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Month: January 2020

Creating New Revenue Sources In Your Existing Business

One of the things that we frequently do as a startup is that while solving many problems within our own startup, we often come up with solutions that we feel can be also be provided to other startups.

We obviously do not make all solutions available to other startups, especially the core solutions that keep us competitive. But we don’t shy away from offering services that do not affect our core competitiveness.

Today, I wanted to share a story of how we ended up creating an ad network, despite having nothing to do with wanting to run an ad network in general.

One of the problems that all content websites want to solve is maximizing the juice out of their pageviews and visits without affecting usability and user experience. Since our websites heavily depended on driving traffic out of influencers, it made our primary audience acquisition a paid source. And our survival game was to maximize the revenue per each visit to be able to stay competitive for the paid audience acquisition.

During the process, we ended up testing 100s of different advertising partners, networks, RTB platforms etc. In the end we were able to create our own advertising waterfalls that out-performed most independent exchange bidding solutions.

Doing that not only increased our RPMs but also prepared us in offering this advertising solution to other publishers. Many of our publishers saw significant increase in their revenue, and we also created a significant side revenue stream without doing additional work.

As a bootstrapped startup, it is the responsibility of founders to explore all additional revenue sources like the one explained to create a sustainable growing business.

Turkey, Again

I’m travelling to Turkey, again. I first visited Turkey when I was 6 months old. My parents took me there. They have a lot of footage from our trip which I also recently got to watch again.

My father, who is retired now, spent a lot of time in the past few weeks trying to digitize all the VHS content that he had. He has found some success and restored a lot of that content.

My second visit to Turkey was when I was 25. Since then I’ve been there every year, at least once.

Turkey is what Pakistan could have been. It is also one of the potential countries suited best for digital nomadism.

The quality of life is miles ahead of what it is here in Pakistan. The cost of living is incredibly cheaper than most of the developed countries. In my opinion, cost of living is only 33% higher in the metropolis of Turkey compared to the metropolis of Pakistan. So, if you need $1000 to live in Pakistan, you only need $1300-$1400 to live in Turkey.

This slightly higher cost for a much better lifestyle makes it my favorite spot to spend some quality time.

Here’s my favorite video about Turkey.

What Is Private Label? And Why Are Some Products Superior Than the Others

Private label products are manufactured by 3rd parties and packaged by them to be sold under retailer’s brand names. A lot of e-commerce that you see today is simply private labeling. Many stores and brands often only come up with the product idea, theme, design etc and do not really go into the details of actually manufacturing a product.

Since there’s almost always a 3rd party manufacturer available that aces at manufacturing a certain kind of product, it’s often easier, better and cheaper to source and PL the products by them instead of getting into the manufacturing business. The store can then simply sell the product that they only had to design, or in some cases only had to design the packaging for.

A few days ago, I went to the barber. He was quite disappointed with the state of the health of my hair and so he began the process to up-sell his hair oil product that he had private labelled.

He started by asking me how often do I use an oiling product for my hair. He then asked me if I can do it more often; daily for a week. Until this point he hadn’t introduced his product to me. He went further on, and showed me this perfect product that isn’t available for sale in the market. It’s a private product that can do wonders, he said. He then opened the bottle and made me smell it; it smelled incredible. From his perspective, everything was going great. But he messed up.

The bottle label sticker was a bit blurry. The printing quality wasn’t up to the mark. And so he lost my interest. I instantly decided that he is just selling this normal oil with a heavy markup by private labelling it that you can get from anywhere. But, could he have kept my interest intact if the label had better printing quality? I think he could have had my attention for slightly longer.

In fact, if the bottle was made of glass, appeared like a perfume more than the bottle of a hair oil, had super high quality label sticker, I might have paid twice the amount than the one he was looking to get from me. Because I may have led into believing that this actually is a really high quality product that is not available in regular supermarket.

In this day and age, there are products for every problem there is. There are products for potential problems, that could be. And there are also products marketing the solution by forcing you to believe that there is a problem, while there isn’t any. What sets you apart is how you private label, package and market one of these products. It is what gives you that leverage to charge that extraordinary markup.

They say don’t judge a book by it’s cover. But they said that because that is exactly what an average human does.

How Hunger Drove Me & My Co-Founder To Success

Some of what I am going to write may feel insensitive to some readers. I apologize to them, but I will still write about it because it is the truth.

Yesterday someone called me to ask that he wanted to sell merch in the memory of Kobe, the basketball star. May his soul rest in peace. It reminded me of a story and that is what I’m going to write about today.

During the early stages of my work, I was trying really hard to make any kind of revenue but I failed year after year. My co-founder on the other hand, whom I didn’t know at that time, dropped out of college because he couldn’t afford it anymore. My family’s financial circumstances were better than his, so for me it was just the hunger to make it work. But for him, it was the actual hunger, that comes from not eating enough.

To fulfill my hunger to make it work, I used all kinds of opportunities to make money including trying to sell merchandise in the memory of celebrities who recently died. I tried all forms of click-bait for content that didn’t exist and then locked the content until user performed a certain action such as provide an email or phone or zip, for which I got paid. I did fake-news of all kinds. I did it all.

I feel no shame in writing about it today, because I think that’s what people do when they want it bad enough and it isn’t working. I won’t do most of that today because I don’t have to and I only want to work on good opportunities. But I probably would do all that again if I had to start over. Of course, I’ve always drawn a line. I don’t want to scam people out of their hard earned money, but I felt no shame in capturing their attention or wasting their time for money.

My co-founder on the other hand started his journey by scanning Pakistani magazines commonly known as digests in Pakistan; including Khawateen Digest, Suspense Digest etc and then published them online. Of course, an act of piracy, but he complied with the requests of the publishers, and only made them available for overseas Pakistanis. Eventually due to the pressure from publishers, he closed the website completely. He also feels no shame in this. He did what was meant to be done to be able to live and it got him the kickstart.

My co-founder was hungrier than I was. His hunger came from his drive to win as well as because it was a survival game for him. My hunger came from the drive to win only. He did twice as good as I did. Because he wanted it twice as much.

Today, we don’t have the same drive as we used to have. Despite having 15+ years of experience, we don’t perform on the same level as we used to do. We’re more knowledgable, highly skillful, more experienced, and less hungry. And we don’t do as good as we used to do. Hence, for me, hunger is the single biggest differentiator in killing it, or not.

Stay hungry. Stay foolish.

Retargeting Campaigns – What I Do With Them

I had a really busy day today. We successfully launched phase 1 of scaling for our new store. I also started retargeting campaigns today. For those who don’t know, retargeting is simply reaching back to the potential customers who showed some sort of intent to purchase your products.

Generally, I like to run 5-6 types of retargeting ad-sets including retargeting those who visited the product page, added the product to cart, initiated check-out, watched at least 75% of our video ad, and top 25% of the users by time-spent.

Recovering abandoned carts, and potential customers with intent is incredibly important. You’ve often spent 90% of your budget already to capture their intent, you just need spend 10% more to capture the sale.

I prefer running retargeting ads with photo creatives. Although I run almost all other ads with video creatives. Since the retargeting user group have already seen video ads, they just need to be reminded again about a product with a photo. This has provably worked for me and I’ve had tons of data to support this argument.

Happy retargeting!

Asset Allocation of Your Investments

As you start to build some wealth, you’re presented with a new set of challenges. You’d ideally want your money to work for you and make money in return and you’d at the very least like to preserve your wealth with respect to purchasing power i-e fighting inflation.

Asset allocation is a strange topic for me because I’ve received all sorts of advice here. The advice, however, varied the most depending on the wealth of the person giving the advice.

As a general rule, the richer you are, the more conservative you’re with your allocation. Really wealthy people put a large amount of money at work, for low-risk returns, generating a decent chunk of cash. While up and coming investors and younger folks are aggressive and put a large portion of their wealth to generate high-risk above average returns.

I’m not going to give specific wealth advice, but personally I design my allocation such that 10% of my investments can make up to a maximum of 90% of my returns and 90% of my investments can potentially make 10% of the returns for me.

It is also why I really like crypto class of assets and I think every person should experiment with 5-10% of their wealth for trying to achieve really parabolic results. While the rest of the wealth should be allocated in safer assets such as equities, bonds, real-estate etc.

For equities, I like to build lazy portfolios with 70% sub-allocation for US indexes, 20% for other developed-world indexes, and 10% for the emerging economies.

And like everyone else, a major chunk has to get into real-estate which is not only safe in the most cases, but helps with both capital gains and recurring income.

Bitcoin Halving & It’s Affect On The Price of Bitcoin

Bitcoin halving is approaching fast. It’s scheduled for May 2020. That is just under 110 days. Halving is when block reward for mining a block reduces to half. This happens every 4 years and it has a mega affect on the over-all economics of Bitcoin. Let me explain.

Roughly every 10 minutes, a Bitcoin block is mined. The miner or the pool of miners that mine the Block, a process needed to protect the Bitcoin network and confirm pending transactions, get rewarded for mining the block. At inception, this reward was set to 50 Bitcoins per block. 50 Bitcoins were given away as a reward to miner every 10 minutes. This reward reduces to half every 4 years. Right now it’s 12.5 Bitcoins per block. This reward will reduce to 6.25 Bitcoins per block in about 100 days.

How does halving affect Bitcoin? What is it’s significance? At the time of writing, an average miner spends approximately $5,000 in hardware and utilities to mine 1 single Bitcoin. The miner is then able to sell this Bitcoin at a premium in open market at about $8,300 which is what the Bitcoin is worth right now.

Almost always the open market rate is higher than the miner’s cost. If the open market rate gets lower at some point, the miners will not be able to protect the Bitcoin network and confirm transactions profitably. Which means some of the miners will discontinue their operations at that point. But the miners are also likely to stop selling Bitcoins below the cost hence miners in a way set the floor pricing for Bitcoin as well.

As the block reward halving happens in the coming weeks, the cost to mine 1 bitcoin will instantly jump from $5,000 to $10,000. As that happens, the open market rate is likely to float above the cost of mining. Add premium to that and we could see Bitcoin trading consistently above $10,000 may be even $15,000.

However, if the open market price is unable to catch up, some of the miners will withdraw operations to cut losses reducing mining difficulty, and pulling the price further down.

Why Lifetime Value (LTV) Is a Survival Game

As the ad costs to drive sales keep going higher, at some point you’ve to understand and work on the lifetime value of your customer. Otherwise, you’ll not stay competitive and will be crushed away.

You pay Facebook or other platforms a certain amount to display your ads to people who are interested in a certain “interest or a keyword”. At some point you realize that the cost per acquisition has gotten so high that after paying for acquisition cost, cost of goods sold, and other infrastructure costs such as fee for shopify/server and other plugins etc, you’re losing money.

Sometimes after optimizations of all kinds on the ad level as well as on the landing page, you’ll realize that you’re still losing money. How can that happen? How could your competitors by bidding so high? How can their business model work if they are spending higher than you to acquire customer. The simple answer lies in LTV: Lifetime value. And LTV should always be higher than CPA (cost per acquisition).

If your business model is designed such that you acquire a customer who would pay you once only, your revenue model is limiting you to compete. The reason why that happens is because your competitors are now betting on the lifetime value of a customer. They are interested in recurring purchases, subscriptions, and in summary to acquire user once, and monetize him again and again.

Other buyers of ads are bidding higher in order to purchase data that they can use later to either bring the bids lower, or use it elsewhere to generate revenue.

To conclude, in this day and age, if your business doesn’t account for the lifetime value of the customer, you’re simply not competitive.

Why Subscription Business Is a Good Buy

A few months ago, I spoke with someone who is quite focused on buying and then selling subscription businesses, primarily SaaS.

The fun thing about subscription businesses is that with bit of a work, you can increase the valuation by a lot.

Let’s dig down a bit to see the valuation at play.

Suppose there’s a subscription business with $9.99 monthly ticket and 1000 users. This business would generate $119,880 ($9.99 x 12 x 1000) per year. Assuming that the business has 50% margins, the annual net profits come down to $59,940. Further assuming that the small-cap internet businesses are valued at 4x annual net profits, this business would be valued at $239,760 ($59,940 x 4).

My acquaintance would buy this business like this.

He would then focus on trying to improve the basics for the business: optimizing the sales funnel, getting the optimal value out of the user by offering additional membership plans and up-sells, offering better customer support etc.

By the end of the optimization process, he would try to push the average order value to $11.99 instead of $9.99 and the user-base to 1100, up from 1000.

Upon revaluation, the business would be worth a lot more. Annual gross revenues would be $158,268 (11.99 x 12 x 1100). Annual net profits would be $79,134. And the new valuation would be $316,536; an increase of $76,776 or 32%.

All with minor optimizations.

What to Work On?

A few days ago, I wrote a bit about doing the right thing. The emphasis was that you shouldn’t just do things right, you should also do the right thing. It’s certainly important to do your work well, but it’s even more important to work on what’s more worthy of your time. That was a financial advice so you can identify the work that’s going to pay you off better in the long run. And I’d follow this advice if I’m looking for financial rewards.

But not always are we just looking for financial rewards. Sometimes we need gratification of other kinds. Like emotional gratification. And since the eventual goal is actually to seek happiness, sometimes this is even more important than simply achieving financial gratification.

As of lately, I only work on things that I like to work on and I never work on things that I don’t like to work on. I do this regardless of the financial rewards associated with either of the options. At some point in your life, you’re going to want to make that decision too. But when you do so, make sure your basics are covered.