How much was Tim Ferriss really making from his supplement business?

1/20/2011 -- Update/Request: For some reason, this post is attracting a number of readers from Australia. If you have plans to be in the Perth area in the near future, would you mind dropping me a note via this form? Thanks a lot.


The figure I remember from the book was $40k per month. In this thread on the forums of Tim's Four Hour Work Week site, commenter "Kamakiri", who apparently has launched his own knock off (Game Brain) of Tim's former supplement business (BrainQUICKEN), says the facts suggest Ferriss couldn't have been generating anything close to those revenues from his supplement business. Some excerpts from Kamakiri's analysis:

Page 8 & 16 mention 40k, page 7 mentions 40% profits. No referencing of either together or in relationship with BrainQUICKEN (which he sold earlier this year). Read closely and Tim also mentions 30k, 60k, and 70k in other places.

Heck, if you were making a half a million a year at 40% profits, a normal business offer would be 10 years profits plus assets. That would value BrainQUICKEN at well over a mil and a quarter. Who in their right name would pay that for a business that Tim tells how to copy?

[...]

Bodybuilding.com has over 8,500 products. 1.2 million members with a 10% conversion rate (a gift there, should be about 2-3%) makes 120,000 purchases.

120,000 purchases /8,500 products = 14 sales for BQ off that site.

The hits to Tims's old site are easily conformable. This is the internet here people. Do the math yourself, and anyone can quickly see that BrainQUICKEN does not generate anywhere near that income.

[...]

Bodybuilder.com is pretty straightforward. Go to the site and pull the numbers off the top page. Simple math tells you he isn't making much there. Check the page views per month on BQ. Those numbers just don't add up to anywhere near 40k.

[...]

Having that many references, 30k, 40, 60, 70k... with out being more specific hurt his credibility in my opinion. It is carefully worded each and every time he mentions a figure. As it is written it is straightforward, but it does lead people to believe that Tim made 40k in income every month from BQ. Even a cursory view of easily verifiable numbers shows that this can't have come from BQ (not to mention zero spending on google ads).

[...]

I also researched the heck out of the business model in developing GameBRAIN. That is when the cracks in Tim's muse story came from. They say imitation is the sincerest form of flattery, but after imitating BQ to a certain extent, it was like an onion. Lots of good layers to dig through, only to find a few rotten ones.

At this point in our discussion, I asked if it were possible if Ferriss could have generated $40k per month in sales if that were mostly from retailers buying his product in bulk. This was Kamakiri's response:

The idea of buying in bulk from the site doesn't work because it never had that option. Besides, it is harder than hell to get retail space. An example of this is Mana Potions. Those guys do something near BQ by selling an energy drink for gamers. They have a serious team of salesmen, campaign girls, convention booths, and even a treadmill hooked up to WoW with timed runs from point to point across Azeroth (sp?). They have a tough time getting into stores, and the market for those products is tiny. Compare that to the supplement market (8,500 products on bodybuilding.com alone), and you can imagine the sales force that he would have to compete against. Retail profits are also nearly non-existent. You are looking at a few dollars in margin as opposed to the $60 or so he makes from the site.



That aside, outsourcing 10,000 bottles a month just doesn't work. 500 cases of 20 @v $4 profit a bottle. The logistics are out of the scale of anyone working less than 40 hours a week.

Tim Trunkated

From the "new to me" file, here's Penelope Trunk on Tim Ferris, posted on her blog earlier this year, "5 Time management techniques I learned from years of hating Tim Ferriss". Excerpt:

1. Don’t hang out with people who don’t respect your time

This all started at SXSW conference in 2007, right before Tim's book came out, when he was promoting the hell out of it to bloggers. Of course, this was not a bad idea, and to be fair, Tim was brilliant to start this book marketing trend. But that is beside the point. He approached me after my panel and said, "Can I get you coffee? I'd love to talk with you."

I said, "Uh. No. I have plans."

And he asked who with.

I wasn't really sure. I knew there were cool people to hang out with after my panel, though, and I knew he wasn't one of them. I gave a vague answer.

He said he was also meeting three people, and he name-dropped them. I can't remember who they were. But they were fun, interesting, and I wanted to have coffee with them. So I said okay.

Then Tim couldn't find them and I had coffee with only Tim.

Then I realized this was his strategy all along.

I told myself not to be pissy. I told myself bait-and-switch is the oldest sales tool in the world, and it's my fault for falling for it.

The Non-Starters

In a post last December ("Questioning the Conventional Wisdom about the Benefits of Microfinance and Encouraging Entrepreneurship"), I mentioned an article by Scott Shane in The American in which Shane poured cold water on U.S. policies that encourage Americans to start small businesses. In that post, I mentioned that the article wasn't available online, but prompted by a discussion on the forums of Tim Ferriss's Four Hour Work Week site, I looked for it again. It's available online now: The Start-Ups We Don’t Need -- Are we encouraging the creation of too many low-productivity businesses?.

What reminded me of Shane's article in the 4HWW forums, was the number of "me-too" businesses ("muses" in the 4HWW parlance) proposed there, e.g., high-priced e-books about how to pick up women, or how to get rich, etc. To be fair, there has been a minority of clever niche business ideas mentioned there too. For example, a teacher in the Midwest, after trying unsuccessfully to find study aid materials for a mandatory statewide algebra test, decided to create them himself for his class, and then made a business out of it, selling it statewide.

The illustration above, by Dave Plunkert, accompanied Shane's article in The American.

Adventures in Outsourcing.

In his book The Four Hour Work Week, Tim Ferriss extols the benefits of outsourcing and, as an example, quotes Esquire editor AJ Jacobs describing his experience working with a virtual assistant named Honey, from one of the leading Indian outsourcing firms, Brickwork:

When I open Honey's file, I have this reaction: America is f*cked. There are charts. There are section headers

[...]

If all Bangalorians are like Honey, I pity Americans about to graduate college. They're up against a hungry, polite, Excel-proficient army.

Apparently, they're not all like Honey. Here's my recent experience with this same firm. Last Thursday night, I requested a quote for a fairly simple project, the creation of a couple of spreadsheets of stock information. I got an e-mail back a few hours later, telling me they would get back to me by Sunday night with a quote. Still no word from them.

My guess is that Brickwork didn't have much bench strength, and when the inquiries came in from the readers of Ferriss's best-selling book (Brickwork's website asks if that's how you heard of them), the firm had to lower its standards in order to staff up.

Last Thursday I also contacted another Indian outsourcer Ferriss mentioned, Your Man in India. First I tried to request a quote via the "ask us" feature on the company's website, but got a server error, so I e-mailed the company instead. They referred me to their sister company, Get Friday, and someone from that company wrote back to say my request was beyond the scope of their abilities.

India is still in the running though, as I'm currently corresponding with an Indian individual about this project via Elance (in all, I received 5 proposals from India, 2 from North America, and 1 from Eastern Europe for this project).

Dean Kamen on Health Care

From an interview with the prolific inventor in Popular Mechanics (HT: Megan McCardle):

Popular Mechanics: Yet health-care costs do keep rising. Is there a point at which we simply can't afford the most advanced treatments?

Kamen: Diabetes alone, if you include all of the long-term, insidious consequences of a lifetime of diabetes, is responsible for about 30 percent of the federal reimbursement for healthcare. Taking care of the diabetic every day is a small piece of it. But what if tomorrow we could wipe out diabetes, suddenly everybody takes a pill and it cures the people that have it, and it inoculates the other people so they'll never have it? Forgetting what a great life that would give people and their families, you take care of 30 percent of what now we project as this insurmountable problem of healthcare, which they project is going to kill us.

Well, it would kill us if we look at the 30-year actuarial data based on our 19th century confidence in technology. But I'm sure in 1920 if you asked actuaries to say what percentage of our GDP are we going to spend taking care of people with polio, they'd say: "They get polio, it goes to their lungs, they sit in iron lung machines, they could live a whole lifetime with three people watching over them. We can't support them all."

But what did it cost to deal with everybody with polio? Oh, $2 apiece. We gave them the Salk vaccine. But in the 1920s Salk wasn't around yet.

I'm with Kamen on the importance of market incentives in spurring innovation in health care, but I don't know if the Polio vaccine was the best example for him to use here: Salk refused to patent it¹. Nevertheless, even if he had patented it, the cost of the vaccine could still have been far less than the cost of keeping people alive in iron lungs, so Kamen's point still stands. He could have used a better example though to support his point. Back to the interview:

PM: In other words, R&D spending now may save money later?

Kamen: If you project forward these horrific costs of treating everybody and you want to assume we are not going to respond to that by making the therapies better, simpler and cheaper and in some cases completely wiping out the [diseases], well you know what? We might actually get to that situation—if we stop investing in technology, if we stop believing that the future ought to be better than the past.

If we want to sit here and keep assuming we should be fighting, and that we should be striving to spend less of our intellectual power and our money on great achievements to come in healthcare—that we should be fighting to make it a smaller piece of our economy—I want to know what you want to make a bigger piece of our economy. What do you want to see the future look like?

I think this debate shows a fundamental lack of vision, a lack of confidence, a lack of understanding of what's possible.

Coincidentally, Tim Ferriss blogged about Kamen today, and in the comment thread I mentioned that Kamen was featured on an episode of the Sundance Channel series Iconoclasts (he was paired with Isabella Rossellini). Kamen is a fascinating character, which made this a fascinating episode to watch. Here is a brief clip from that episode.

The photo above of Dean Kamen accompanied the Popular Mechanics article.

¹If Salk's research weren't funded by the University of Pittsburgh and National Foundation for Infantile Paralysis -- if, say, he had been the founder of a start-up pharma company -- he would have had to patent the vaccine in order to recoup his and his investors' investment in the drug's development.

News from Alloy Steel

The company (OTC BB: AYSI.OB) filed this 8-K earlier today:

Mill Commissioning

The company advises that the new ARCOPLATE manufacturing plant specifically designed to produce extra thick (up to 20/11mm) and super alloy wear plate has been commissioned and has commenced production.

The new mill is the only one in the world capable of producing a bi-metallic fused super alloy wear plate in a thickness of application of up to 20 mm (just over ¾ of an inch) in a single continuous casting operation.

The conventional method used to produce a hard surface overlay is by a welding method which can only achieve a weld surface which at best is ¼ inch or 6mm thick in a single pass and is flawed with major quality technical limitations.

The new AYSI new technology has overcome all the known technical difficulties and is capable of fusing 20mm or super wear resistant alloy onto a ½ inch or 12mm steel backing plate.

This is a significant technological breakthrough which should see this plate be specified consistently in new mining projects and become the norm for replacements in upgrades for existing mining operations.

Mr. G Kostecki C. E. O. of the company is very encouraged with the strong interest being shown by all the major producers who have seen the test samples and the technical reports and predicts a large future demand for the product.

Mr. Kostecki was responsible for the technical innovation and development of the new process and alloy formulation.

These reports have been carried out by independent laboratories.

Whether any of the demand predicted above will be apparent in the 10-Q Alloy Steel is going to file next week remains to be seen, but this is good news. More generally, the surge in Chinese steel production and the recovery of iron ore prices has been good news for Alloy Steel's mining company customers (how sustainable Chinese demand will be remains to be seen).

I picked up a few more shares of Alloy Steel at .325 on Tuesday, when the stock dipped about 20% on no news. Still keeping most of my powder dry for investing in another asset class though.

Incidentally, a couple of weeks ago, I mentioned Alloy Steel in a comment thread on Fred Wilson's blog, in response to a comment by Mark Cuban about how he'd be more interested in investing in a Rearden Steel¹ than the next social media start-up. That was a brain cramp on my part: Even if Cuban could buy all of Alloy Steel, it wouldn't be a big enough investment to be worth his time. Plus, Cuban (wisely) likes to invest where he has an information advantage², so unless he has connections in the wear plate or mining industries, he probably wouldn't seriously consider investing in this sort of company.

¹An allusion to Hank Readen's company in Atlas Shrugged.

²Writer, entrepreneur, and angel investor Tim Ferriss seconded Cuban's point in a post last fall. Ferriss wrote that he feels more comfortable investing in tech companies where he has some inside knowledge and connections than swimming with the sharks in the stock market.