The first time I encountered Derek was in the Tim Ferris podcast. I loved the common sense and pragmatism he exuded so naturally, his book went straight to my reading list. Here are some of the lessons he taught me.
A good way to start a Business
Derek wasn’t trying to build a business at first. CD baby, a multi million business started as an accident. Derek had set up an successfully online payment system on his website which let him sell his CD online. Bypassing the tedious record deal with distributors which was the official way to do music business in 1997.
It just so happened that his site was one of the first of this kind. Naturally, his friends asked him to put their albums online too. Soon enough, he received more and more requests from total strangers, leading him to the decision to start charging something. How he calculated something without point of reference from similar businesses you ask? He had no idea, so he went to the record store in Woodstock and asked a woman at the store “How does it work if I sell my CD here?”. “You set the selling price at whatever you want. We keep a flat $4 cut. And we pay you every week.” she answered.
So I went home and wrote on my new cdbaby.com website, “You set the selling price at whatever you want. We keep a flat $4 cut. And we pay you every week.” I figured if it worked for her, it was fine for me.
Because it was taking me about forty-five minutes of work to add a new album to the site, I also had to charge $25 per album as compensation for my time (shows you how much I thought my time was worth in those days). A few days later, I realized that $35 feels about the same as $25, so I bumped it up to $35 per album, which left me room to give discounts and still make a profit.
And that’s it! Six years and $10 million later, those same two numbers were the sole source of income for the company: a $35 setup fee per album and a $4 cut per CD sold.
A business plan should never take more than a few hours of work—hopefully no more than a few minutes. The best plans start simple. A quick glance and common sense should tell you if the numbers will work. The rest are details.
Persistence is key but only if applied to the right things
As Qi Lu says
: “Luck is like a bus,” he told me. “If you miss one, there’s always the next one. But if you’re not prepared, you won’t be able to jump on.”
Derek had tried a lot of different things without success, yet suddenly here he was, getting wildly successful with his online business. What he learned is so important. Don’t confuse persistence with blindly applying effort to something which isn’t working. Work smart, work on the right things!
For the first time in my life, I had made something that people really wanted. Before that, I had spent twelve years trying to promote my various projects— trying every marketing approach, networking, pitching, pushing. It always felt like an uphill battle, trying to open locked or slamming doors. I made progress, but only with massive effort.
But now . . . Wow! It was like I had written a hit song. A songwriter can write a hundred songs; then suddenly one of them really resonates with people and becomes a hit. Who knows why? It’s not that it’s necessarily better. But through some random set of circumstances or magic combination of ingredients, people love it.
Once you’ve got a hit, suddenly all the locked doors open wide. People love the hit so much that it seems to promote itself. Instead of trying to create demand, you’re managing the huge demand.
So what’s the lesson learned here?
We’ve all heard about the importance of persistence. But I had misunderstood. Success comes from persistently improving and inventing, not from persistently doing what’s not working.
We all have lots of ideas, creations, and projects. When you present one to the world and it’s not a hit, don’t keep pushing it as is. Instead, get back to improving and inventing.
Present each new idea or improvement to the world. If multiple people are saying, “Wow! Yes! I need this! I’d be happy to pay you to do this!” then you should probably do it. But if the response is anything less, don’t pursue it.
Don’t waste years fighting uphill battles against locked doors. Improve or invent until you get that huge response.
“Hell yeah!” or “no.”
I loved this concept the first time I heard it on the podcast. It is so simple yet people don’t seem to practice it nearly enough. You don’t have enough time to do what you like? Say NO to more things, until you can say YES to what you really want.
You can use this same rule on yourself if you’re often overcommitted or too scattered. If you’re not saying, “Hell yeah!” about something, say no. When deciding whether to do something, if you feel anything less than “Wow! That would be amazing! Absolutely! Hell yeah!” then say no.
Don’t fall prey to excuses, just start
How often have you heard other people or even yourself say, “I’d like to build a business but I first need to solve X…” STOP! You almost certainly don’t really NEED that to start. You can build a tiny prototype. Even if it is just a design, you can start small and you can start now!
If you want to be useful, you can always start now, with only 1 percent of what you have in your grand vision. It’ll be a humble prototype version of your grand vision, but you’ll be in the game. You’ll be ahead of the rest, because you actually started, while others are waiting for the finish line to magically appear at the starting line.
Starting small puts 100 percent of your energy into actually solving real problems for real people. It gives you a stronger foundation to grow from. It eliminates the friction of big infrastructure and gets right to the point. And it will let you change your plan in an instant, as you’re working closely with those first customers telling you what they really need.
Build something as if you don’t need the money
“When you go out in the world, look for the job you would take if you didn’t need the money.”
I knew this principle in the context of relationships, but Derek pointed out something brilliant which is that if you work on something as if you don’t need the money, people will notice it. You also will likely love what you are doing.
If you set up your business like you don’t need the money, people are happier to pay you. When someone’s doing something for the money, people can sense it, like they sense a desperate lover. It’s a turnoff. When someone’s doing something for love, being generous instead of stingy, trusting instead of fearful, it triggers this law: We want to give to those who give.
It’s another Tao of business: Set up your business like you don’t need the money, and it’ll likely come your way.
Delegate, so you can focus on important things
Derek came to a turning point in his management when CD Baby was three years old. The problem was that everything, every request, every question and doubt went through him. He was busy answering his employee’s questions from 7a.m. to 10 p.m. So he changed his approach.
Instead of just answering questions, he called his employees and explained his answer and most importantly, his reasoning behind his answer to everyone. Soon enough, the questions stopped. He finally was free to spend time on focusing on what he really liked, the growth of his business.
There’s a big difference between being self-employed and being a business owner. Being self-employed feels like freedom until you realize that if you take time off, your business crumbles. To be a true business owner, make it so that you could leave for a year, and when you came back, your business would be doing better than when you left.
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