Before Timothy Ferriss became famous for writing The 4-Hour Workweek, he won a martial arts championship in China. He also set a world record for tango dancing.
He won the Chinese kickboxing contest by taking advantage of a loophole in the rules… he used his size to push his smaller opponents off the mat. Ferriss’s tango accomplishment was a bit of the same. He found a clever way to represent Argentina in an event. He then finagled his way onto the Live With Regis and Kelly show. There, he turned his partner a record-breaking number of times.
Timothy Ferriss is a clever and persistent person. He clearly knows a thing or two about taking short cuts and getting media attention. (The success of The 4-Hour Workweek stems from an underground marketing campaign he started.) But what does that say about the thesis of his bestseller?
Is a four-hour week really possible? Or is it just a clever title that resulted in massive public attention?
A Dangerous Myth
I’m asking this question because the central premise of The 4-Hour Workweek has become nearly universally accepted among the Internet marketing crowd—the gurus who teach people how to start online businesses. The idea is that it’s possible to develop a successful business by spending a few hours per week doing the business chores you enjoy while outsourcing the rest.
But before I dig into it, I want to say three things: I’m not criticizing Tim Ferriss. I love the idea of the four-hour workweek. I have nothing against the idea of outsourcing.
Ferriss developed the ideas in The 4-Hour Workweek while working 14-hour days at his sports nutrition supplement company.
Frustrated by overwork and lack of free time, Ferriss took a three-week trip to Europe. During that time and in subsequent travels throughout Europe, Asia, and South America, Ferriss developed a system of checking email once per day and outsourcing small daily tasks to virtual assistants.
The rationale behind the idea is Pareto’s Principle: In a typical endeavor, 20% of the effort produces 80% of the results.
This was the genesis of the book.
Ferriss saw what he was doing as an application of Pareto’s law. And he no doubt saw how wonderful it would be to run his business this way: communicating with virtual assistants for four hours every week.
It doesn’t take a genius to see the immediate problem with this idea. Although it is possible to keep an ongoing business afloat working four hours per week for some period of time, it is quite another thing to do that indefinitely. And still more difficult (if not impossible) to grow a business this way.
But there is another, stickier problem with this idea: the implication that you can outsource all of those business tasks.
Many gurus have taken this bad idea one step further. They tell would-be entrepreneurs not to worry if they don’t like to sell things or don’t know anything about marketing… or don’t understand how the Internet works. “You can outsource all that stuff,” they claim.
In today’s essay, I am going to address these issues. I will:
1. Show how Pareto’s Principle applies to start-up ventures.
2. Debunk the claim that you can “outsource anything.”
3. Tell you the truth about the four-hour workweek. This is a truth you need to understand and accept.
How Pareto’s Principle Applies to Entrepreneurial Businesses
I believe in applying Pareto’s Principle to most aspects of human life. It works in acquiring skills and knowledge. It works in developing a career. It works in building wealth. And it works for business, including entrepreneurship.
The challenge is identifying the most effective 20%.
I spent 10 years writing about entrepreneurship (under the pen name Michael Masterson). I wrote a dozen or so essays on how business builders should allocate their time.
My point was always the same: An entrepreneur should spend very little time on such tasks as printing business cards and selecting office furniture… and lots of time on marketing and sales.
Debunking the Outsourcing Myth
The outsourcing myth goes like this:
Growing a business involves many activities: imagining the business, identifying the market, conjuring the product, finding capital, hiring people, developing the product, hiring vendors, locating office space, testing, pricing, marketing, and yes—outsourcing.
Each of these activities requires knowledge and skill. Any entrepreneur will come into the business knowing some things but not everything, and having some skills but not all of them.
Some gurus will tell you that, rather than acquire all the knowledge and skill you need, you can do what you like and know how to do… and outsource the rest.
But in fact, you can’t.
With a small business, there are certain things the entrepreneur must do whether he likes to or not. Those things, as I said above, include acquiring specific knowledge of some parts of the business and developing the skill of marketing and selling the product.
You must spend the overwhelming majority of your time on sales and marketing, and only limited time on everything else.
Let’s say, for example, you decide to start a new business selling exercise programs on the Internet. You like to exercise and you like to demonstrate what you know. So you plan to spend your time producing exercise videos and outsourcing the sales and marketing.
What is likely to happen?
I can tell you. You might—if you are good—develop the best exercise program ever. But your chances of selling it will be small because you don’t have “inside knowledge” of the marketing side of the business you are in.
You may think you can market successfully by watching what others do. You might think you can market by hiring a consultant. But neither strategy is likely to work.
This is because the main marketing objective of every business is to acquire new customers for a particular product at an allowable acquisition cost. And this cost is different for every business.
The Promise of the Four-Hour Workweek
I do believe it’s possible to start a business working four hours per week… Only after the business has grown to a certain size and level of sophistication (what I call a Stage Three business in Ready, Fire, Aim).
Before then, you must work lots of hours. More hours than you will want to believe.
As I said before, I love the promise of the four-hour workweek. And I believe we should all focus on working less as our businesses grow.
In my own case, I never had any intention of working more than 40 hours per week. But while I was starting my businesses, I found myself working 60-80 hours per week. I didn’t want to work that hard, but I had to. The good news is that I hardly noticed I was working so much. The time flew by, and the work was exhilarating. But the hours were long.
A Realistic Time Line for Entrepreneurs
As you may know, the business-building program we give Wealth Builders Club members is aimed at starting a home-based business on a capital investment of no more than $25,000. The goal is to grow the business so that its value meets or exceeds $1 million in seven years or less.
When the business is new, your main job is to figure out how to bring in new customers at a sustainable price (allowable acquisition cost). To do that, you have to study the market and its primary businesses. You have to study the products and the sales and marketing strategies. And then you have to begin testing the market slowly and carefully.
Figuring all this out—the right media, the right advertising platform, the right offers, and the right advertising copy—is what I call the optimal selling strategy.
This takes time. You should expect to spend hundreds of hours of study and thousands of hours of work spread over the number of months you are willing to devote to getting the business going.
Once you discover the optimal selling strategy, things will get much better. Cash flow will go positive for the first time. You will start to see revenues climb month after month, so long as your strategy works.
The emotional stress and financial burden should diminish at this point, but other demands of the business will increase. You will have to hire people, fill orders, deal with customer service problems, and the like.
You can delegate most of this work as soon as you are able. But you won’t be able to in the beginning because delegation implies teaching and guidance. And you won’t be able to teach or guide anyone until you know what needs to be done.
Hiring and training these new people—in addition to running the marketing machine you’ve built—will keep you working 50-plus hours for six to 12 months. And then, just when your employees are handling these nonessential activities, you may discover that your initial product and optimal selling strategy are not working so well any more.
The market has absorbed your efforts and you’ve attracted copycats. To stay in business, you must keep growing. You have to create a new product and find a new optimum selling strategy.
That should take about half as many hours as with the first product. This is because you are much smarter now and have all those people working for you. So you continue putting in 50-plus hour workweeks. But you hire qualified people to help you with the marketing and sales. That way, when you get to the next level, you can finally start to work less.
This will take another year or two. And then, finally, you will feel like you are ready for those four-hour workweeks. You’ll have an excellent marketing and product team and competent people, in-house or outsourced—handling other aspects of the business.
But at that point—when you are in the $10 million revenue range and have more employees than you can keep track of—things could start to fall apart.
The machinery you’ve relied on to grow to that point—the accounting, fulfillment, operations, and customer service practices, protocols, and systems—could begin to break down. You will have to cancel your six-month vacation and hire and train a handful of very good CEO and CFO types. You have to make your business efficient.
This may take another year or two. But then—if you’ve done everything right—you will be ready for a four-hour workweek.
Unless you decide to start another business.
Don’t laugh. I know: Who, having gone through all that (with the ultimate goal of working only four hours per week) would start the whole process over again? And why?
Don’t ask me. Ask my shrink.
But even if you are smart and don’t start another business, you will realize you have spent as many as seven years getting your business to that point.
The Challenge of Outsourcing
I’ve given you the big picture. Now I want to go into more detail on this dream, this myth of outsourcing.
On the surface, it sounds good. Hire people in Kentucky and Oregon. Hire people overseas. Easier. Cheaper. Simpler.
But the more you look at it, the more complicated it gets. Or, the more focused the skill set, the more difficult it is.
At the broadest level of skill—say data entry—it can be done. The businesses I own or consult with routinely outsource data entry. This is possible because these jobs are relatively simple. As long as there are good programs and effective management, data entry can be done by anyone with a grade-school education.
It is also advisable to outsource some professional services such as legal and accounting. When you have a small business, outsourcing services like these is just more cost-effective. When your business gets larger, you may find that some of these services are more efficiently done in-house, even if they cost a little more.
But if you take one more step above that in terms of focus, outsourcing gets tricky.
Customer service is a good example. You can outsource the most basic elements of customer service without much problem. But once you get into the area of handling specific problems or answering questions, the challenge mounts.
Twenty years ago, virtually everything in business magazines predicted 90% outsourcing of customer service for American companies. But in the last 10 years, many of those jobs have come back home. Businesses have discovered that efficiency and quality are tough to outsource.
Moving up the business-focus ladder, outsourcing gets even more difficult. I’m talking about formulating and manufacturing products, developing and carrying out marketing plans, and handling virtually every aspect of management.
To be able to hire freelance help in these areas, you need to have some knowledge of the skill. Hiring data entry is easy. But 80%-plus of a business’s activity—and 90%-plus of its problems and challenges—are more complicated than data entry.
Take copywriting—the writing you do to advertise your business. How can you farm that out without knowing if what you’re paying for is good copy or bad copy?
The same is true for pricing your product and developing a marketing strategy. Yes, you can hire experts to help. But how will you know if the experts are actually helping you or just wasting your money? You need to be able to figure out the answers to the core questions yourself.
So what am I saying here?
First, that Tim Ferriss is right: Pareto’s Principle applies to start-up business ventures. But you need to understand which specific activities will generate the greatest returns for your businesses’ growth.
Second, the idea that you can outsource sales and marketing is a myth—a dangerous, expensive myth.
And third, if you take the right steps (the steps I outline in Ready, Fire, Aim and the Wealth Builders Club), you will one day be able to run your business working four hours per week. But until that point you, will be working 40, 50, 60, or even 70 hours per week.
The good news is that those hours will fly by and you will love what you are doing. And when the time comes for your abbreviated work week, you will have a business that is worth a million dollars or more.
[Ed Note: Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]