If you operate a software business (such as WordPress plugins) or a SAAS, it is important to benchmark your operating profit with that of other similar businesses.

Before we start, it’s important to clear up some definitions:

Gross Margin – Revenue minus Cost of Goods Sold (or Cost of Sales)
Operating Margin – Gross Margin minus Sales, Marketing, General and Admin expenses
Net Margin – Operating Margin minus Interest & Taxes

I’m looking at operating margin % here.

You can take a look at some open metrics over at Baremetrics for a start.

I also asked several of my friends in business and there isn’t one clear answer. The most common percentage I could identify is around 80%, but it’s not always clear what margin they are referring to.

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I spent a good part of my twenties traveling around the world during what was the start of the digital nomad movement.

A recurring theme that I used to hear about was the possibility of optimizing taxes by being a digital nomad.

Just walk in any co-working space in South-East Asia, and a 20 y.o. white guy from the EU or Canada will swear that flying circles in Thailand, Bali, and Vietnam for all year means that nobody has the right to tax his income.

At the time I had decided to keep things simple by just paying tax in my home country where I had always paid as a self-employed person.

When I started to hear all the strategies others were using, however, I started to feel a bit stupid for not having optimized things. So I embarked on a journey to learn as much as possible about all the options available for legal tax optimization.

It turns out that the strategy I had opted was actually one of the safest ways to act as a digital nomad. The “clever” tactics many others were using were grey area legal schemes at best but mostly just plain old tax evasion that would most likely lead them into trouble later.

To this day, as the digital nomad revolution has grown, I still hear many of these strategies bandied around, so I thought I’d have a go at outlining how I think a digital nomad should pay his/her taxes.

[Read more…]

Many investing and financial independence blogs try to teach you how to attain a level of wealth that will put you and your family in a comfortable position and potentially not having to work for the rest of your life.

I think things are quite simple really. 

If you want to get rich, you need to take substantial risks and work extremely hard with a laser-sharp focus on something for several years.

This is how the founders of startups become rich.

This is also how the best investors make outsized returns on their investments.

And who is wealthier than entrepreneurs and investors these days? Sure there are many other illegal ways of getting wealthy, but if you stick to the legal ways, aside from inheriting wealth, entrepreneurship and investing is the way to go.

Building a business is the best way I know of getting richer than the average person. Once your business is successful and you have capital to deploy, investing is the way to multiply that money exponentially to reach even higher levels of wealth and financial independence.

The investing part is what I see many people misuse in two main ways.

The Entrepreneur Who Can’t Let Go

Many entrepreneurs do the first part of building a business and working very hard, but can never let go of the business. It ends up consuming all their life and depriving them of time, which is the most important and unreplenishable asset you have.

It takes them away from their families and from wonderful experiences they could otherwise have had if they were not locked in an office working on their business 24/7. As an entrepreneur, it is very important to keep the exit in mind, be it by selling the business or by putting a management team in place to substitute you.

The Wannabe Investor

On the other hand, I see many other people, especially younger ones, who get into investing too early when they don’t yet have capital to deploy. I highly encourage people to start educating themselves about money and investing at a very early age, however, in my opinion, the actual investing should start at a later stage when you already have substantial capital to deploy.

If you don’t yet have that capital, you are likely to make two mistakes:

1. You will probably spend too much time thinking and worrying about your investments in comparison to the returns you are likely to make.
2. You are more likely to invest money you shouldn’t be risking. Money you can’t really afford to lose.

Reason number 2 is also why I don’t like the idea of homeownership for most young people. By buying a home, they are tying up all their money plus future income into an asset that is not really an investment, and will also prevent them from having experiences such as traveling long term and living abroad, which would bring infinitely greater rewards both on a personal level and from an investing and knowledge perspective.

In short, the wannabe investor is foregoing the hard work of building a good capital base, and that will seriously hamper his chances of ever becoming financially independent or wealthy by any measure. That’s why we see so many financial blogs focus so much on frugality (often going to ridiculous extremes). They don’t have the capital, so instead of adopting a growth mindset and looking for ways to make more money (entrepreneurship) they try to save more and more of their average incomes as employees, and that’s not a good way to become wealthy.

At max, you might be able to become financially independent in your forties or fifties but only afford to live in very cheap places, and that’s not real independence in my books.

One of my favorite business gurus, Naval Ravikant, shared some very cool tips on Twitter about getting rich that I felt were worth sharing here on my blog:

Wealth vs Money vs Status

Seek wealth, not money or status. Wealth is having assets that earn while you sleep. Money is how we transfer time and wealth. Status is your place in the social hierarchy.

Ethical Wealth

Understand that ethical wealth creation is possible. If you secretly despise wealth, it will elude you.

What should you avoid?

1. Ignore people playing status games. They gain status by attacking people playing wealth creation games.
2. You’re not going to get rich renting out your time. You must own equity — a piece of a business — to gain your financial freedom.

Basic Rule of Getting Rich

You will get rich by giving society what it wants but does not yet know how to get. At scale.

What should you do?

1. Pick an industry where you can play long term games with long term people.
2. Pick business partners with high intelligence, energy, and, above all, integrity. Don’t partner with cynics and pessimists. Their beliefs are self-fulfilling.
3. Learn to sell. Learn to build. If you can do both, you will be unstoppable.
4. Arm yourself with specific knowledge, accountability, and leverage.
5. Specific knowledge is knowledge that you cannot be trained for. If society can train you, it can train someone else, and replace you. Specific knowledge is found by pursuing your genuine curiosity and passion rather than whatever is hot right now. Building specific knowledge will feel like play to you but will look like work to others.When specific knowledge is taught, it’s through apprenticeships, not schools. Specific knowledge is often highly technical or creative. It cannot be outsourced or automated.
6. Embrace accountability, and take business risks under your own name. Society will reward you with responsibility, equity, and leverage. The most accountable people have singular, public, and risky brands: Oprah, Trump, Kanye, Elon.
7. Leverage :
   “Give me a lever long enough, and a place to stand, and I will move the earth.” — Archimedes
   Fortunes require leverage. Business leverage comes from capital, people, and products with no marginal cost of replication (code and media).
   8.1 Capital: Capital means money. To raise money, apply your specific knowledge, with accountability, and show resulting good judgment.
   8.2 People: Labor means people working for you. It’s the oldest and most fought-over form of leverage. Labor leverage will impress your parents, but don’t waste your life chasing it.
   8.3 Products: Code & Media. The Internet has massively broadened the possible space of careers. Most people haven’t figured this out yet.
   Types of Leverage
   * Permissioned Leverage: Capital and labor are permissioned leverage. Everyone is chasing capital, but someone has to give it to you. Everyone is trying to lead, but someone has to follow you.
   * Permissionless Leverage: Product (Code and media) are permissionless leverage. They’re the leverage behind the newly rich. You can create software and media that works for you while you sleep. An army of robots is freely available — it’s just packed in data centers for heat and space efficiency. Use it. If you can’t code, write books and blogs, record videos and podcasts.
8. Learn Foundational Skills: Leverage is a force multiplier* for your judgement. Judgement requires experience, but can be built faster by learning foundational skills. There is no skill called “business.” Avoid business magazines and business classes. Study microeconomics, game theory, psychology, persuasion, ethics, mathematics, and computers. Reading is faster than listening. Doing is faster than watching.
9. Set and enforce an aspirational personal hourly rate. If fixing a problem will save less than your hourly rate, ignore it. If outsourcing a task will cost less than your hourly rate, outsource it.
10. Work as hard as you can. Even though who you work with and what you work on are more important than how hard you work.
    [Read Point 3 again].
11. You should be too busy to “do coffee,” while still keeping an uncluttered calendar.
12. Play iterated games. All the returns in life, whether in wealth, relationships, or knowledge, come from compound interest.

Parting Note:

There are no get rich quick schemes. That’s just someone else getting rich off you.

Apply specific knowledge, with leverage, and eventually you will get what you deserve.

Foot note:

*Force Multiplier: In military science, Force multiplication or a force multiplier refers to a factor or a combination of factors that dramatically increases (hence “multiplies”) the effectiveness of an item or group, giving a given number of troops (or other personnel) or weapons (or other hardware) the ability to accomplish greater things than without it.