Timothy Ferriss - The 4-Hour Workweek - Escape 9–5, Live Anywhere, and Join the New Rich - Expanded and Updated

Hmm … Whom to follow? If you are fast on your feet, you’ll notice that I just offered you an either-or option. The good news is that, as usual, there is a third option.

The contradictory advice you find in business books and elsewhere usually relates to managing employees—how to handle the human element. Herb tells you to give them a hug, Revson tells you to kick them in the balls, and I tell you to solve the problem by eliminating it altogether: Remove the human element.

Once you have a product that sells, it’s time to design a self-correcting business architecture that runs itself.

The Remote-Control CEO

The power of hiding ourselves from one another is mercifully given, for men are wild beasts, and would devour one another but for this protection.

—HENRY WARD BEECHER, U.S. abolitionist and clergyman, “Proverbs from Plymouth Pulpit”

RURAL PENNSYLVANIA

In a 200-year-old stone farmhouse, a quiet “experiment in 21st-century leadership” is proceeding exactly as planned. 51Stephen McDonnell is upstairs in his flip-flops looking at a spreadsheet on his computer. His company has increased its annual revenue 30% per year since it all began, and he is able to spend more time with his three daughters than he ever thought possible.

The experiment? As CEO of Applegate Farms, he insists on spending just one day per week at the company headquarters in Bridgewater, New Jersey. He’s not the only CEO who spends time at home, of course—there are hundreds who have heart attacks or nervous breakdowns and need time to recover—but there is a huge difference. McDonnell has been doing it for more than 17 years. Rarer still, he started doing it just six months after founding the company.

This intentional absence has enabled him to create a process-driven instead of founder-driven business. Limiting contact with managers forces the entrepreneur to develop operational rules that enable others to deal with problems themselves instead of calling for help.

This isn’t just for small operations. Applegate Farms sells more than 120 organic and natural meat products to high-end retailers and generates more than $35 million in revenue per year.

It is all possible because McDonnell started with the end in mind.

Behind the Scenes: The Muse Architecture

Orders are nobody can see the Great Oz! Not nobody, not nohow!

—GUARDIAN OF THE EMERALD CITY GATES, The Wizard of Oz

Starting with the end in mind—an organizational map of what the eventual business will look like—is not new.

Infamous deal-maker Wayne Huizenga copied the org chart of McDonald’s to turn Blockbuster into a billion-dollar behemoth, and dozens of titans have done much the same. In our case, it’s the “end in mind” that is different. Our goal isn’t to create a business that is as large as possible, but rather a business that bothers us as little as possible. The architecture has to place us out of the information flow instead of putting us at the top of it.

I didn’t get this right the first time I tried.

In 2003, I was interviewed in my home office for a documentary called As Seen on TV . We were interrupted every 20–30 seconds with beeping e-mail notifications, IM pings, and ringing phones. I couldn’t leave them unanswered, because dozens of decisions depended on me. If I didn’t ensure the trains were running on time and put out the fires, no one would.

The Anatomy of Automation

THE 4-HOUR WORKWEEK VIRTUAL ARCHITECTURE

Splitting the Pie: Outsourcer Economics

Each outsourcer takes a piece of the revenue pie. Here is what the general profit-loss might look like for a hypothetical $80 product sold via phone and developed with the help of an expert, who is paid a royalty. I recommend calculating profit margins using higher-than-anticipated expenses. This will account for unforeseen costs (read: screwups) and miscellaneous fees such as monthly reports, etc.

How do you factor in advertising cost?If a $1,000 ad or $1,000 in PPC produces 50 sales, my advertising cost per order (CPO) is $20. This makes the actual ‘ per-unit profit $40.94 .

I set a new goal after that experience, and when I was interviewed six months later as a follow-up, one change was more pronounced than all others: silence. I had redesigned the business from the ground up so that I had no phone calls to answer and no e-mail to respond to.

I’m often asked how big my company is—how many people I employ full-time. The answer is one. Most people lose interest at that point. If someone were to ask me how many people run Brain-QUICKEN LLC, on the other hand, the answer is different: between 200 and 300. I am the ghost in the machine. 52

From advertisements—print in this example—to a cash deposit in my bank account, the diagram is what a simplified version of my architecture looks like, including some sample costs. If you have developed a product based on the guidelines in the last two chapters, it will plug into this structure hand-in-glove.

Where am I in the diagram? Nowhere.

I am not a tollbooth through which anything needs to pass. I am more like a police officer on the side of the road who can step in if need be, and I use detailed reports from outsourcers to ensure the cogs are moving as intended. I check reports from fulfillment each Monday and monthly reports from the same the first of each month. The latter reports include orders received from the call center, which I can compare to the call center bills to gauge profit. Otherwise, I just check bank accounts online on the first and fifteenth of each month to look for odd deductions. If I find something, one e-mail will fix it, and if not, it’s back to kendo, painting, hiking, or whatever I happen to be doing at the time.

Removing Yourself from the Equation: When and How

The system is the solution.

—AT&T

The diagram should be your rough blueprint for designing a self-sustaining virtual architecture. There could be differences—more or fewer elements—but the main principles are the same:

1. Contract outsourcing companies 53that specialize in one function vs. freelancers whenever possible so that if someone is fired, quits, or doesn’t perform, you can replace them without interrupting your business. Hire trained groups of people who can provide detailed reporting and replace one another as needed.

2. Ensure that all outsourcers are willing to communicate among themselves to solve problems, and give them written permission to make most inexpensive decisions without consulting you first (I started at less than $100 and moved to $400 after two months).

How do you get there? It helps to look at where entrepreneurs typically lose their momentum and stall permanently.

Most entrepreneurs begin with the cheapest tools available, bootstrapping and doing things themselves to get up and running with little cash. This isn’t the problem. In fact, it’s necessary so that the entrepreneurs can train outsourcers later. The problem is that these same entrepreneurs don’t know when and how to replace themselves or their homemade infrastructure with something more scalable.