The 4-Hour Workweek: Chapter Summary (Chapter 11: Income Autopilot III)
Ferriss has a new definition for the term MBA: he calls it Management by Absence. Chapter 11, the third of the “Income Autopilot” series, concerns itself with just that—how to build the business architecture that enables you to liberate yourself from the whole process. Ferriss even has it laid out in simplified diagram form, and he claims that, if you’ve followed the recommended steps up till now, it should be a perfect fit for your business model.
The essential difference for this business model is that, unless you desire and plan otherwise, you—the founder and CEO—will be conspicuously absent. Ferriss prefers to see himself more as a policeman on the sidelines who occasionally needs to step in rather than as an indispensable “information funnel” or “tollbooth.”
The key, as discussed so far, is to automate as much as possible and outsource the rest. A quick perusal of Ferriss’s diagram shows the routing and how it all ties together: from pay-per-click and affiliates to the website, or from print (and potentially other media) ads to the website and call centers; from there, to the fulfillment center, which in turn receives the goods from the manufacturer. The product is then shipped to the customers, payments are processed through the credit card companies and ultimately routed to the owner’s bank account. All the owner does is check a few reports, make some calls, if necessary, and examine bank account levels. More than that is optional.
Getting from A to Z
Ferriss’s goal in this chapter is to show us how to get from the initial one-person-show start-up to a more “scalable” model that can handle any amount of business. Ultimately, those whom you hire will have to be empowered to handle issues up to a specified amount, but how do you get from A to Z—from the low-budget start-up to the $10,000-a-week business? Ferriss gives an exact step-by-step breakdown of what to do and how to time it.
For the first fifty units of product, Ferriss recommends doing everything yourself, from answering phones to keeping files and shipping the product. That way, you can be in touch with customer questions so that you can compile a FAQ for later customer and training use. Similarly, shipping experience will teach you the most expedient method to ship. At this point, Ferriss also recommends investigating the possibility of a merchant account for when the business really starts to get under way.
Ferriss’s Phase II begins when you start to ship ten units of product per week. By now, you’ve incorporated your FAQ and are amending it as needed. You are also beginning to research fulfillment services, and to this end, Ferriss has very specific advice about negotiating terms (ask for net-30) and discounts and making sure that they are willing to process via e-mail.
Phase III starts when you begin to ship twenty units per week. At this point, Ferriss estimates that you should have the cash flow to be able to afford one of the larger fulfillment houses who handle the entire process from beginning to end, including returns, if necessary. These companies usually require set-up fees and monthly minimums, so it’s wise to wait until you have more of an income. With his usual shrewdness, Ferriss recommends that you ask the fulfillment company that you choose to refer you to call centers and credit card processing companies that they have worked with, since this is now the time to begin setting these things up in addition to a merchant account.
Complexity Confuses, Simplicity Sells
According to Ferriss, the best sales and marketing scheme is to keep things as simple as possible. In an age where we’re used to having a thousand different choices, this seems counter-intuitive, but Ferriss claims that some of the simplest approaches have also been the most successful. He calls it “the art of undecision:” the fewer choices a customer has to make, the more likely he or she will be to buy, simply because there are fewer steps standing in the way of the ultimate decision. He therefore counsels us to limit everything from purchase to shipping options, to eliminate phone orders, if possible, and not to offer expedited or international shipping.
Limiting options also helps to ward off would-be problem customers, whom Ferriss claims are just not worth the extra bit of money that they bring in. He recommends avoiding hassles by focusing on low-maintenance, well-paying customers. As always, he gives very specific advice on how to do this, from refusing to take checks and money orders to raising wholesale minimums and requiring a tax ID to avoiding countries known for mail fraud.
The Lose-Win Guarantee
One of Ferriss’s recommended sales techniques is called the Lose-Win Guarantee. The idea is to up the ante so that the customer will take the risk and try the product. Offer them double their money back or something similar. In Ferriss and other NRs’ experience, the amount made selling the extra product more than offsets the amount paid out to dissatisfied customers, even if that amount is double what they originally paid. Ferriss claims that the 30-day guarantee has lost its appeal and that something a little more attention-grabbing is needed as incentive to try a product.
The chapter winds up with a special section on how to give the impression of being a big company, the usual Comfort Challenge, the always useful Tools and Tricks, and the LD in Action section. The Tools are predictably geared toward “muse” activation and, as always, have everything you need to get yourself going.