Early Retirement Extreme Forums

Hi all,

Upon losing a fair bit of money over the last couple months I have been reflecting on various income stream options to speed up path to ERE.

Now of course the lines between an investment, a business and a job as well as the definition of "side" are blurry. For the purposes of this thread, I suggest we somewhat arbitrarily define a side business as an income stream that:
a. Has a clear pathway to requiring <10 hours of your time per month while delivering at least 100 times your hourly rate per month in pre-tax profit - to differentiate from freelancing or working part-time
b. Requires <20 hours per week for the first couple months to start (and the timing of these hours has to be at least somewhat flexible, mostly outside normal business hours) - to differentiate from a full-time startup business
c. Has expected cash-on-cash returns of above 100% p.a. - to differentiate from passive or semi-passive investments such as real estate (I realize this high hurdle rate of 100% excludes most capital intensive franchises as well - this is very much by design because I am looking for somewhat capital lighter options)

Very curious to hear from people who have built side businesses satisfying this definition (or at least tried to), what these businesses were and what lessons you learned. I'll go first with my not-so-successful experience and propose this format for the answers:

Side businesses I tried starting
With my friends I tried about half a dozen side business ideas over the last 3 years - some for years and tens of thousands invested, some tested in a few weeks with barely any money (say under $500 per idea) spent. I could divide them into three groups by the success of it:
1. Deep in red (1 project) - the first side project we tried building was a healthy sports nutrition brand - took ~2 years and tens of thousands of dollars before it became blatantly clear the market need is not strong enough to get to profitability.
2. Slightly in red (4 projects) - several ideas we tested relatively quickly and cheaply (for anywhere between $0-5000 and between 1-9 months)
3. Somewhat in black (1 project) - Amazon FBA store. Invested probably about a grand for initial testing, makes perhaps 10-15 grand per year in free cash flow now, but not counting the opportunity cost of time spent working on it which is still so far significantly above 10 hours per month

Key lessons learned (from success or failure)
1. Demand is everything - most ideas I tried did not get traction due to limited demand / no real market need / product market fit. This aligns with what data on startups in general suggests: https://www.cbinsights.com/research/sta ... asons-top/
Out of about a dozen ideas I tried, the only one which has at least somewhat worked was an Amazon FBA business selling products already on the marketplace so that demand is already known and you just need to find supply at a lower cost. Getting traction on a new business with a new idea has been very challenging - marketing dollars are expensive and without a real pull for your product, conversions do not pay for it.
2. Fail cheap and fast - which really is driven by the first point: if finding demand is the hardest part, your main objective with a new business idea is to test demand for it. If most ideas fail this test (and that's what both empirical data and my anecdotal experience suggests), you need to test it in the cheapest, fastest way. Learned this the hard way - see #1 above. In hindsight, there was a market test experiment we could have designed which would have given us 70-80% of the same information with probably 3 months and under $5k investment.

What are your stories, lessons and ideas?

Thanks for sharing your experiences, they are interesting. Can you explain criteria A and C for those who are not up to speed on entrepreneurial language?

Sure. Mocked this up quickly. Does it make sense?

Wow those are some tough criteria to meet.

Yes I have started such a business.

I sold some digital content that I created in an afternoon. Sold the same thing over and over again for 13 years on an SEO website I created also in an afternoon. Ran it on autopilot till recently when revenue really dropped off. I did a search and realized I picked up a bunch of competitors who put my content up for free as a click bait for ads. Smart guys. Rather than replicate their sites or improve my file I just shut this down. I averaged $3000 annual profit with almost zero expenses for a decade.

Thanks Sclass for sharing! 13 years of profits on autopilot is impressive longevity (and for a few afternoons' work!). What do you think enabled this longevity? Have you considered / tried building more businesses with a similar model and different content?

Regarding your point on tough criteria... Well if it doesn't meet criteria A, it's really just selling time, not creating semi-passive cash flows which is the purpose of a business. Then why take the risks of starting a business? Can just sell your time as an employee or contractor. If it doesn't meet criteria B, it is no longer a side business, just a business. And if it doesn't meet criteria C, then this is really more an investment than building a business, i.e. buying cash flows rather than creating cash flows.

Hey NPV,

Well it didn’t make that much. It was kind of an experiment. I was thinking at the time I made it I’d replicate the model and create a digital publishing empire. But, I got busy with work. The business was kind of a game to put parts on my old cars and buy a good lunch daily.

Around year two of the site my stock investment game took off. I guess it was always taking off but somehow when dealing with exponential systems you don’t notice what is happening in the beginning. So $3000 a year didn’t look like much. I realized I’d better focus on investing which at the time was out running my engineering salary. Just decided to set priorities.

I’ve run the site seven years into my retirement. It was just a game picking up my $10/day. I was shocked it lasted so long but things finally dropped off steeply this year. Could be google search or just trends. Maybe competition. I am too lazy to get to the bottom of it so I just shut it down.

I’ve lost interest in that kind of thing completely now. My focus has changed from accumulating to just living. I feel I’ve lost a lot of life focusing on money getting and saving and I think it’s time to stop hustling and try to relax (cautiously) my spending habits.

Thanks again for sharing Sclass! Makes perfect sense.

This question surfaces pretty frequently on ERE/MMM forums, and IMHO it's a bad question. Such business opportunities are rare to begin with, and generally perish quickly as the markets shift. For ERE in particular it's a fool's errand to pursue this sort of thing when you could be a. working on your skillset b. working to increase your income or c. working on decreasing expenses.

What you're really after (shown in the graph) is passive investments, so why not just focus on those?

Thanks for sharing Sclass.
I think these kinds of ventures are an interesting aspect of ERE and something I'm definitely interested in exploring as a way to diversify income streams. It's nice to hear that it's possible from someone who isn't trying to sell you something. =)

plantingourpennies wrote: ↑

Sat Apr 27, 2019 9:39 pm

What you're really after (shown in the graph) is passive investments, so why not just focus on those?

This is what ultimately stopped me from doing more e-commerce stuff. It just didn’t make enough money for me to care about once my investments started really taking off. Eventually the same thing happened to my day job. It just didn’t make sense showing up to work anymore.

This would be very different if I could make a website that generated 100x of my $10/day. But it was elusive for me.

When I look back on the last twenty years I realize doing this stuff was kind of a distraction. It was fun being treated to lunch every day though. I recall my engineering coworkers suggesting I brownbag to save money. They even pointed to this poster in our break room showing what a lunch out each day costs you by retirement at 65. From Fidelity I think. Didn’t apply to me and I retired at 43. I’d say under my breath that there was indeed a free lunch as I’d stroll out.

But yeah, I get it. I probably would have been better off focusing on investing. The business showed me some interesting things though. Like how to use a nearly free resource like websites and search to make a micro cash stream. If you have the creativity and vision you may be able to obtain above average results too. It really depends...like everything.

I'm making, after split with partner, about $500/month with side project. I've put in a serious amount of time -- like ~6 months full time on it and then maybe another 6 months part time (hard to estimate). I would chalk this up as a failure* at this point -- it takes too much time and is not growing rapidly enough to change my life. So I should can it and move on to something else. Involving a partner (also a friend) has complicated matters. I would go about things differently there.

Outside of pure money, it has given me experience that I value and overall I'm happy I did it. I'm going to let it keep going longer as it doesn't require tons of ongoing time -- I'm just limiting my work on it to fixing bugs and small changes.

I agree with Augustus that everyone will tell you that you will fail. And they are probably right. But you do have a chance of succeeding and it's not really useful information. Most people are too afraid to take the risk of failing and will never give themselves the chance of success. And even a failure has some upsides so... If you want to do it, do it. Just be smart about it and don't make it something that will ruin your life if it doesn't succeed.

My future attempts will be different than my current one in these ways:
- narrow focus instead of building a huge system
- simple as possible (self-supporting as possible, cheap enough that those that can't figure it out just move on)
- low price point, thousands of users direction instead of 10-50 customers at higher price point
- not in education field
- fail fast-ish -- fast if requires lots of time/money to keep going, willing to go for long tail if it's not too bad on time and money
- probably by myself -- no partner unless they bring professional experience in the area they would contribute in
- simple enough to have time to get multiple running at same time (ie 3-6 months to #1, then focus on #2, etc) with idea being trying out ideas more quickly and having less investment in any single one until see traction
- growth path that does not require professional sales person/team (at least at first)

Things that I would do the same:
- keep ongoing costs low so use affordable hosting/services
- focus on what is shipped so focus on getting things out the door not getting them perfect
- in code, repeating same patterns even if realize flaw (so later can come back and refactor that one pattern)

[*] It could still succeed however it is going to require some "learning on the job" by my partner. Part of this is my fault as I assumed they had some of the same basic understanding of how to grow a startup and how much hustle was required. That assumption was wrong on both counts. Also, the sales cycle is very slow with this product. So if my partner figures out how to do sales, maybe it'll succeed.

@Augustus I agree 100%. I am definitely at the dragging on stage with my current business but for my friendship, I suspect I need to give it a little more time to fail. So I've curtailed my investment of time (now only doing work to keep it afloat so bug fixes and minor things -- no new features).

By the way, do you think that when you get to FI, you will continue trying to do side projects? Do you think you'll still have the motivation if the financial need is gone? I wonder about that for myself. I suspect I will because I enjoy working on technical things and making money. But I could also see the motivation dropping.