Does one of those characteristics stand out more than ever
Josh Kaufman: Yeah I think the [00:29:00] socialness, just because of the nature of the time in history, where we are, where people are starved for connection and starved, for being able to interact with other people and feel together in, in a time and space where we are all not together.
I think there are a lot of things that would not necessarily be as valuable now, so think of the social networks as a thing. And new ones popping up all the time. The demand for that has certainly increased during this period because people have more time and B people have this felt human need to connect with other people in it because all of the other outlets are not as available.
And so this is something that it talk about in chapter one called the core human drives and the drive to bond the drive to connect with other people, to form relationships and strengthen those relationships is really strong. And so [00:30:00] when that need, when people are used to meeting that need in one way, and that way is no longer available, that means that a market is going to form to meet that need in some other way.
And you can see it through social media. You can see it in the rise of companies like zoom. There's all sorts of that energy is going to find an outlet. And in the time that we are living now a lot of that's happening online and it's a nice that we have the tools to solve it.
Hala Taha: Yeah, I couldn't agree more.
I think digital products are just really skyrocketing right now. Even my social media agency. For example, I feel like if COVID didn't happen, I'm not sure I would have started it so soon. I think it would have happened maybe two years from now that there was such a big demand because everyone's just, there's the only game is online right now.
So if you have those skills, it's a really good time to start a business. Okay. So one of the things that I want to discuss is testing our idea, because like you [00:31:00] said, previously, you outlined the factors you should think about when launching a business. I think it's important to test your idea before you invest too much money in into it.
Before you get outside funding, you need to make sure that it's a viable offering, that people are willing to pay money for it. So what, in your opinion is the best ways to test our idea before we launch our
Josh Kaufman: Yeah, there, there are a couple and you're right. There are some critical assumptions that go into every business.
Like how much can I sell this for and how many people are going to buy it and how much am I going to spend? And, making the math work as is a really important part of the whole process. And so there are two primary methods that I really like to use for this. The first one is the fastest and the easiest, which is called shadow testing.
And this is essentially has many different forms. Sometimes it's called concept testing. Sometimes there are prototypes involved, but it's always this testing an idea with potential customers before you [00:32:00] before you make anything like just, an idea on a sheet of paper, just presenting it to the people who are most likely to buy from you and asking the critical question, which is this something that you're willing to pay for.
And the strongest version of this test is you actually take orders from them yeah, sign on the dotted line. We won't charge you until it's ready, essentially think of what Kickstarter is, right? There's no product, there's a lot of development and sometimes manufacturing and long expensive processes that need to happen before the product is ready.
But the Kickstarter, it's just a page. It's just some images. It's some text on the internet. There's nothing there, but it's enough that potential customers can look at it and say, oh yeah, that sounds cool. That's for me, I would like to pre-order one and Kickstarter makes that very easy to do.
And so for most forms of businesses, shadow testing is something that is, is very valuable and worth doing because it can help [00:33:00] answer that critical question immediately. Are you making something that people are willing to pay for the longer term form of testing that is. Just as if not more valuable is field testing.
And so it's making the thing. And then you, as the business owner you and your staff and the people who are involved in this particular market, the best situations where the company improves to the greatest extent most quickly are very often the companies that use the thing that they themselves make, because think of it from a speed of learning or a feedback cycle sort of thing.
If you're using the thing that you make and something goes wrong or something breaks, or, it was like, right away you can act on that information much more quickly than waiting for a bug report to come in from a customer with incomplete information and incomplete context. And so anytime there's an opportunity for [00:34:00] you to use the thing that you make.
You end up improving the quality of the product or the offer much faster than you otherwise would.
Hala Taha: That is such great insight. Okay. So let's say we tested, we have our business idea. We wrote our little business plan. We feel that we have a viable market and a viable product. How do we decide pricing?
Like what are the steps to decide how to price our product at this point?
Josh Kaufman: Okay. So there is a, there are multiple ways of doing this testing. The thing that I like about pricing, which I think is an underappreciated fact, I call this in I think this is chapter three of the book in sales. I call this the pricing uncertainty principle, which is that prices are 100% arbitrary and malleable.
You can charge any price for anything at any time without limitation. Like you, you just [00:35:00] you want to sell a rock for $10 billion go nuts. It doesn't mean somebody is going to buy it, but you have an enormous amount of flexibility in the number that you stick next to the price tag on something. And so with that, there are a bunch of different ways that you can triangulate your way into a price.
That makes sense. And the methods that most commonly come up are replacement cost, market comparison discounted cashflow, which is the most financing way of pricing something and value comparison. And this is actually, going back to our conversation of background. This is something that I learned by studying real estate.
And it becomes very apparent when you do something like, okay, you have a house to sell well houses, don't come with price tags attached to them. You have to put a price on it somehow. How are you going to do it? And so a replacement cost is just how much did it cost to build the house?
That's a pretty good estimate [00:36:00] of at least a minimum of how much it's worth. So let's add up all of that. Let's tack on some margin to compensate for time and energy. And, that's a pretty good ballpark of what something's worth. The market comparison method is very often the one that's used to sell houses okay, let's find another house like this that has already sold.
This house has probably roughly comparable to this other one. We'll charge this much discounted cashflow is okay, let's say we decided to rent this house. There's a series of payments that would come in from the use of it. And there are pretty involved financial formulas that say, okay, yeah, if you can charge $2,000, $3,000 a month for this house.
Then over a certain period of time, accounting for interest rates in the area, you get a lump sum payment of X that's, how much the house is worth. And then you get into the one that has the most promise, which has value, comparison, [00:37:00] and value. Comparison is just like understanding from the customer's perspective.
What is awesome about this particular thing to the person who's buying it? How valuable are those things and how much might they be willing to spend? Because this thing has unique benefits that they can't find anywhere else. So the example with the house might be a run down, not so great house in every other respect, but if it was owned by Elvis Presley, at one point, that house is going to be worth millions and millions of dollars because there's something intrinsic about the house that is valuable to a certain type of customer.
And it, when it comes to profit and profit margin value comparison is where you get your maximum profit and your maximum profit margin, because you're really understanding what the customer is buying it for, why it's valuable. And then your pricing specifically, based on that for entrepreneurs, [00:38:00] there is as a general rule, new entrepreneurs tend to systematically under price.
What they're offering based on the value that they're providing. I think a lot of that comes from a certain amount of insecurity or hesitation, or, one wanting approval, not necessarily knowing what the market will bear let's play it safe and make sure that I give people good reasons to to sign up for this.
My general rule of thumb for new entrepreneurs is take whatever price that you are initially thinking sounds reasonable and triple it. And you're probably in the ballpark of what the market will actually bear. If you don't feel good about tripling it, at least double it. And you're in a more happy place.
I don't know about you Hala, but I definitely fell into this trap early on. And, it's one of those things that like, it just feels so uncomfortable. The first time you ask for something that in your mind seems really unreasonable. [00:39:00] And it is a very good feeling when the market proves that no, really that's all in your head.
You don't have to worry about it so much. The market will pay so much more than you expect.
Hala Taha: I totally agree. I hear this all the time. People undercharge, they don't realize how much their services are worth. They don't calculate or incorporate their own time into their offering as well. I see that happen a lot.
And so I totally agree. Double or triple what you were originally going to ask for. You'll be surprised and if somebody is willing to buy it, then you did a good job with your pricing. And then you've just got a couple more people and maybe you need to, focus it on a certain segment of your market.
Maybe your product is not for everyone. So I totally agree. Okay. So with pricing, I know you mentioned that value comparison is the best way to get the most margin. So talk to us about high ticket offers. Cause this is like a buzzword. Now everybody's talking about their high ticket offer. How can we, what is the best way to [00:40:00] create a high ticket offer?
What are the elements of a high ticket offer? What do we need to think about there?
Josh Kaufman: Yeah. Th there are some structural advantages in having a high priced high profit offer, whatever that offer might be. And just think about it in terms of you may have fewer customers who are willing to pay that price, but that also means less value delivery costs.
It means less customer support. It means potentially less marketing, less sales. There's a lot of advantages to just like having a group of people who are really into whatever it is that you do, and then paying enough that you can focus a lot of time and attention on them. And so I think it's one of those things that what the high price offer is extremely market dependent, right?
Like you're finding your super fans. You're finding the people who are the most into, or get the most value of whatever it is that you have to offer. And a lot of [00:41:00] times the benefits of a high value offer. Are pretty soft when it comes down to it. There's a whole class. This is a concept that comes out of economics called a Veblen good, which is, essentially products that sell better because they're priced much, much higher than other things are.
So think like a Rolex doesn't tell time any better than like a Timex it's the cost of the thing. It's the signaling it's everything surrounding the purchase. That's the true value of the good and part of that comes from the price and the perceived exclusivity and all of those fuzzy factors around the actual product.
And yeah, I think there's a certain elements of the high price offer. These are very important customers, you, as a business owner are incentivized to pay an enormous amount of attention to them and making sure they're having a good experience. And there's a [00:42:00] certain amount of intrinsic value in that, but then there's also an enormous amount of value around the social positioning or the social status, the exclusivity, the opportunities that might come from having a more exclusive offer for the best customers that you have.
Hala Taha: Okay. So this was such great information. Now let's say, we've got our product, we've tested it. We've got our pricing, we go to, speak to our customers. We've got people who have paid, but then we start getting our first objections and sales people are starting to give their objections.
What are the different kinds of objections that we can anticipate and how can we counteract
Josh Kaufman: Yeah. So I think there's a whole bunch of different objections that come into play. Whenever you're trying to convince somebody of something. And the first thing to think about or realizes is there is a psychological tendency.
When we feel like we're being pushed into making a decision or pushed into doing something, [00:43:00] this is an idea called reactance. There's an automatic desire to push back. So think of the stereotypical really bad used car salesman, who's just trying to sell you anything. As long as you buy it today, that's something that you want to avoid the feeling or a voice, the perception of, because it actually works very much, not in your favor.
It pushes customers away from you instead of pulling you to them towards you or wanting. I think this was, there was a sales trainer, the late Jim Roan, who talked about the best position that you can find yourself in is positioning yourself to the customer as an assistant buyer. You're not there to convince them of anything.
You're not there to be, to sell them a bill of goods. Your job is to help understand who they are, what they need, what would be beneficial. You have some subject matter expertise in this [00:44:00] problem that they're trying to solve for themselves. And so your job is to be their assistant in making this very important, very valuable decision and finding whatever is best for them.
And as a way of framing in your own mind, sales has these icky connotations that a lot of particularly new entrepreneurs are very uncomfortable with when really you can reframe most of that. As you are making friends with someone you've never met before, you're trying to understand what would be good for them.
And you're trying to help them make a really good decision, whatever that good decision happens to be for them. And when you think about sales in that way, it becomes a lot less scary and it becomes a lot more interesting and a lot more fun. Because it also takes the pressure off of yourself of oh, I need to persuade, I need to convince, I need to, be the one who gets someone to do something that they might not want to do.
No, that's not how it works at all. And so there are a lot of different [00:45:00] methods that you can use to do this. The two best, we talked about value based selling like really understanding what the customer wants or needs. And then there's a kind of a close technique. It's not exactly the same thing, but there are similarities called education-based selling where it's, you are helping the customer become a better customer of the thing that you sell.
And so there's a quote by a lady. Her name is Kathy Sierra that I just love. And paraphrasing a relatively long quote. She says, don't sell better cameras, help your customers become better photographers because when they become better photographers, they're going to want better cameras. And so just helping people understand more about what it is that you do.
It encourages them to want more. And when they want more, they're pulling from you instead of you pushing on them. Now there are a lot of [00:46:00] pull it structural barriers to making a sale. The classic objections, like I don't have enough money. I don't know if this is worth it. I don't know if it'll work. I there's a special case.
I don't know if it'll work for me. So I see that this is a good thing. I've seen seeing this work for other people. The, I believe that, but I don't, I'm a special case. I'm the one, to which the common market does not apply. And the best thing about those kinds of objections. You know what advance they're coming.
They're always going to be coming. They apply to everything. And so that combination of the mindset shift of I'm an assistant buyer, I'm going to try to help them make the best decision that I can. And being a prepared seller, knowing well in advance, the types of questions that that a customer is going to ask, doing your research, having answers to those things before the sales conversation actually takes place.
That puts you in the best position to make the final sale.
Hala Taha: Let's
play a [00:47:00] game because this got my wheels spinning and a cool activity that we could do. Let's pick a product and I'll say some objections and you can counteract my objections about that specific product. So you pick the product.
Josh Kaufman: Let me see what, let's do the the camera things since we, we brought that up
Hala Taha: Okay. So camera. Josh, I think the camera is too expensive.
Josh Kaufman: It's a really a question of what you value, right? So if let's say hypothetically, if you owned a camera, what would be the kinds of things that you use the camera for
Hala Taha: for shooting YouTube
Josh Kaufman: Shooting YouTube video.
Oh, interesting. Okay. And you're using your YouTube videos for what exactly. Help me understand what that looks like
Hala Taha: To promote my podcast.
Josh Kaufman: Okay. Interesting. If I'm understanding you correctly, maybe the video features of a camera are more important to you than capturing still images. Am I understanding that right?
Hala Taha: Yes.
Josh Kaufman: Okay. So [00:48:00] there are a couple of different kinds of cameras that we can look at here. And there's this whole class that are essentially optimized for still images. Those don't apply to you. So we're just gonna ignore all of those. It's not what you're looking for. There are a bunch of different cameras now that come with an integrated video feature that will help you, for example, make sure that you're always in focus.
And everybody will be able to see your eyes and your face. Clearly it will blur out the background. You'll look amazing. There are features that will help control the exposure. So like how much light is entering the camera, making sure that, you look really great and then there's nothing weird going on with the image.
There are certain kinds of cameras. That we can make sure hookup directly to your computer. And so whether you want to shoot video on the go or you're in your office and you want to shoot video for your YouTube channel there. And so based on all, do those sound like [00:49:00] things that would be helpful in using this camera to do what you want to do?
Hala Taha: Oh yeah, for sure.
Josh Kaufman: Okay. So based on those features, here are three different options. Camera, a camera B and camera C. And we could have this conversation over a longer period of time to understand the trade-offs between these features like maybe hooking up to a computer is, would be a really handy thing to do.
Cause you always shoot video in your office. You don't shoot it at anywhere else. And so I could confidently recommend camera C to you because based on how you're going to use the camera, this has the best balance of features for what you want to use it for. And this is the price of that.
Hala Taha: So basically you're leading with value, right?
What did you unpack? What you just did there, you were leading with value. Did you do anything else? Value comparison, maybe.
Josh Kaufman: Yeah. So what I, this is an example of something called qualification, which is when you have a new customer, not every customer [00:50:00] you talk to is going to be a good customer and not all of them are going to be a good fit for whatever it is that you have to offer.
And so my first question is like, how are you going to use, this is a qualification question. Like what is the kite you're saying that you want a camera, but there are lots of different cameras that do lots of different things. So if, for example, your, you were an art student and you're going to be shooting architecture images in black and white, and you need the most crazy detailed, that's a completely different ballpark of camera.
And so by asking a few questions upfront, you can really narrow down okay, is this a good customer? Is this a customer I can help? What is the thing that they would find most helpful? And then of that, I can ask some additional questions to get more information, to triangulate what the, what potential solutions might be.
Hala Taha: So
why didn't you jump to [00:51:00] discounting? Like, why didn't you just give me a discount? What's the problem with giving a
Josh Kaufman: Yeah. I think discounts are sometimes a useful tool and sometimes very dangerous and more dangerous from a strategic standpoint, less. So from an individual transaction standpoint, when you think about it, discounts, just eliminate your margin or reduce your margin to a certain extent.
And so sometimes there's a certain amount of value that's added by the urgency of an expiring discount. Okay, there's a special sale going on. You need to make a decision within the next day or so. Or an opportunity has gone. That can be useful, but unless you understand exactly what it is that the customer wants to buy and why they want to buy, you're not in a position to talk about even price yet because the customer doesn't have as much confidence in your suggestion, what it is that you're trying to get them to do.
So by helping them both, by collecting more [00:52:00] information from the customer, like what is the thing that's going to help them the most, you're getting that information and you can use that to guide the conversation in a productive direction. But think about it from the customer's perspective, you're exhibiting a lot of interest in them, in their problem, what it is they're trying to do.
What's important. What's not. And so when you have that conversation, Towards the end of it, the customer feels very well heard, understood, valued. And so instead of just oh, you need a camera, you should buy this because it's $20,000. And I would make my bonus this month. If I were able to sell it, it becomes much more from the customer's perspective.
No, this person knows a lot about what they're talking about. And I trust that because they have the information they're guiding me in a direction that's going to be good for me.
Hala Taha: And then is there ever a situation where we should lead with a less expensive product or offering to get a [00:53:00] customer in the door or get that, name brand under our list of logos that we have?
Is there ever like a case for getting a cheaper customer in the door?
Josh Kaufman: Yes. Okay. So there are two broad situations where this is valuable. The first is called a loss leader. And so that's, the selling a, an offer at a loss at the beginning because. Over the lifetime of your relationship with that customer, they're going to buy a lot from you.
And so you can see this a lot of times where memberships are becoming much more of a market trend. And very often it would be like, the first purchase that you make from us, we're going to give you 20% off to make that purchase or 15% off or whatever it is. The reason that makes sense is because once you're a customer, you're highly likely when you have this need again, you're going to come back and purchase from them over and over again.
And so the loss leader establishing a relationship that then you can sell to them over a longer period of [00:54:00] time. Excellent reason to use discounting. The other thing that you can do, and this is much more on the relationship end. This is called a damaging admission. And so sometimes it's in the context of Okay, this is something that's not super great about the product.
And I want to tell you about that upfront. So about it sometimes in the context of sales, this is saying, okay, going back to our camera conversation, there are three different cameras that fit. What the things that you're looking for and a is $5,000. B is $10,000 and C is $15,000.
The natural expectation for most customers is oh yeah, they're going to try to sell me on the $15,000 one. And so you can sometimes gain a lot of trust with a new customer in particular, by saying, no, you should buy the $5,000 one because it does everything that you need. The value is [00:55:00] much better.
And all of the other cool features that the other more expensive ones have super overkill for you. You don't need it. Don't worry about it. This is the one that you want. And so that like admission against interest, the subverting, the expectation of I'm going to try to sell, take you for the, as much money as I possibly can.
You don't have to play that game. And that's where you really establish a good reputation. Of really looking out for your customer's best interests.
Hala Taha: Thanks for listening to part one of my episode with Josh on young and profiting podcast, I obviously loved speaking with him so much considering we stayed on for almost two hours.
My favorite takeaway from this conversation was Josh was his advice around testing a new business idea and determining if there's a real opportunity for potential success. It's super important to figure these things out early and to fail fast before you suck up a lot of time and invest in a bad idea.
So I'm so happy we covered that. [00:56:00] And if you're considering launching a new business, I highly recommend you go get his book, the personal MBA. It is such a great guide for business people. If you enjoyed this episode with Josh and want more, go check out our next episode part two or episode number 1 0 7, where we talk about how to acquire any new skill in just 20 hours.
It seems unbelievable, but it's not. Here's a clip from that episode.
Josh Kaufman: It's an interesting question, right? If you want to become the best in the world of something, or in the top 0.0, zero 1% of a particular skill, what does it take to get there? Interesting question. Like you want to be a professional athlete.
How much are you going to need to practice? Like in going to our conversation earlier about status, that feels like really interesting and cool to think about, right? Like how much of my life would I have to invest in, in some, the thing to be like an Olympic gold medalist or, things like that.
And so most of the research and most of the conversation around skill [00:57:00] was all about that question. What does it take to get to mastery? How do you become the best in the world? And I realized at a certain point that's not the question, that's not the question for most of us. The question is if we want to learn how to do something that we're not able to do right now, We're not talking about mastery at all.
We're talking about competence where we're talking about going from nothing to like doing something we're not competing against the world. We're competing against ourselves and our previous lack of ability.
Hala Taha: Again, go ahead and listen to number 1 0 7. If you loved this conversation with Josh and want to catch the full conversation with them.
And as always, I'm going to end this episode by shouting out a recent apple podcast review apple podcast reviews are the best way to support me and my team. If you don't listen on apple, write us a review or comment on your favorite platform. Castbox YouTube, wherever you listen. That's totally fine. This episode, shout out, goes to [00:58:00] 86.
Can't stop listening. I'm generally not a podcast person and I'm super picky about what podcasts I listened to. I first listened to, because my husband's best friend from college was a guest on the podcast. I had no plans to listen further, but she did such a great job on the interview that I poked through the past episodes and end up being cooked.
I admire how well prepared Hala is for every guest, how she curates her questions and leads the conversation. She gets incredible value out of her interviews with a short timeframe and ask the questions I would want to ask. I also liked that she engages in the conversation and doesn't just fire off a question and then moves on to the next one.
The back and forth is so much more enjoyable and relatable, not a complaint per se, but the content feels very geared towards entrepreneurs, which I'm not at all. So there's a lot of episodes that I haven't listened to yet because they seem very tailored to someone who wants to launch a side, hustle, grow a business and so on, but the ones I've listened to have been very inspiring and has had such valuable content that I'm sticking with five stars.
Keep up the great work Hala. [00:59:00] Thank you so much for this feedback. And I always appreciate feedback whether it's positive or negative, and I'm a new entrepreneur, a brand new entrepreneur as of a month ago, I spent almost 10 years in a corporate job. So I'll always try to make sure that my content is relatable to everyone, those advancing in their career or those wanting to be an entrepreneur.
I will make sure that my content resonates with both. And honestly, even if it's an episode on entrepreneurship or launching a side hustle, I really do encourage everyone to learn about that kind of stuff. Because at some point you may want to launch a business and you don't want to start from ground zero.
So even if it's not on your horizon in the near future, I would encourage everyone who wants to be a better, more well-rounded person to get to know about businesses and how to start a new business. It will help you in your career, even if it's indirectly. So I encourage everyone to listen to all of our content because I think it's relatable to.
Everyone, no matter if you're in a job or if you're an entrepreneur, I think we can all gain from this content and take things that we can apply in our [01:00:00] day-to-day life, no matter where we're at. And for all of you guys listening out there, take a few moments to write a Snapple podcast review, just so us 86 dead.
And maybe I'll be shouting you out next week, if you do and I love to see you guys share YAP on social media, you can find me on Instagram @yapwithhala or LinkedIn, just search for my name. It's Hala Taha. You can't miss me on LinkedIn. And now one clubhouse follow the young and profiting club and find me at Hala Taha.
I host live events there almost every day and as always big, thanks to the yap team. This is Hala
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