Freelancer or Entrepreneur?

Hey, it's Seth Goten. In the summer of 2012, I had an amazing opportunity to spend three days with a group of extremely motivated entrepreneurs, people right at the beginning of building their project, launching their organization. During those three days, I took them on a guided tour of some of the questions they were going to have to wrestle with. Some of the difficult places they were going to stand up and say, "This is me. This is what I'm making." I'm sorry you couldn't be there, but I hope this is the next best thing. excerpts from the live event, unrehearsed, no slides. Here it is. Enjoy it. But even more important, I hope you do something with it. Thanks for listening. I want to start by telling you about an architect I just read about, and sort of the curse of the successful architect. This guy had made a very good living designing and renovating houses for rich people. And his kids grew up and went off to college and his wife decided to move. That's problem number one, problem number two is they bought an empty lot. So now the architect has to go build his house, and he has to build his house without being able to complain about anything because it's an empty lot. And most of the time I talk with people who, because of circumstances or their job or their boss or wherever they are working, have all these other things that they have to be concerned about. They don't have an empty lot, and each of you has an empty lot. That's number one. Number two is lots of people have the ability to get to the point where they could invent the next thing they're going to do, but they find excuses. And by coming here today, you've indicated that you're past that. So we're going to spend the first part of this session, assuming that you are all in. Assuming that we don't have to deal with the stuff that undermines our best work. And then as the days go on and we get better at talking to each other and trusting each other about where we are, we're going to dig to the next level of if you see it as it possible, you're going to do it. So with that, I want to start by telling you a story that I've only told once before in this room a couple of months ago. I was really bad at ice hockey growing up. I grew up in Buffalo, and in Buffalo, there's no baseball. There might be bowling, but mostly it's ice hockey. And when I was 10, my parents sent me down, and the word nerd wasn't in common parlance, and they said, "You can be whatever that thing is, but you also have to at least play a sport for a while." And my dad agreed to coach the team just to make sure I would actually do this, and he was a great hockey coach. While he had all these drills, he came up with all these inventions like we, every other coach had two pucks. My dad had 30 pucks, so there was never a shortage, and he drilled a hole in the pockets, and they all had a shoelace, you can carry out 30 pucks and one stuff like that. Anyway, he invented this drill, where the puck is over here, and that's the corner. Now they call it the corner, but it's sort of round. And one player would be here, and one player would be here, and the coach would throw the puck in the corner. And this guy would have to skate in, grab the puck, and go this way. And this guy would have to skate in, grab the puck, and go that way. So you can imagine the fireworks would ensue. And what you were supposed to do is go as fast as you can, and hit the other guy and stuff. I was the smartest person on the team. I was the worst person on the team, but I was the smartest person on the team. And it didn't take me very long, and this one I was like 13, to realize that the second guy in has this huge advantage, because the second guy is the hitter or not the hit E. And the second guy has a shot at taking the puck away. So what I started doing was being just a little slower than the other guy, right? And it took about 20 times of this drill for the other players to realize what I was doing. So they started being slower than me. And it got like Zeno's paradox, like who would go slower? So my dad said I couldn't do that anymore. And what I realized was there are three things you need to be good at hockey. One is it helps if you know what to do. Second, it helps if you're able to do it. And third, it's really important you're care enough to get hit. And the journey that each of you are on is about those three things. Do you understand from 10,000 feet what the smartest consultants and visionaries in the industry would tell you is the right answer? Are you good enough at writing, presenting, organizing, leading, hiring, raising money, and all those things to actually do the right thing? And then the third part, which again, we're not going to dwell on too much this morning, is do you care enough about the project to get hit? Because there's a lot of that in what's going on. When I was starting out, I really wish I could have come to something like this, which is why I run them. And the problem is, you can't talk to your spouse, you can't talk to your boarded directors, you can't talk to your employees, you're left alone. And here you can talk to the other folks. Okay, the duck. So the first thing about the duck is that there are a lot of people who spend their time getting all their ducks in a row. And that is not what we're going to spend our time on. We're going to spend our time talking about what you're going to do now that you got a duck. And that is what attracts me to entrepreneurship. Is that if you want to be a neurosurgeon, you spend 15 years of your life getting your ducks in a row. And then one day someone says, "Now you're a neurosurgeon." But if you're an entrepreneur, you're an entrepreneur immediately. There's no permitting process, there's no certificates, you just start. And along the way, you can collect more ducks and get them in a row. But the real art of what we're trying to do here is understand that you got to do something with the duck. And we're going to keep going back again and again and again, not to the lack of resources because there's unlimited resources available to all of you. Not to the lack of opportunities or connection to be made. But the real question on the table is, are you ready to do something with the duck? We're going to start by talking about why the monopoly man was on the door when you walked in and why the monopoly man isn't on the water bottles and the coffee mugs. So over here, I have almost every monopoly iteration ever, including the 1935 first edition of monopoly. But the original one doesn't seem to come with the board. And I'm trying to figure out how they played it. Maybe you had a depressions, you had to draw your board or something, there was a little picture. It's not clear. We're going to talk about monopoly for a couple of reasons to get us started. And the first reason is there are three ways to think about monopoly and there's ways to think about architecture and how architecture fits the blank slate you have to deal with. So here they are. One, there's the evil kind of AT&T Microsoft monopoly where someone goes and violates whatever tenants of antitrustler there are and unfairly controls the market. We're not talking about that at all. There's two other kinds of monopolies. The kind of monopoly that we're going to talk about the most is this. The reason you can't put the little man from monopoly on a water bottle is that Hasbro won't let you. And their lawyers are so aggressive that they've notified every person who prints coffee mugs and every person who prints water bottles. If you send them the monopoly man, which I tried to do, they will send you back and don't say we will not print the little monopoly man. What that means is that they have a monopoly on monopoly. And if you want monopoly, you got to buy monopoly from them. And every successful business has a monopoly. Has a monopoly on what it makes that someone else can't make the way they make it. That leaves out commodity businesses. People bring coal out of the ground because I don't think of those businesses as particularly successful. I think of them as useful. I'm glad if I need a bigger coal that someone's doing it. But it's a really lousy way to make a living. That brilliant entrepreneurship is around figuring out that thing that you can do. That's in the marketplace. That people will willing to cross the street to get. That people understand this is the one and I need it. And we're going to keep going back again and again and again today to this idea of what is it that you're going to have a monopoly on. So if you know about the company 37 Signals in Chicago, they are really killing Microsoft in a tiny segment of the market, which is project management on the web. And they have a product called Basecamp, which costs 20 or 30 bucks a month to use. If four of your colleagues are managing a project on Basecamp and you want to participate in the project, you can't shop around, they have a monopoly on that project. You have to do it on Basecamp and you don't get to say, "Well, cost too much money because they're already using it so you have to use it too." And that is a fundamental distinction from the way industrialists thought in 1930 and 1940 when the board game came out. And in those days, the f*ck! thought was we're going to figure out how to make these machines work just a little better and we're going to figure out how to make this factory work just a little faster and so we'll be able to sell a car just a little cheaper and so the industrial mindset when we all grew up with starts with this idea that you have to build a better mouth trap and make it cheaper and that's not the kind of entrepreneurship I'm here to to propose to you today I'm talking about one that's based not on the industrial economy but on the connection economy and one of the easiest ways to build a monopoly a tiny profitable monopoly is to be the center of connections because connections are so valuable to people compared to stuff and we went through 80 years of stuff and now the door is wide open for people who want to make connection for a living and the third reason that we're going to talk about monopoly is this if you have a choice between building a house on the blues or the greens it's a tricky decision because the greens charge way more rent if you land on them but the blues are way cheaper to build and these are the decisions that you're going to make all the time you get to decide where to build your house you get to decide if your house has good drainage and a good view and is near the ocean you get to decide how much you're gonna spend on the real estate where your house is and once you do you're locked into it then you can't complain that you're in a lousy neighborhood you put it in a lousy neighborhood so when someone tells me I'm a literary agent blah blah blah blah the book business is dying I say well you don't have to be a literary agent it's not my fault the book business is dying but if it is move right or if it's not if there's a lot of real estate up for sale because people are patting by a bunch of it so this virtual real estate that's available in every single industry is a choice now you may have 15 years of experience of being in the pizza business but if everyone in your town is going gluten-free and vegan it doesn't matter it's a sunk cost and we're gonna talk about terminology as the day goes on and sunk cost is a really important one for us to get into you're gonna decide should I be a freelancer or an entrepreneur and let's get that out of the way early on because the distinctions are so critical so Sarah is mostly a freelancer and what that means is people pay her money and she does work and if she doesn't do work people don't pay her money and freelancing is a great way to make a living it's what I do that's what I used to do but in between I was an entrepreneur entrepreneurs build businesses bigger than themselves right Oracle will do fine if Larry Ellison goes on his yacht for four weeks Oracle is still being Oracle people don't use Oracle software because Larry Ellison comes with it right he makes money while he sleeps he's building something bigger than himself that he could sell one day or take public one day if he chooses so when you use the word entrepreneur you might be mistaking what you're doing and actually you're a freelancer and this is the reason the distinction is so important if you're a freelancer and business is going well you're tempted to hire people to do more of the work as you say to yourself well this is great I get $200 an hour for this graphic design work and I can go hire someone for $80 an hour to do graphic design work keeping 120 and as I add more employees I'm starting to act like an entrepreneur which is all well and good except the cheapest person you can hire is you so when in doubt you hire yourself which is a problem because you just hired yourself to do the work and now there's no one left to get you new clients now there's no one left to figure out the strategy now there's no one left to raise money now there's no one left to raise build new offices so what you end up doing is having a nervous breakdown because as business slows down you do more of the work instead of hiring someone for $80 an hour you hire yourself for zero well great you're so busy doing that just barely breaking even that your business can't grow anymore and now you're neither a freelancer nor an entrepreneur so the first thing Mark Zuckerberg has to do if he's serious about Facebook it's stop coding because there are people he can hire to code so he doesn't have to do anymore and he can go do the thing that only the CEO can do and when you're a bootstrapper when you're starting with no money of course you're gonna hire yourself but the discipline of being an entrepreneur say how do I make it so that every person who works for me is better at their job than I am how do I make it so I have no job other than breaking the system because that's my only job everyone else has their job and when you think of the world that way when we think of Howard Schultz and Starbucks when you open a Starbucks or any coffee shop right it's a mom and pop mom and pop both work there it's working really well so they open a second one so now mom is over here and pop is over here where you get into trouble is when you open the third coffee shop because there's no one to run the third coffee shop Howard Schultz got to Starbucks when there were five and Starbucks was in really big trouble because they didn't have a scalable model they couldn't go from five to fifty because you couldn't guarantee that there was this cookie cutter industrial way to grow more Starbucks and so what Howard Schultz did that was brilliant had nothing to do with his ability to make coffee it had to do with his understanding that his job as an entrepreneur was to build a system that could scale because that's what people hire entrepreneurs to do investors to scale but to be a freelancer or an impressario so when does the work but doesn't build the organization is totally great and so I spend 80% of my time being a freelancer if it has my name on it I wrote it and I spend 20% of my time running an internet company as an entrepreneur meaning not only don't I code I don't remember how to code and every time I call one of the seven people work at Squidu I am hurting our productivity because I'm bothering someone who's actually doing a good job as I work to break the company right so those are forks in the road that we're going to be able to talk about too yes go for it you guys should interrupt me at any time yeah right so you know if there's if you've got three pizza shops and they're all working well you have a choice you can just keep them working and go to the south of France and they'll mail you a thousand dollars a week because you want the business or you can say for me get from three to thirty I'm gonna have to do something that might not work so I'm gonna have to take all the money and put it to advertising or a coupon so I'm gonna have to put a new menu in that breaks what was working and maybe makes it better but maybe doesn't and you're the only person who has the authority to do that you don't want the the behind the pizza counter coming in one day with a giant bag of raisins and making raisin pizza just because it's fun right that as you're structuring this business to grow your job is to figure out where it goes yes all right you can't totally read the business loan you need to know the things they're working right like Derek Sivers you know wrote about how you've left things along a set of degree that the employees paid themselves an interest in the products and on other things right so so the so the thought is you can't totally leave the business alone well the question is where's Thomas Edison when we need him he's long gone but GE persists that one of the myths we tell ourselves is entrepreneurs as they can't run without us Derek's only mistake was not hiring a COO or a president he could trust he what he said to the organization is use your best judgment I'm not going to look at what you're doing and he trusted people who weren't trustworthy and what he could have done what happens all the time is the founder says I have built a process the process scales right if you've ever bought Mrs. Fields cookies Mrs. Fields doesn't touch the cookie anymore she's not checking on anything anymore there's a process in place this is the industrialization of your original idea now I'm not saying that that's everyone's goal I don't want to do that but that is the model of classic entrepreneurship is you build an industrial thing and a scale stop one definition you have like it's businesses that you could leave it for a year and when you came back it would be bigger more profitable than you are right because you have this organic thing you plant a whole bunch of kudzu and you come back a year later and it's grown now we're gonna talk about lots of different flavors of businesses so I don't want you to think this is what I'm saying has to happen I'm just describing these arcs so let's talk about what the what a business is and what marketing is and why they're connected what you do if you're running an organization is your creating value and what that means is people are giving you money because they think what you're doing is worth more than it costs that if you're running a nonprofit and someone donates a hundred thousand dollars to the acumen fund they're donating a hundred thousand dollars because they think it's worth two hundred thousand dollars for the privilege to donate a hundred thousand dollars now if you realize that that's what's going on you understand that you almost have an obligation to make this available to people because they're the ones who are benefiting from buying from you. And if they're not, you need to make something better, right? So that if someone wants you to buy, you know, there's some big old compact computer with a handle on it that weighs 18 pounds and it's $500, none of us are going to buy it unless we're some sort of perverse collector. It's not worth $500. So if you're out there constantly bothering people and using every marketing technique, you can think of to push this on people and they don't want to buy it. Something is broken in the system that you've put together, right? On the other hand, when there's a line out the door at Grand Central Station to buy coffee, something is going on here. The coffee's four bucks. That's expensive if you live in Duluth. But if you're in Grand Central Station and you need caffeine, $4 is a bargain. It's worth six. So basically, there's someone behind the counter handing out $2 bills all day long because you're getting something for four that you'd be willing to pay six for. So how did they do that? Well, they have a monopoly. They have a monopoly on a brand name. They have a monopoly on a story. They have a monopoly on expectations and thanks to the MTA, they have a monopoly on that piece of actual real estate. There isn't a place right next door that sells coffee for $3. If there were, there'd probably be more of a line in front of that one. So again, what they've done so brilliantly is carved out attention and a system so they get paid all day long giving value to people. And so what's marketing, all marketing is telling a story about that value that resonates with people enough that they want to give you money. That's it. So one of the things you have to do as an entrepreneur starting out is figure out and we're going to go through a list of 20 questions in a minute. How do you tell the story? Who do you tell the story to? How do you create this value? Because if you can do those three things over and over and over again, you win. Thank you for listening to The Startup School with Seth Goden. Listen to episode two next week when Seth explains how he came to own a $40 billion t-shirt and starts to ask the group a series of questions that every entrepreneur should be able to answer. To learn more about Seth or to subscribe to his daily blog, please visit setsgoden.com. You can also find his books in any bookstore or on Amazon.com. This has been an earwolf media production executive producers Jeff Ulrich and Scott Alchemin. For more information, visit earwolf.com.