From The $100 Startup · Part II, Chapter 10

Show Me the Money

"Money is better than poverty, if only for financial reasons."
— Woody Allen

Naomi Dunford's $250 brainstorm

Naomi Dunford was a teenage mother and a high-school dropout. By the time she was pregnant with her second child, she lived in a homeless shelter. She made it out by working odd jobs and decided to improve her circumstances however she could. The deck was stacked against her — but her father had built several businesses, her mother was a marketer, and her grandfather had been in advertising. Marketing was in her blood, even if her current situation didn't look the part.

Without telling potential customers about her background, Naomi opened a consulting company called IttyBiz. Tagline: "Marketing for businesses without marketing departments." Later she added products and courses, but she started with one service: brainstorming. For $250 and one hour of her time, she'd evaluate your marketing ideas and tell you what to do differently. Nothing more.

I met her once in London. While we rode the Tube and wandered through an outdoor market, I asked her advice on a situation in my business. She listened for two minutes, asked a few clarifying questions, and without much pause said, "Here's what you should do." I frantically wrote down her list of specific actions. I made at least $15,000 more over the next year because of that conversation.

At the end of her first full year, Naomi published a short video explaining she'd earned almost $200,000. This surprised the online world because she wasn't an internet celebrity. A lot of people who stumbled on her website were immediately turned off by the coarse language and her "call it like I see it" style. Article titles included "What to Do When You're Scared Shitless" and "Moral of the Story: Topless Edition (With Photos)."

Her audience wasn't put off at all. One thing Naomi does better than almost anyone is remind her clients that the goal of business is profit:

Remember that the goal of business is profit. It's not being liked, or having a huge social media presence, or having amazing products that nobody buys. It is not having a beautiful website, or perfectly crafted email newsletters, or an incredibly popular blog. In larger businesses, this is called accountability to shareholders. Business is not a popularity contest. The CEO doesn't get away with saying, "But look at all these people who like us on Facebook!" Shareholders will not accept that. You are the majority shareholder in your business, and you have to protect your investment. There's nothing wrong with having a hobby, but if you want to call it a business, you have to make money.

On any given day there are plenty of things you can do that have nothing to do with making money. Be careful — without the money, there's no business. Two common, related mistakes: thinking too much about where to get money to start, and too little about where business income will actually come from. The fix is simple: spend as little money as possible, and make as much as you can.

Part I: Hang on to your wallet

Heather Allard invented two wearable baby blankets after the birth of her second child. They became a worldwide sensation, sold in more than 200 stores. Eventually she sold the company to a larger one. Her next business, The Mogul Mom, aimed to mentor other women starting on similar paths. The baby-blanket business had been highly successful — and very high-spending — as it took off. She resolved to do the second business differently:

I had gotten into a TON of start-up debt with my product company and spent thousands on things that I absolutely did NOT need — big ad campaigns, a custom ecommerce website, a publicist. I definitely did not want to do that with The Mogul Mom. So when I spend money on The Mogul Mom, it's for things that will build my brand and boost my sales while allowing me ample time with my family — web design, payments to a small group of contributors, or a new computer.

Heather isn't reluctant to spend on things that will (a) build the brand or (b) boost sales. That kind of spending grows a business. If you can spend $100 and create $200 in value, why wouldn't you? It's the other kind — the unproven ad campaigns, the unneeded custom websites — that she learned to stay away from.

The full study confirms it. Some examples of total startup investment:

• Chelly Vitry — Denver food tours · $28 · grew to $60,000/year
• Michael Trainer — media production · $2,500 (sold the camera back later for a profit)
• Tara Gentile — small publishing business · $80 · $75,000/year a year later
• Chris Dunphy & Cherie Ve Ard — Technomadia consultancy · $125 · $75,000+/year living on the road
• Charlie Pabst — Seattle design business · $3,500 computer + $100 license · just under $100,000/year

The average startup cost across the full 1,500-person study was $610.60. These stories aren't outliers. Small is beautiful, and small is often better.

If you do need to raise money

Your own savings is the best option — you're highly invested in the success and you don't owe anyone. If that isn't possible, crowdfunding through services like Kickstarter has rescued plenty of projects. Shannon Oakey asked for $5,000 to fund a craft publishing project and received $12,480 in 20 days. She'd been to her local bank first; they'd dismissed her ("They looked at me like I was a silly, silly woman who couldn't possibly know anything about running a business"). After she crossed $10,000 on Kickstarter, she printed the page, wrapped it around a lollipop, and mailed it to the bank's underwriters. She thought they got the message.

A couple of stranger fundraising stories worth keeping. Emma Reynolds and Bruce Morton needed $17,000 to start a consultancy. On a flight from Hong Kong to London, one of them realized they couldn't get a business loan — but they could get a car loan. Bruce borrowed $17,000 for a car and invested the money in the business with Emma instead. They paid the loan back in ten months. The bank never found out there was no actual car. The firm now employs twenty people across four countries.

Kristin McNamara funded a California climbing gym by inviting the community to "invest" at 3% above prime, like a three-year CD. Friends she'd never seen at the facility came up with $80,000 in cash to get it started.

Part II: Make more money — the three profit principles

Principle 1: Price based on benefit, not cost

The wrong way to price is to think about how much time it took to make the thing, or how much your time is "worth." The right way is to think about how much the customer's life improves and price accordingly.

Gary Leff charges a flat rate ($250) for booking a frequent-flyer vacation. Sometimes the trip takes him hours of research and phone calls. Sometimes ten minutes. Clients don't care how long it took — they care that they got First and Business Class trips that would have cost $5,000 retail.

Tsilli Pines makes a Passover haggadah that costs $3 in materials and sells for $14 each. The price has nothing to do with the materials cost — it reflects how the buyer will use it.

In information publishing the same logic runs to extremes. People buy $1,000 courses that cost almost nothing to deliver. All the cost is in development and marketing. When you set a price, ask: "How will this improve my customers' lives, and what is that improvement worth to them?"

Principle 2: Offer a limited range of prices

Pricing a single option asks "do you want this?" Pricing three options asks "which version do you want?" The second question converts much better — and a meaningful share of buyers will pick the higher-priced tier without prompting.

	Option 1 (one price)	Option 2 (three prices)
Setup	$87 only	$87 / $129 / $199
20 buyers	20 at $87	3 budget / 14 middle / 3 premium
Total revenue	$1,740	$2,664
Per sale	$87	$133

$924 more from the same number of buyers. Apple uses this — every product line has entry, mid, and premium tiers. A high-end version also creates an "anchor price" that makes the middle option look reasonable. The internal thinking: "Wow, $2 million for the latest model is a lot — but the $240,000 model is almost as good."

Principle 3: Get paid more than once

One-time payments are fine. Recurring payments are better. You may have heard them called continuity programs, membership sites, or subscriptions — same idea: getting paid over and over from the same customers for ongoing access.

• 100 subscribers at $20/month = $24,000/year
• 1,000 subscribers at $20/month = $240,000/year
• Raise the price to $25 on those 1,000 = $60,000 more per year

Almost any business can build a continuity program. Pickle of the Month exists. So do Olive Oil of the Month, Dog Treat of the Month, and Cupcake of the Month. Bonsai of the Month has four competing companies — you have a choice.

Brian Clark, who built Copyblogger into a multi-million-dollar business, frames it: "It's not market share. It's share of customer. And to gain more of each customer's budget, you first have to zealously treat every customer as a 'best' customer."

The $35,000 single-variable experiment

A customer told me about an experiment that's stuck with me. He tested one variable — price. Same sales page, same copywriting, same fulfillment. One version at $49. Another at $89. He'd thought $49 was the right price; he'd set $89 somewhat arbitrarily.

Conversion dropped at the higher price. Income went up.

	$49 price	$89 price
Conversion rate	2.0%	1.5%
Sales per 1,000 prospects	20	15
Revenue per 1,000 prospects	$980	$1,335

Five fewer sales. $355 more revenue. At four sales a day, that's $35,040 more per year from a single test. He tried $99 next; conversion dropped sharply, so he settled at $89. Even with the lower conversion, every sale generated $24 more than before. He calls it a $24 raise on every product that sells.

You have more than you think

I saw Naomi Dunford again in Austin a year after our London Tube ride. She'd run into a problem earlier that day — not lack of money (her business was on track to break $1 million), but access. Her PayPal account had been closed mid-trip again. She had funds. She couldn't reach them. She needed $900 to register for a conference that was about to sell out.

She realized she didn't have $900 with her, but she probably knew someone in Austin willing to loan a credit card for the few minutes it would take to register. She asked around. Three volunteers in the first two minutes. "Sure, no problem. Here's my card."

Most of us have access to more financial and social capital than we think — but only if we're willing to ask. If Naomi had said "oh, I guess I can't register," she'd have missed out. The trick was thinking creatively. "Right before starting IttyBiz," she said, "I was taking the bus to work, making 55% of a $30,000 income. My phone was cut off from lack of payment. Now I employ six people and help hundreds of others become self-employed."

Key takeaways

• If it doesn't make money, it's a hobby. There's nothing wrong with hobbies. There's a lot wrong with calling one a business and burning out trying to support it.
• Borrowing is optional. Every day, people open and operate successful ventures without outside investment.
• Price on benefit, not cost. Customers pay for what improves their life, not for your hours.
• Offer a limited range of prices. Three tiers usually beat one tier on the same number of buyers.
• Get paid more than once. A recurring revenue stream beats an equivalent one-time payment by a wide margin over time.
• You probably have more than you think. Whether it's capital, contacts, or knowledge — ask before you assume you don't.

Where this fits in the book

"Show Me the Money" closes Part II of The $100 Startup. Chapter 6 covered planning. Chapter 7 covered the offer. Chapter 8 covered the launch. Chapter 9 covered staying visible between launches. This chapter covers what to do with the money once it's coming in. Part III starts next, covering growth, leverage, and the question of what kind of business you want to build long-term.

Frequently asked questions

Do I need to borrow money to start a business?

Almost never. The average startup cost in the 1,500-person study was $610.60. Chelly Vitry started for $28; Tara Gentile for $80; Charlie Pabst for $3,600. Borrowing is now an option, not a requirement.

How should I price my product or service?

Based on the benefit your customer receives, not your cost or your time. Gary Leff charges $250 for a vacation booking that might take minutes or hours — clients pay for the result. Ask: "How will this improve my customer's life, and what is that improvement worth?"

What's the easiest way to increase revenue without more customers?

Offer a limited range of prices instead of a single price. 14 of 20 buyers will usually pick a middle option. Three tiers ($87 / $129 / $199) produces more revenue than 20 buyers all at $87 — by about 50%.

What is a continuity program or subscription model?

Getting paid more than once by the same customer. 100 subscribers at $20/month is $24,000/year. 1,000 at $25/month is $300,000/year. Pickle of the Month is a real business.

Where does this fit in The $100 Startup?

Chapter 10, the closing chapter of Part II. Naomi Dunford's IttyBiz arc anchors the chapter; three principles run through it: price on benefit, offer a limited price range, and get paid more than once.