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I have to say Toms Shoes is a great example of what entrepreneurs can do. Blake Mycoskie was traveling in Argentina and saw all of these children with no shoes. Their feet were torn up and he decided he needed to make a difference. He started Toms Shoes where for every pair of shoes he sold he would give a pair to a child in need.

He started the business by taking 200 samples of an Argentinian shoe back with him to the US and started going door to door. He made it in a few botique shops in LA, but the real break came when he made the weekend edition of the LA Times. By the end of the weekend he had $88,000 in orders.

From there the company has exploded. It’s such a good story that it’s been covered by Time, Elle, Vogue and even Oprah. This has led them to sell over 60,000 shoes since May 2006 and they’re looking at selling 200,000 shoes this year. At about $48/shoe that’s $9.6 million in revenue in their second full year of business. Great growth and it’s all based on a model that will give back to the world indefinitely.

They’re now selling t-shirts and even a tote bag that if you buy will support a child to go to school and eat for a year. And they’re making money doing this. And having a great time. So this all brings up the question can you build a profitable business while helping the world. Absolutely. I’ve been trying to think of ways you could mimic this model, but it’s difficult.

Originally, I thought you could replicate it by selling LED lights. They’re low powered and last for years so they are being used in location rife with poverty so people can study at night. However, they are expensive and you can’t differentiate them enough. That’s the key I’m sure to this model. You need a product that you can differentiate. Toms Shoes are similar to a lot of shoes made out there, but they’re branded and come in different styles so people will spend a lot more to buy them.

If you have any ideas on products that could support this model leave an idea, or let us know what your experiences have been with social entrepreneurs. I can’t think of a better mark to leave on the world than an organization that supports itself and helps the world.

-Craig Sharkton

When I think of successful small businesses I don’t think in terms of revenue, I think in terms of lifestyle. If you’re only taking home $90,000/year, but work eight months you’re in better shape then the guy brining in $250,000/year on 80 hour weeks. We only get to live each day once and if you’re not enjoying it you need to re-evaluate.

In fact Steve Jobs, the founder of Apple, wakes up every morning since he was 17, looks into the mirror and asks himself “If today were the last day of my life, would I want to do what I am about to do today?” If he says no too many days in a row he knows he needs to change something (link to full speech at bottom of post).

There’s a ton of ways you can reduce your work load, but I thought I’d list three that successful entrepreneurs used.

1. Leave the employees in charge: Paul Orfalea, the founder of Kinko’s, was expanding his company and kept getting calls about every little decision. Finally, he realized he’d never be able to grow the company if he had to do everything so he left. He jumped in his car and went on a vacation. The first week he said people just said “he’ll come back,” week two was “Oh my, he’s gone.” Then in week three something magical happened. The employee’s handled everything. It took Paul a bit of time when he came back to get over the fact that his employee’s didn’t need him. But he was able to take longer vacations and his employees were empowered, a clear win for everyone.
2. Fire a customer: Tim Ferris ran a nutritional supplement website and was working himself insane. One of the tactics he used to go from working 14 hour days to 4 hours each week was to evaluate his customers. He profiled the most profitable ones, then searched for more of those. He also evaluated his most stressful customers who wasted his time and either stopped calling them or simply fired them. He’d tell them that if they weren’t going to follow his process or respect him to go somewhere else. A bit gutsy, but it worked for him. He’s got a great book out, check it out if you have time – The 4-Hour Workweek: Escape 9-5, Live Anywhere, and Join the New Rich.
   
3. Design a better business model: John Chow is another interesting entrepreneur. He started a tech related blog and quickly realized people were interested in how to make money with blogs. A few years later and presto he writes a couple posts a day for his site johnchow.com and last month brought in over $40,000 in ad revenue. With almost no costs, he’s living the life. He’s totally mobile and although he doesn’t state how much he’s working… I can almost guarantee it’s less than you.

So look in the mirror tomorrow and pretend it’s your last day here. Are you looking forward to the day? If not perhaps it’s time to see if you can reduce the hours you spend working. Start looking for little ways to leverage the internet, your employees or your assets. Hire an outsourcing company. Leave a promising employee in charge for a couple weeks. Redesign your business model.

If you have any tips of your own please leave them as a comment. I’m sure the other business owners are interested to see how you’re getting home early or taking that vacation to Europe.

-Craig Sharkton

Related articles – Steve Jobs Commencement address

Car washes seem to be great businesses and a recent article in Calgary Inc revealed some interesting numbers. For example a new two-auto bay car wash in Sylvan Lake (small town of just over 10,000 people and a million tourists/year) was set up for $1.4 million. It’s expected that each bay brings in approximately $15,000/month. At that rate it would be paid off in about 47 months or just over three and a half years ignoring interest. Not too bad.

Self washers however seem a bit too pricey, they cost about $4,000/month to run and the average one brings in about $4,000/month. Not too grand a margin there. But if you have some money in your community you could think about starting a full detail service like TLC Auto Detail. They charge between $400-$1,000/detail and will even do wet sand polishes, where they dismantle the panels and polish each one. Crazy.

And since your customers won’t travel far you’ll need to dish out enough for a great location. In fact that’s the number one cost of a car wash, the dirt underneath. Overall, I’d say they’re an okay businss, but there is lots of competition, you can only reach the customers within a few miles and it costs a heck of a lot to get started. I’d much rather leverage an innovative business model rather than my bankroll and pursue something similar to Threadless.com (check out our post on threadless.com).

-Craig Sharkton

There’s a great book by David Bach called the Automatic Millionaire. It’s entertaining, easy to read and important in this crazy day of spend, spend, spend. The book can basically be summed up in two phrases. One, save 10% of your salary automatically – Here’s a side lesson for everyone, find a good concept, write 200 pages around it and make millions. Two, stop spending $5/day on latte’s, you’ll save thousands you can invest and presto change-o, you’re a millionaire.

Already, first off I agree with the “save 10% to become a millionaire”. Conventional wisdom says invest 10% to retire, 15% to retire comfortably and 20% to retire early. It’s right and you don’t need me to post all of the stats that are everywhere. Put the money in equity index funds when you’re young, then add a bond fund as you get older.

However, I disagree with Bach’s second statement, “don’t buy latte’s” (okay, bit of paraphrasing there) because not buying coffee doesn’t set you up for financial freedom. Planning your big purchases does. For example, if you buy a new car like me, you’re silly. You drive them off the lot and they’re worth half of what you just spent. And then look at the cash flying out the door, I spent $340/month paying off my car, so you’d need to make $6,000/year before taxes just to pay off your car. I could buy a latte every day and spend less than half this amount.

The fact is most people need to invest automatically, but they also need to realize that buying a $500,000 house on a ford focus budget doesn’t work. If you don’t plan your big purchases, you’re screwed. So spend less on your house and car, invest automatically and enjoy every day. You’ll be wealthy in no time and you didn’t even have to sacrifice every dinner, latte or movie to do it.

You can check out David Bach’s book if you want to spend money. Or you can re-read the two phrases at the start of the post. Pesonally, I’d read the start of the post and go enjoy the day, it’s better spent enjoying a latte.

-Craig Sharkton

There was an excellent article recently on Netflix in Backbone. Apparently in its infancy Reed Hastings met with Blockbusters executives and offered a majority position in the company for $50 million. They said no and signed an exclusive video on demand deal with Enron for 20 years. Blockbuster is now worth $345 million, Netflix $1.9 billion.

Amazing. Think of what Blockbuster missed out on because they weren’t willing to believe in a new business model. Even if they didn’t buy the large chunk of Netflix, they could have easily worked out a partnership with them. Netflix’s business model is so effective because they have less employees and fixed assets. Back in the old days you wanted a ton of stores so you could get economies of scale. Nowadays that’s not always a competitive advantage. It’s a perfect environment for small business.

Neftlix earns about $1 million in revenue per employee because they don’t have tens of thousands of locations, Blockbuster earns about $100,000 per employee. So when you’re looking at your business look at adjustments to the business model and challenge the status quo. People thought Netflix wouldn’t work because no one would wait days for a DVD. People did. And now Netflix has become so good at distribution that they can guarantee one day delivery to 95% of the US. So Blockbusters main “strength” – locations everywhere – has quickly turned into its weakness. Too many locations tying up too much capital.

A great business model can make the business. For another great one check out our Threadless.com post.

-Craig Sharkton

I’ve always liked entrepreneurs who view business as a battle. One of the original McDonald franchisees was once greeted the day before his grand opening by the owner of a neighboring burger joint. The competitor introduced himself with a friendly “there’s lots of business around here and if you ever run out of buns or need anything, let us know.” The McDonald’s franchisee response was priceless “We’re going to run you out of business.” Guess who’s still standing.

Fred Franzia is another entrepreneur who always related business to war. He’s the man who’s turned Bronco Wine into the fourth largest wine company over the last 30 years. He hates his competitors and takes pleasure in underselling them and then buying their bankrupt businesses. Okay, I don’t think everyone should act the way he does, but he’s very good at what he does.

Bronco specializes in making good wine very cheap. His leading brand Charles Shaw goes for $2 a bottle and has been nicknamed “Two Buck Chuck” by his customers. He thinks people are crazy to pay more than $10 for a bottle and even has a $6 cabernet made from the same grapes as competitors $75 bottles.

He keeps his costs low by watching every dollar. When the guy who rents the portable potties for the field workers raised his prices, Fred fought back. He bought his own. In his words “To you, that’s a sh*tter, to me it’s a profit center. It’s a sh*tter war. You got to have war at all times.”

So even though I wouldn’t want to work the 100 hours a week that Fred does, or have an entire industry enraged at me because of my attitude towards them, but I have to respect a man as tenacious as him. He’s a shrewd businessman and patient, as he says “Success is easy if you think of it like rust; It’s inevitable if you keep at it.”

-Craig Sharkton

Warren Buffett is one of the worlds best investors, but he’s also a great role model for small business owners. He’s turned a $15 investment in 1965 into $120,600 ($150,000 if you look at the high on Dec. 11/07). But look at the first business he was in… textiles. In fact his first small business was one of his worst because any capital he put into the business was bound to have low returns. So he invested in other companies.

I think that’s so important, I’ll repeat it. He invested in other companies. So often entrepreneurs keep putting money back into their businesses because that’s where they think they can get the best return. But if you’re in an unattractive industry it may be better to put the funds into a different venture or investment.

For people looking at starting a small business this should be one of the areas you investigate in depth. For every dollar you put into your business what can you expect to take out? After all, your goal I assume is to take money out of the business, not endlessly toss money into it.

So what type of business did Buffett buy with the cash flow from the textile plant? Well, the perfect example would be See’s Candy. See’s makes boxed chocolates, an industry with a 2% growth rate, but does not require large investments and therefore has been extremely profitable. See’s has grown from $30 million in sales ($5 million in profits) to $383 million in sales ($82 million in profits) from 1972-2007, which is quite extraordinary. But then look at the cash taken out of the company. Buffett has taken $1.35 billion in cash out of See’s over the 35 years.

And to relate this to the entrepreneurs out there, imagine buying a business for $250,000, have profits grow from $50,000 to $800,000 over the 35 years and still managing to take $13.5 million out of the business over your lifetime. That’s the same economics as See’s Candy on a smaller scale. Simply amazing.

See’s performance is due to the fact that it required $8 million in capital in 1972 and only $40 million today. Everything else has been put into the bank (well actually other investments). So when you evaluate businesses look at what you can take out of the business, not just what it takes in.

For access to one of the greatest business minds of our generation check out Warren Buffett’s letters to the shareholders.

-Craig Sharkton

I think user created content is a must for high margins in the businesses of the future. The perfect example of this is threadless.com. They’re essentially a t-shirt company that allows their users to design, vote on and buy t-shirts. Sounds like a simple business, but it’s brilliant.

Since consumers are voting on the t-shirts, you know which ones will be popular, ensuring everything sells out. The designers get a modest $2,500 if their shirt is chosen and they even get people to send in pictures of themselves so they don’t need to hire models (they’ll give you a $1.50 credit on your next purchase per picture). They don’t spend any money on external advertising, since the designers word of mouth brings in people much more effectively.

This all leads to a growing business that made a profit of $6 million on $18 million in sales. Margins that would make most companies the envy of their competitors. If you can create a company that has its consumers: create, advertise and sell your wares, you’ll be in the money before you know it.

-Craig Sharkton

Skyscraper window washers have been risking their lives for years. However, the job is still done with a water bucket and squeegee hanging over the side of a building. It takes two people six weeks to clean the average skyscraper and they make an average of $200/day. That’s $12,000 in labour costs per cleaning and most buildings get cleaned three times per year.

There’s a huge opportunity here for someone with some engineering skill. If you could design a simple system that could clean a window without someone hanging off the side of the building you could have a goldmine. Think of all the buildings in the world… Every one of them needs to be cleaned. What they need is something that can be set up and automatically clean windows, even someone guiding it from a remote would be preferable and safer.

I have no idea how to clean windows, or how to design robots. But I know that if someone could create one that cleaned quickly, cheaply and could deal with high speed winds, they would have a gold mine.

-Craig Sharkton