Improving your financial situation substantially compared to where you are today can be done in many different ways, here I’ll outline three of them and one of those three in a lot of detail.
Of course there are many more roads, think of this article as a general map. In the end, money is a tool, not a goal in and of itself, but by temporarily declaring money the goal the discussion gets simplified to the point where you can measure your headway in a very straightforward manner.
This is a pretty long article, so I’ve chopped it up in to sections to make it a bit easier to read.
In order to make sense here I’m going to have to arbitrarily define what ‘the top’ means, and I’ll do it in such a way that it relates to what I think is ‘the top’, you may of course vary your definition - however that may invalidate some of the text in here. Also, this worked for me, for a substantial part of my life to date, and for quite a few people around me and that I have knowledge of, but just like the stock market: “performance in the past is not a guarantee for performance in the future” so beware.
I’m going to take the simple way out here and just define the ‘top’ in monetary goals, though I actually have goals that are quite different than this which has to do with ethics and other such ‘luxuries’, but to simplify the article I’ve left those aspects out completely, it is long enough as it is and those aspects are likely non-transferable anyway.
To me ‘the top’ means that:
- there is bread on the table, every day
- it is there even if I don't work for an extended period
- it is there even if I die to supply my dependants
- it will sustain itself through periods of economic turmoil
- it leaves a surplus available to do interesting stuff
That’s it. Doesn’t sound impossible or too much to ask for.
Essentially there are three ways to achieve this, the first two lead to a path that is mostly governed by a combination of luck, timing and other external conditions. Of course, skills and such still matter a lot but skills can also be hired and I’m aiming this at those without the funds, luck or the timing, but in the possession of solid skills, and not much else.
Examples of people that took the first ‘road’ to the top (it’s more like a rocket ride, and the top is considerably overshooting my personal goals) are Bill Gates and Mark Zuckerberg. They’re both arguably very smart people, but by definition there can only be a very few people like that, their methods don’t scale, even for people that are just as smart or smarter. You could ‘emulate’ them in the finest detail and you’d never get there.
The second road to the top is to play the backed start-up lottery, to apply for Y-combinator or any other accelerator and to throw your lot in with the rest of the happy few in Silicon Valley to come up with the next best thing backed by external funding in order to gamble all and possibly make it. The chances of success on this secondary road are considerably higher than the first, even if the successes themselves are (usually) a bit lower.
There are enough common elements between the first two roads that some people might consider the ‘first’ to be the most successful players on the second, but I think that those that come from or operate in an environment with large amounts of capital floating around are playing from a different playbook than the typical start-up.
The second road is also somewhat location limited, Silicon Valley is the place to be if you want to achieve real success this way. Frustrating, but true. In other places in the world it is possible to pursue this model but considerably harder to succeed. Founding a start-up from nothing and working insanely hard for a few years of your life in the hope of making it is a viable strategy when you’re able to risk all, possibly even your health (though if you heal again, some might consider that worth it).
On an annual basis this gives several hundred people their ‘road’ to the top, but only relatively few of them actually make it. Every time some start-up ‘exits’ some people are delivered by this ski-lift to the top of their personal mountain. Some will use this as their arrival, others will go on to higher heights still, some will fall back, some will pick themselves up, and some, alas, will never recover. The second road is pretty brutal, it’s very high pressure.
If you’re Zuckerberg or YC material, go do that! Don’t let any of what I write here take you off your path, I’ll be most happy to see you succeed by whatever means and faster is better, right?
But still, that leaves several hundred thousand people (if not millions) that would very much like to get to the top somehow, but all the rockets and the ski-lift seats appear to be taken, now what?
2. The Third Road
The third road to the top is considerably longer than the first two. It’s not even a proper road, it’s a seemingly endless series of switchbacks up that steep mountain side. The one word that describes it is probably ‘gruntwork’. It looks like going that way will take forever. In practice, it doesn’t actually take forever, but it sometimes feels that way for sure. By my measurements, it takes about a decade. So, if you thought you were going to get it for free or in three weeks, you can stop reading now. TANSTAAFL.
The only way to short-circuit the process (as a techie) without taking one of the three roads or something equivalent to achieve financial independence is to become a criminal, and most people fortunately don’t have the sense of entitlement that will drive them on to that particular shortcut. I’ve known some people that attempted this, two are dead (one of them was a nephew of mine, shot by his ‘best friend’), three have been in jail, none that I know of succeeded. Ymmv, I’d advise against it, for ethical reasons and because there somehow seems to be a negative effect on your potential lifespan and ‘go to jail’ seems to be a real possibility instead of something from a Monopoly game.
The third road, however, is doable. It’s not without risk, but the risks appear to be manageable. Even being a little bit ‘up’ the mountain already lightens the load on your shoulders, and it will have a markedly improved view, this only increases as you travel further along the path.
Occasionally you’ll come across fellow travelers on the way up, and you’ll find that there is enough common ground to band together as a team. You’ll have to overcome your differences to a much stronger extent than is typical in a start-up thrown together for the occasion. 37signals is a nice example of a company like this. Or maybe you won’t and you’ll simply go it alone. Maybe collaboration like that does not fit your personal style or even your person, or maybe the opportunity simply never arrives. That doesn’t matter much though, though having travel mates may shorten the time and increase the pay-off it also increases some of the risks so there is definitely a trade-off worth considering here.
The trick to successfully travel on the third road is very simple:
I know that sounds corny as hell, but those that falter on the third path seem to have collectively missed this very important little detail, one day they stopped moving, short of their goal. And as long as you haven’t achieved that goal the deck is stacked against you to such an extent that you’ll probably slide backwards slowly. Taxes, inflation and a whole pile of other little gotchas continuously conspire to slow you down or drag you back.
Every day you will have to move forward, not much, but enough to tell yourself that it was a day well-spent. For me, personally that’s crucial. If I don’t have that feeling at the end of a work-day I don’t particularly like it. And measuring your progress on a day by day scale may seem like it is an impossible thing to do, but actually in concrete terms it is quite easy, for me a day with progress is:
- a happy customer
- something learned
- more money in the bank
- someone that I helped (this will be my downfall one day)
3. Tools and Strategies
To make it to that proverbial top in a way that is repeatable and sustainable requires the identification of components that you can ‘plug in’ at will based on your skill set and opportunities that come along on the way.
The basis is to ‘keep moving’, and my personal tool set looks like this:
- a base income to cover costs of living, taxation and inflation
- some source of passive income
- some reputation based income to stay in touch with real world customers, preferably business to business, this also serves to get your name out to new prospects
- free time enough to pursue slightly higher risk items but in a way that the only thing I risk is the time that I put in
- free time enough to learn
I couple these with several other strategies that help me to avoid doing ‘steps back’, this wasn’t always successful so caveat emptor, but it’s as candid a viewpoint as I can give you:
- don't change your lifestyle until changing it has no effect on your progress
- don't take more risk than you can comfortably bear
- be honest and candid
- don't sink so much time or money in to something that you are scared to kill it
- do the very best job that you can, no matter how trivial the job itself
- don't put up with nonsense (life is way too short)
- don't engage in politics (live by the sword, die by the sword)
- don't throw out a source of income until you've got a replacement that is just as good or better (and if you can, don't throw it out at all!)
- try not to shift the goalposts until you get to the top
- take responsibility for your actions
- work on improving your skills, all the time
- make sure you enjoy what you do, otherwise it is not sustainable
- be realistic about your goals and limitations as well as conditions around you that shape the ecosystem you work in
- wishing it is so does not make it so, simply be yourself
- don't cheat. Reputations are built up over years and can be lost overnight
- make money with your partners, not off your partners
- if you get screwed, let it be, revenge is costly, you likely can't afford it
- only sue if you are 100% sure of the outcome, the damages are substantial *and* can be recovered from the party sued
The combined effect of the ‘components’ and the ‘strategies’ is to work as a ratchet, what is won (normally) stays won and the road gets easier to travel.
4. Practical application
Now lets see how you might go about implementing all this in practice. I’m going to write the next section strictly from a ‘computer programmers’ perspective because that happens to be what I am, but I’m sure that for other people you can plug in skill-sets and vary the theme accordingly and still come up with something that makes sense.
- base income
- a day job (yes, that's just fine and dandy)
- a consultancy business (slightly better paying, slightly more risk)
- a boot-strapped start-up providing a service (b2b)
- some source of passive or nearly passive income (this is where your branding efforts should be concentrated)
- licensed software that solves a unique problem that you've identified
- a website that's advertising / affiliate driven (b2c)
- a website that is subscription driven (b2c or b2b)
- reputation based income
- high fee consultancy, no cure no pay
- trouble shooter
- domain expert
- free time enough to pursue slightly higher risk items but in a way that the only thing I risk is the time that I put in
- new projects that are as yet unproven but that might end up as sources of passive income
- diversions in to unrelated fields, trying to 'cross port' as much knowledge as you can
- free time enough to learn
- read! (and don't ever stop doing that)
- read! (and not just in your own subject!)
- talk to people that know more than you do about a subject
- don't be afraid to ask, to show your ignorance
Initially you’ll be dependent for your income on sources that are listed in the first group, over time a larger and larger portion of your income will come from sources that require less time invested per amount of money earned, which in turn will free up time to invest allowing you to slightly accelerate the process and so on. There is definitely a feedback loop at work here and if you pay close attention to which part of your money comes from where and goes towards which expenses you may be able to reduce the time it takes you to achieve your goals considerably.
Inevitably, there will be setbacks. Not every day will be a step forward, some of them might actually be a large number of steps backward. Here is my top-3 of setbacks that I’ve managed to work in to my schedule, to date. Each of these has been a major detour on the way to the top. But, I trust in my skills and this method enough that I don’t doubt that even though they slowed me down it’s not going to make a huge difference in the end. Instead of on the 10 year path, I’m now probably on the 15 year path.
If you can avoid these mistakes then you’ll probably manage to do considerably better than I did. There is plenty elsewhere in this blog about things that I did wrong to date, but let me give you the three ‘highlights’:
- took too much risk At some point I ignored my own ruleset and I took more risk than was responsible. Bad move, and retrospectively easily avoidable. I try to do better now.
- burned out I thought I was close enough to the top that I could get there with a sustained burst of energy, but my batteries ran out and I'm still paying the price of that mistake to some extent today. Please don't do this. Keep a healthy balance in your life. Better to go slower at a sustainable pace than faster at an unsustainable pace, the top is always *just* a bit further away than you think it is.
- divorced This is also one you really want to avoid. It hurts a lot of people and if you're a nice person it will significantly upset your plans
6. Negotiating from a bad position
Especially in the beginning you may have to negotiate from a position that is less than helpful in obtaining some kind of deal.
Negotiating from a position of strength is hard enough, but from a position of weakness it is much harder still. You could try to puff yourself up to look larger than you really are but I’d advice against it.
If you’re desperate, so be it, you may just have to take that job at a lower price (if you can’t afford to walk away, don’t), or you will have to play hardball and risk going hungry.
Both are valid options. But an experienced negotiator will spot a poser or a bluffer in a heartbeat so be prepared to follow through when choosing the latter. A failed bluff will make you come across as inexperienced, insecure and possibly not to be trusted, and once discovered like this you will likely receive no quarter.
Far better to come right out and say “I need the money” and still refuse to compromise, in the confidence of your knowledge, skills and contributed value. The only thing that matters is that the other party believes that you’ll walk out on a deal that is not to your liking, not that you manage to give them the impression that you are in a different position than the one you are really in.
And the only way to convey that is to mean it, so if the deal isn’t good, walk you will. That’s strength for you, bluff poker is for when you can afford to throw money away or leave it on the table. Anything else is fundamentally dishonest and will come back to haunt you when you’re found out, your reputation will take a dent.
7. Reputation and Brand
Don’t overly concentrate on ‘being a brand’, concentrate your achievements and skills instead. And don’t confuse a brand with a reputation either. Let me give a definition of a reputation and two examples here to make sure you realize that there is a small but crucial difference between a (personal) brand and a reputation.
A reputation is the combined strength of the track record (achievements) of a person or organization.
A brand exists outside of the person(s) that created it, and that can be sold independently of that person.
Peter Norton is a person, the Norton Utilities was a brand build around that person. Peter was a ‘great programmer’ in the eyes of many other programmers (rightly so) and he leveraged that reputation into establishing a brand. It was a real brand, even though it carried his name and because of that he was able to sell his company without selling himself right along with it. A brand is an ‘asset’ on your balance sheet, it has independent value.
But anybody that trades their time for an X amount of money is creating a reputation, not a brand, not even a ‘personal brand’. They’ll never be able to sell that asset to another party, and if something were to happen to them the reputation would instantly disappear. Tying your person to your branding attempts is a very easy trap to fall in to and when the time comes to divorce yourself from your creation it can be a very hard wake-up call when you’re asked to sign on for another 5 years if the deal is to go through, especially if most or all of the value you’ve created is located in you, and not in your corporate entity.
Dentists for example are somewhere in the middle, they have a customerbase that is loosely tied to their place of business and person, a dentist can sell his practice but there usually will be some change to the customerbase when the business gets transferred to another dentist. When the work you do is tied to your personal reputation the ‘transfer’ fraction is 0, when you operate a convenience store it is probably close to 100% (at least, initially).
As you get higher to the top you’ll find that your ‘sources of income’ will shift, and that the pace will accelerate. What seems hard in the first year seems effortless in the third, a mere joke in the 10th. And who knows, you might find a short-cut. All in all the 10 years is roughly the average from what I’ve seen in the people around me that ‘made’ it without a tremendous amount of luck or access to outside capital, starting from 0 with nothing to show for themselves but the shirts on their backs and their skills.
Sometimes it’s possible to ‘switch roads’, to get yourself on to a faster path after plugging away on the low road for a while, so don’t take the three roads analogy too literally.
Sheer elbow grease and stamina, plugging away day after day. No magic bullets, no tricks. It’s not very sexy, I’ll admit to that, and it isn’t in any way unique. It’s not going to get you on the cover of Time magazine. But it works, it is repeatable and it works well, and there is plenty of room on the trail.
Should you pass me on your way to the top, say hi. And should I pass you, or if you feel that I’ve passed you, don’t hesitate to ask, if I can help I will, helping fellow travelers is one of the joys of taking the slow road.
best of luck and remember to enjoy the view!