In college I first heard Jason Fried from Basecamp talk about how making money is a skill—like playing the drums or piano—that you can get better at over time. That resonated with me immediately. I wouldn’t expect to be able to sit down at a piano for the first time and immediately play a concerto.
We could outline the progression to mastering a musical instrument, so we should also be able to do the same with earning a living.
What lessons do you need to learn to go from odd jobs around the neighborhood to owning a real estate empire? From working as a freelancer to selling your own digital products? What about from working at Wendy’s to owning a SaaS company earning over $1 million per month? That last one is my own path.
There’s a reliable progression that anyone can take to earn more and build wealth. In fact, I like to think of it as a series of ladders side by side. Each one can climb to different heights in both the quality of business and potential earnings.
In this model the potential earnings increase the higher up each ladder you climb. They also increase as you move left to right to more advanced ladders. But the difficulty increases with each move as well.
Each step requires that you learn new skills to overcome those new challenges. Let’s break down a few of those skills and opportunities at each stage:
Our first ladder is trading time for money. This is how most people you know earn a living. It may start with an hourly job working for Starbucks, but then transition into a salaried position working at a company.
At the most basic level you need the skills of:
Every job, even the most entry level, require those three things.
Then in order to take the next step up the ladder you will need to specialize in certain skills (design, copywriting, legal, becoming a nurse, etc) to gain a salaried position.
If you choose to make the jump to the next ladder of running your own services business there’s an entirely new set of skills you need to learn that build on the last step. Things like:
Looking back there are so many things that seem easy and intuitive now (such as filing for an LLC with the Secretary of State) that were daunting to me at the time.
This is also where many business owners expand beyond their ability and start to lose the lessons they should have mastered from the previous ladder like being reliable and showing up consistently. Which is how a friend of mine with no plumbing experience bought a small plumbing company and doubled revenue in the first year with two simple changes:
As business owners we underestimate just how much there is to learn so we get overwhelmed and start dropping the ball on the basics.
Up until now each sale has been made by talking to customers or an employer directly in person or over the phone or email. But to truly reach new levels of income you need to learn a different lesson: how to sell without ever talking to the customer.
Our goal is to scale sales to new levels. That means removing every possible bottleneck. On the productized service we’ll remove the sales bottleneck, then on the next ladder we’ll remove the product delivery bottleneck.
A productized service is when we take a set offering (e.g. search engine consulting) and bundle it up as a set offering with a fixed price (an SEO site audit for $1,000).
A few examples include:
Because the project scope and price are fixed the service provider will make more on some projects than others, but the profits will average out.
On this ladder we need to learn:
If you choose to move further up this ladder you can add recurring revenue and employees to scale further and add predictability. For example, my brother-in-law Daniel used to edit any video for $30 per hour, but now he’s launched a recurring productized service to edit up to four vlog episodes per month for $1,000.
First he answered the question, “how many hours will this take?” by moving from hourly to a fixed per video cost. Then he clarified exactly who it is for by specifying vlogs, rather than just any video. And finally he made it recurring by moving to a monthly price, rather than a per video price.
Now he has a predictable income stream from a handful of clients and a waiting list for those who want to sign up when he has more availability.
A productized service works to remove the manual work from making the sale and selling a full product continues that trend by also removing the manual work from delivering the product.
Physical products fall into two categories: handmade and manufactured.
A product takes far more work to create up front, but then each individual sale and the fulfillment of that sale happens without much (or any) additional effort from the business owner.
Examples include:
At this stage there are an entirely new set of skills you have to learn in order to sell products in bulk:
That’s just a few of dozens of skills you’ll need. With that intro to the ladders of wealth covered, let’s turn to principles that will help you navigate this new concept.
On a recent trip to Seattle I talked to my Uber driver between SeaTac and downtown Seattle. The conversation ranged from travel, our favorite islands in Hawaii, his love for music and gadgets, what he does for work, and why he’s driving for Uber on the side.
He has a solid career working downtown for the City of Seattle and Uber allows him to earn a little extra on the side driving a couple mornings a week. It’s fantastic that services like Airbnb and Uber allow those on with a set salary to earn more on the side.
So what was he spending this extra money on? Well, he loves gadgets and wants two things:
Those are both super fun purchases and it’s great he’s able to work extra to make those happen. But it reminded me of why most people don’t build wealth: increased earnings never go into wealth.
All across society extra money—whether from a raise or working extra—disappears into lifestyle inflation or temporary purchases, when it could be put to work so much more effectively.
The drone would be really fun, but there are so many small parts and fancy electronics that it’s bound to break after a couple years—and that’s if you don’t fly it into a tree before then.
If you want to build wealth that thousand dollars should be spent on new skills or invested in the stock market, retirement accounts, or another business, rather than burned on the latest gadget.
At ConvertKit we run one of the largest affiliate marketing programs of any SaaS company, bringing in nearly half a million dollars in revenue each month. But it’s a pain. None of the software available to manage these systems works well and as a result we spend at least one day a month doing manual work.
My brother-in-law, Philip, saw this manual work and decided to build a better platform for SaaS companies to run affiliate programs. His new tool, called LinkMink, is gaining traction, but still early. After working on it for nearly two years he can’t help but feel frustrated he and his co-founder are only at a couple thousand a month in revenue.
I can relate to this. 2 years into starting ConvertKit we were at the same level. It sucks how slow SaaS can be.
But then I started thinking about Philip’s path. He’s got a bachelor’s degree in business, has worked as a designer, then as a software developer. Then he started working on LinkMink.
His path has been:
Okay, so far this is great. On our income-earning ladder he has gone from the first rung to the second and done it quite quickly. In just four years going from an entry-level position to a fantastic salary.
Somewhere in there he also did a little bit of contract design work, so he picked up the basics of invoicing, finding clients, and marketing your services.
So let’s look at his next step, which was too… Start LinkMink.
Starting a software-as-a-service app isn’t the next step on the spectrum. Hell, it’s not even in the next 10 steps!
Running a SaaS company is incredibly hard with so many moving pieces: development, servers, customer support, legal, payment processing, etc. No wonder it’s taking a while!
It’s not that he can’t do this or that he even made a poor choice in jumping to this step: simply that he has a lot of lessons to learn and he chose to learn them all here, rather than slowly in incremental steps throughout the journey.
Because of that, he should set his expectations that this will take longer and feel harder than it does for other people.
Those downsides are balanced by the fact that it can also have an incredible reward because recurring software is one of the greatest business models on the planet, which is why acquiring companies and investors will pay an incredible premium to own them.
My friend Patrick bought a house that needed plenty of work and immediately dove into renovating it himself. Since he works construction full-time he was well equipped with the skills to transform this fixer-upper.
But the real magic and value wasn’t in the main house, which he is remodeling for his family, but in a detached 1-car garage that is accessible from the back alley. Originally this building was so run down that you wouldn’t even park a car in it, but after 6 months of work on nights and weekends Patrick renovated it into a beautiful little 300 square foot studio apartment.
Just a couple hours after listing it for rent on Airbnb he had his first booking. His first month booked up immediately generating over $1,800 in revenue. When combined with his job working on a construction crew, this new revenue stream was a 50% increase in his monthly earnings.
Because Airbnb already exists he has a product to sell (a cozy place to stay), in an existing marketplace, to a steady stream of buyers.