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Tim Ferriss is the inspiration of this blog – his 4-Hour Workweek book has been awe-inspiring and breaking many walls. We at Akem.me are sure we want to live our life the Tim Ferriss way of location independent living.

Check out this interview with former About.com author, Scott Allen, to get to know Tim Ferriss and his principles better.

Scott Allen: Hi! This is Scott Allen, About.com Entrepreneurs Guide and I am here with Tim Ferriss, author of The 4-Hour Workweek (Compare Prices). One of the things that I talk a lot about on About.com is how to try to find that balance as an entrepreneur, because there have been so many studies done on this that show that the typical entrepreneurs are working 70 and 80 hours a week. The traditional take on this is something like, “Hey, that’s fine. We all know it’s a trade-off because we are investing that time, hopefully for the pay back in the future, or that it’s a trade-off for flexibility.” You may have to work 80 hours a week and work late into the night, but you get to take off in the middle of the day to do stuff with your kids. You don’t have to answer to anybody or file for it a month in advance if you want to take vacation.

We would all love to get to the point of working a 4-hour workweek and a lot of us would like to just get to the point of working a 40-hour workweek, and making the living we’d like to make and having the rest of it available.

But Tim has lived it, is living it and is sharing the good word in his book and starting to get some other media coverage here too. In the interest of getting my readers (and myself) closer to that 4-hour workweek, I’m here talking to Tim Ferriss. Tim, welcome.

Tim Ferriss: Thank you very much for having me.

Scott: Tim, why don’t you give a little bit of background about your entrepreneurial history?

Tim: I graduated from undergraduate on the East Coast in 2000. A friend of mine sold his company, BlueMountain.com, for close to $480 million, which made it seem like a very good idea to move to Silicon Valley, which I promptly did, and I initially worked putting in 80-hour weeks at a storage and networking company. So I worked high-tech in technical sales, and in a very exciting entrepreneurial environment, but it was exactly what I came to know afterwards as an overwork ethic.

Due to improper management it became a results-by-volume type of environment. So I was checking Outlook, hitting Send/Receive 100-200 times per day and I even slept under my cubicle on a number of occasions. I spent Thanksgiving on orders from above, sending email to prospects and it was a bleak picture. But I was excited to do it at the time, but very quickly realized that it was entirely unsustainable. The company itself ended up imploding in 2001 and before that I thought that I could do a better job of creating and managing a company and certainly wanted the freedom that every entrepreneur has in mind, when they initially take that first step towards establishing themselves as a business owner.

And I ended up moving into pharmaceutical design, so I had some background that helped me gather biochemists to look at designing and licensing different drug designs to big pharma. That ended up being extremely difficult to do and capital intensive.

So by a number of different circumstances, I ended up becoming involved in sports nutrition design and manufacturing. And that company ended up doing extremely well, where as I was the second lowest paid employee at the start-up, which I found out when an Excel spreadsheet was accidentally forwarded to the entire office — the only person paid lower than I was, was a receptionist, putting in a 20 hours a week, and I was putting in 80 hours. I was making twice per month, what I had been making for a year, but I was actually more miserable, because I had less time and was at that point I realized: 1) most business models are entirely unscalable, and 2) most entrepreneurs are business managers and not business owners, and 3) that income has really no practical value if you don’t have control and possess time.

So in mid-2004, I left the country and spent 15 months traveling over more than 20 countries, conducting experiments in automation and outsourcing. And I was able to push both to some very curious extremes. I got to where I was checking email once every 14 days, instead of 100 times per day, and I was still receiving a volume of 1500-2000 emails a week.

And surprisingly enough, simultaneously, the profit for my company went up by 30%. So, I really took a step back during that period. I interviewed people who were finding their own life hacks and realized that if you recognize that there isn’t just one currency — income — that, in a digital world, you have three currencies: you have time, income and mobility in descending order. And if you really master the time and mobility components, it’s possible to live like a $500,000 investment banker of ten years ago, worth $50,000 today. And that brings us to what I call lifestyle design. So I propose that rather than long-haul career planning, which someone like Randy Komisar who’s a general partner at Kleiner Perkins venture capital – he would call that “the deferred life plan”. So rather than trying to accumulate enough money so you can stop doing whatever you are doing for retirement, which is inherently flawed in a lot of ways.

How you redistribute time in life, throughout life in your day-to-day existence, really represents your ideal life-style? And that experience, I guest lecture at Princeton was here and the students recommended that I put my experience in a book and that is how “4-hour workweek” came to be.

And The 4-Hour Workweek, the title itself, is really not an exaggeration. It’s possible especially as an entrepreneur to get to the point where you spend two to four hours a week on a business that is, for all intensive purposes, entirely automated.

Scott: One of my personal entrepreneurial heroes has always been Richard Branson. Is he touching on some of that? One of the big things with him is not only lifestyle design, but turning it into a marketing thing to go and do the things that you love to do like speed across the English Channel, that sort of thing. And I know that he is also well-known for the fact that he takes a month out of every year and spends it on his private island in the Caribbean.

Tim: Branson is one of my idols, actually. I read his book, Losing Your Virginity (Compare Prices), when I was still at school. It had a tremendous effect on me. Another hero of mine from the life-style design aspect and also business intelligence is Ricardo Semler, a Brazilian, who runs a company called Semco. He has broken every possible rule you can imagine and implemented flextime and all sorts of very interesting policies in his own company and it has just been one of the huge success stories on the planet from a growth standpoint and also employee retention.

Branson illustrates a very important principle, which really in a nutshell explains why retirement is a flawed concept. When you subtract work in the office, it leaves a void. It doesn’t automatically create life.

I know, for example, one entrepreneur, very successful, in his mid-60s, who acquired more than 120 companies in his career, and work was his life. He had no alternative activities and when he had quadruple bypass surgery and had to retire for health purposes, he only lasted a week, and then was so depressed that he had to start another company, because had nothing to fill that void.

Branson is a good example to someone who proactively designs a life. He seeks out the creation of these once-in-a-lifetime experiences over and over again and the latter portion of the book, called “Liberation”, really talks about that. Once you create an abundance of time, how do you use it? It’s not self-evident, as some people would think.

Scott: So it doesn’t necessarily have to be that you go spend the other 76 hours a week lounging on the beach in Mexico? If your passion is business and that’s what excites you and you want to go start another business or explore investing or work mentoring other entrepreneurs or serving on Boards of Directors, or those sort of things, then by all means feel free to do that, if that is what inspires you. Right?

Tim: Absolutely. One thing I’ve had to stress on when I’m talking to people — because I do some odd things — I travel to Argentina and spend six months there, competing in tango, or go to Japan to practice cage fighting – is that the intent of the book isn’t to teach people how to be Tim Ferriss. It’s to teach people how to use very specific tactics to create time and mobility. And once you have these two ingredients, then you can use them however you decide, whether that’s spending time with your family in your own home, or starting another business, or in my case, writing a book.

And the objective is really to automate income, so that your decisions are not financially driven, so that you can take a step back and really look at the larger picture of life and make decisions and invest your most non-renewable resource — time — in the most fulfilling way possible.Scott: That sounds like a great goal. I know that for a lot of people, it’s not even the ability to have it not be a financial decision, but just to be able to do what’s truly a good financial decision in the long-term, instead of having to be short-term cash-flow driven, like so many entrepreneurs are.

I’ve found that the number one issue for entrepreneurs or entrepreneurial companies ends up being cash flow. And this is where a lot of good companies go down. They get the product built, they get commitments, they get letters of intent, they get even contracts and receivables, but they end up in a cash flow crunch because they have that gap between the funding they have and the deals that they’ve got and having to deliver and execute everything in between in that gap. And that ends up being a problem for so many companies and why they end up needing mezzanine financing and end up needing bridge loans and all kinds of other stuff is because they end up having to chase the cash flow.

Tim: Right. Before I started focusing on lifestyle design and everything that it entails, from an entrepreneurial standpoint, what I was initially invited to speak at Princeton was ‘creative cash flow’ and how to, with minimal or no outside financing, achieve profitability. One of the most valuable exercises an entrepreneur can perform is to take a step back, not looking at what’s popular, not consider what everyone is doing or what people are expected to do, and really ask what rules you need to set for your own business, from a process standpoint and a cash flow standpoint, so that it can be successful.

So in my particular case, I started my company with less than $10,000, and now it’s distributed in fifteen countries. That didn’t happen overnight, but I never required outside financing and the reason I was able to do that is, I recognized that certain rules like offering every large customer net 30, net 60, net 120 — it was expected, but if you set a rule, which in my case was prepayment for all orders, if you are able to create the demand for that product, people would follow your rules.

And there is a lot of room to improvise. Just because business as usual can put you in a very awkward cash flow position, where you need to make short-term decisions and always feel like you are shoveling coal into the furnace without any breaks doesn’t mean that you can’t reset the rules in your favor. There is a lot of room for flexibility.

I was offered a distribution deal with one of the largest sports nutrition distributors in the country, in the world in fact, and I turned it down because I was able, for example, to control distribution to a few, very powerful and very well-distributed companies, and by limiting my distribution, I was able to prevent price degradation. So I didn’t have multiple rogue discounters driving the profit margins down for a product, which would necessitate that I create new products. I’ve had one main product for six years and I’ve been able to sustain the margin and maintain competitive advantage with primarily intelligent direct marketing and very heavy analytics.

But, it’s very important to set the rules in your favor. You do not have to follow what everyone else is doing.

Scott: When we look at the popular authors talking about setting up lifestyle entrepreneurship, like Robert Kiyosaki, Robert Allen and Mark Victor Hansen, they have models like “the Four Mountains of Wealth”, and try to move people into these particular passive income models. But I get the impression from our conversation and from what I’ve read of your stuff that that’s not the case here. Is this something that can be done with any business or are there certain kinds of businesses that it lends itself better to and others that it will never work with?

Tim: There definitely are. Now the principles in the book can be applied to any business and at the very least, you will be able to eliminate unpaid overtime, meaning work during evenings, weekend, etc.

The ability for someone to get a 4-hour workweek requires some difficult and emotional decisions and doing what is unpopular. The extent to which you can do that depends on a number of factors. But for example, it’s infinitely easier to create, in my opinion, a scalable business model that requires minimal management, if you have a product versus a service.

Service businesses are more challenging to scale because it involves management and more personnel. And there is a host of variables that come along with that. They require actual human supervision and that is a very taxing resource. So, can it be done? It certainly can and you can do it all in a franchise model and there are multiple ways that you can work on your business, instead of in your business, as Michael Gerber would put it.

But products are much better suited. If you are a one-person operation and the choice is between, let’s say, consulting where you are limited to a per-hour model, which means you have to work more to make more, or capitalizing on that expertise and somehow monetizing it in product form, I would recommend investing the additional time up-front to pursue the latter. But there are multiple ways to do it.

One other point I want to make is that the extent to which you have to scale your business is entirely dependent, in this book, on what’s called the TMI, target monthly income. So if you want to have a Lamborghini Gallardo race car, you want to go to Fiji, or you want to take two trips throughout the domestic U.S. per month and you define what you want to do, what you want to have and then calculate the average monthly cost, that’s your TMI and it’s surprisingly low.

For example, if you’ve always wanted to take a long trip to Thailand and stay there for a month, you can do that for less than $1500. In my case, for example, I went to Panama and lived for a week on a Smithsonian research island with fishermen who took me on the boat, caught all my food, cooked it for me, took me to the best dive spots in Panama, and it cost me $250.

When you actually create time, the question of what to do becomes much more interesting and much more important than what you have and it’s surprisingly less expensive than people realize. But most people never calculated it.

I have a good friend, my roommate at Princeton, who works for an investment bank in New York City and he went to business school also in New York City and told me he decided to return to investment banking after his school. I asked him why because he had told me that he hated working in this particular investment bank.

And his answer was, “Well, I hate coming home at midnight. It sucks, it’s true. But if I worked for a few additional years, I could become Managing Director and pull in three to ten million a year.”

And in a world where you have been making, you could easily make $200,000 for a reasonable 40-hour workweek, I asked him, “What the hell are you going to do with three million dollars a year?”

He thought about it for a minute and he said, “I would take a long trip to Thailand.”

And this is symptomatic of this epidemic of the deferred life plan. When you really sit down and calculate it, there is no reason to put these things off. And there is every reason not to. It also makes it very clear that some fantasies are only interesting for three to seven days.

And so sitting on a beach in the Caribbean, for example, gets boring very quickly. It’s nice. Once you recover, though, it’s extremely boring and you need an alternate activity. And if that’s only interesting for a few days and your retirement life for last thirty years, that leaves a lot of thinking to be done and I encourage people to do that now as opposed to when they retire.

Scott: Right. I’d like to refer to a couple of articles on my website that are particularly relevant to this. One of them that I want to talk about on passive income. It also talks about leveraged income which is how people can do this who want to get into services. Leveraged income is the ability to provide the service on a mass scale, even though the effort it takes doesn’t scale according to the number of people you are delivering it to.

So, for example, if you are offering teleclasses, or web seminars, or something like that, there is not really any significantly higher time effort once you have the technology infrastructure in place to give a web seminar to 1,000 people than 100. And so, if you are giving your web seminar to 1,000 people at $20 each, as opposed to 20 people at $25-$30 each, then you start talking about being able to make that kind of large amount of money.

Professional speakers have the same kind of thing. If you work your way up in the speaking business, you can get to the point that you are earning $5,000-$10,000 per speaking engagement. Do one of those a month and that’s a decent living. And basically all you’re doing is that plus whatever it takes you to keep booking one or two a month.

Another example is consultants who find a niche specialty or attorneys are a perfect example too. There are attorneys who work for $50 an hour and file papers and there are attorneys who are able to litigate multi-million dollar cases. They take their 35% and one case can actually set them for life.

Tim: Absolutely. And I agree on everything.

Scott: This relates to what you said about your product – that you’ve been able to limit the distribution and keep tight control. So, what is the competitive environment for your product?

Tim: The competitive environment is very strong, in the sense that sports nutrition generally operates in a 3-6 month product cycle. So people come out with their new products. These products will be very heavily promoted through national campaigns, about say $40,000 per product per month, or more, and the reason why its lifespan is so short is that they will distribute through multiple regional distributors and these regional distributors will then have online presences and compete on the price to beat each other to the customer. And within 3-6 months the product isn’t earning a sufficient profit for any of the resellers and middlemen, so they launch a new set of products to take their places.

What I realized also very quickly is that it’s much better to be the first or the only person doing what you do as opposed to the best person doing what you do. So, if you create a new product category, or a new service for yourself, it’s much easier to distinguish yourself and the value proposition is faster to convey and therefore you won’t get more customers.

Scott: So, there’s a strong first-mover advantage.

Tim: Absolutely. It’s the first-mover advantage that establishes you as the leader in mindshare. In my particular case, rather than focus on increasing muscular size, I focused on actual athletic performance and I targeted primarily athletes of the Olympic and professional caliber and utilized some background I had in addition to taking help from people in testing organizations and athletic groups to focus on neural acceleration.

So this was a product I categorized and defined as a neural product — a neural accelerator, essentially, that acted on reaction speed on the track among other characteristics. It was a very narrow niche but a very sizable niche at the same time. So I dominated a handful of sports and continued to sell, which generates more than sufficient income for my TMI.

And what I was going to say about the lawyers and other people who are able to create service models, whether that’s speaking or otherwise, is that there’s nothing inherently wrong with that model. The problem that emerges is when people fall victim to the public company model of indefinite quarter-by-quarter growth. So they think that since they did one speech last month and they did two speeches this month, they are not successful. It’s a very ambiguous way that they define success using financial terms. And you find that most people who take a step back and remove yourself from the collective game of make-believe for a minute, most people are working to make more money for the sake of making more money. But the purpose, the point of making that money is very poorly defined. So once you are at TMI any time that you are putting in more hours and sacrificing other activities you would like to pursue in the name of making more money, it’s a reality check.

Scott: Right. The other article I wanted to point people to and then we can start this as a starting point for discussion, is called, Time Is Money, which talks about the idea that your time, hour per hour, has some kind of value associated with it. The idea is that if your time is worth $50 an hour or $100 an hour or whatever, then you shouldn’t be doing $10 an hour work. If you want to because you enjoy it, that’s fine, but as a general practice you should be hiring a $10 an hour person to do the $10 an hour work.

Can you elaborate on that? How do you get help? Maybe some tasks can be eliminated, but a lot of the work that you are doing when you are working those 80 hour weeks still needs to be done.

Tim: Start by taking routine time consuming tasks that you personally need to perform and batch them, meaning that you perform them at set times as intermittently as possible, in between which you let them accumulate. For example, check email twice a day by using an autoresponder that tells people you are checking email twice a day and that if they need something more urgent they should call you on your cell phone. It’s a very simple approach to eliminating email consumption and interruption. Once you do those things and streamline by eliminating the 80% of tasks that are producing only 20% of the results, once you remove all that static there still are some tasks left.

The simplest way to the calculate value of your time is the following. If you make $50,000 a year, for example, you chop off the last three zeroes, and you can do this with any income and then you cut the remaining number into half. If you are making $50,000 a year, cut off three zeroes, i.e. $50, cut that into half, you make $25 an hour.

If I can pay someone, let’s just say 50% of that number, $12.50, for a task, then I realize 100% return on investment. So I have anywhere between twenty and forty MBAs in India and virtual assistants in Philippines and other places that effectively run my life for me, not only from a business standpoint, but also from a personal standpoint. If I want to plan a trip or any type of project, I will have them do all the research, all the online data gathering, any type of planning, even book it for me, and it creates an incredible amount of time.

The easiest way to find virtual assistants is to use a company, for example, Get Friday, an Indian-based company that’s also in the U.S., which enables them to handle tasks not only during your business day, but you can assign a task at 5 p.m. and then it will done and in your inbox at 9 a.m., which is nice.

Elance.com is also a very good site for finding virtual assistants and you can have this type of help for $5 to $15 an hour. It saved me thousands of hours. It may have cost me a small amount of money, but millions of dollars of additional revenue has been booked as a result of the time that I can apply to high-yield activities as a result of this type of outsourcing.

Scott: So the big question is, “How do you get there from here?” How do you get from 80 hours a week, overworked, over-stretched, paycheck-to-paycheck, always focusing on cash-flow to the 4-hour work week?

Tim: The process that I was able to extract from the case studies in the book is surprisingly uniform, and I codified into four steps.

1. Definition, which involves determining your target monthly income and defining certain other variables and parameters that determine your ideal lifestyle.
2. Elimination which is, the batching, Parkinson’s Law, everything that can be done to remove unimportant, minimally important tasks and time-consuming activities, in addition to interruptions and managing other people.
3. Automation, which is the outsourcing component and also the automation of income. How do you restructure your business that is process-driven as opposed to owner-driven and what does the virtual architecture look like, where can you find any service providers, all that’s in that section.
4. Liberation, which is the mobility piece. So let’s say you have a supervisor, how do you negotiate a remote work agreement, what is the sample negotiating script look like for that. Also, once you create time, how do you design a life, how do you create those alternative activities and those alternative realities that most people never have to make decisions about, because they don’t have the time.

And those are the four steps and in the case of an employee, generally it’s going to be DELA. So there will be negotiating some form of performance-vs.-presence agreement so they can eliminate work since it’s hard to do in an office environment where the expectation is that you will move every second from 9 to 5.

But the process is surprisingly uniform. And whenever I feel overwhelmed, I go back to that and do a mental checklist. I check off definition, elimination, automation — those first three steps — and then definitely most of what I am doing doesn’t need to be done.

Scott: We talked about a couple of your role models and inspirations. What are some of your favorite tools and favorite resources that help you reach that 4-hour workweek?

Tim: There are a number of good tools and I had a very fun time experimenting with various tools, as I was traveling around the world because I ran a multinational company from wireless locations and it presented a lot of challenges.

GoToMyPC.com is an excellent remote access solution. So if you are going to travel and don’t want to bring a laptop with you, which I recommend people do if they are going through a detox period following years of 80-hour workweeks, you can have a computer at home that you can access remotely, and you have access to a desktop, you can use Outlook and everything else. That is a very useful program that I used every week that I was gone.

Secondly, I use Skype quite extensively. I had used Vonage before, so when I was in Brazil learning how to surf, for example, I had a VOIP phone so I could receive calls to a California number and make free calls to U.S. I tend to use Skype more these days. Also for video conferencing, people feel the need for an in-person, but I am 7,000 miles away, then I use video conferencing.

I use Gmail as an external storage drive essentially, which is a very interesting way to go and you can go to Lifehacker.com to find out more about how to do that.

And then a few things I don’t do. What you don’t do is often as important as what you do. I don’t have a PDA with internet access or a Blackberry. I do have a PDA, a very simple Palm-Z22, which is $100. The two criteria that I had were 1) it had to have Outlook Contacts and Calendar and 2) it couldn’t have internet access, because if I had email in my pocket, I know I would check it every two minutes. And just as I know I am absolutely choc-a-holic, I can’t buy a bag of dark chocolate cooking chips and put them in my house because I will sit down and eat them all. Everyone has poor impulse control and I recognize that. I try to create a good environment rather than relying on discipline which is questionable.

For other tools I have my favorite laptop for mobile and digital lifestyles is one of the new Sony Vaio laptops, the VGNTXN27N. It’s extremely thin, but the reason I bought it wasn’t because it’s small, which is a very, very great benefit. It’s that with an extended battery and if I trick out the system a bit, it has 13 hours of battery life for a single charge, which is amazing and the bane of my existence is battery life. It’s really the limiting factor when you have a mobile lifestyle. It’s not always easy to find a place to charge. I had a Dell laptop and the battery’s degraded so badly that it gets about a half hour. And so going from ½ hour to 13 hours was like being reborn. I do really like that computer.

I use a Philips noise-cancelling headset when I travel and when I work in non-office environments because I was slowly losing my hearing from using a normal headset and having the volume too high to block out external noises. So, get a noise cancelling headset that folds in, is extremely portable and costs about $70.

Another thing I don’t use is an RSS reader. I don’t actually subscribe to any RSS feeds, which is hard for a lot of people to believe because I am pretty intimately involved with lot of the people in the blogosphere, and I’ve my own blog. But there are only a handful of sites I visit at night. I go to them once or twice a week and look at posts that are most popular and I think an RSS reader is like many things, like a Blackberry — the addiction potential is very high and the potential to believe that more is better is extremely high. So people end up with 690 RSS feeds that consume 25% of the day.

Scott: So the book is The 4-hour Workweek and it’s available in stores.

Tim: It is. And if people go to 4hourworkweek.com, there are free chapters on outsourcing your life and a number of other resources.

Scott: Terrific. Tim, I would like to thank you so much for your time and wrap it up here and I’ll fill you in as I progress on my way down from my 80-hour workweek.

Tim: Happy to help. One step at a time. Thanks for having me.

Source: About.com

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