At the start of 2023, as I reviewed the end-of-year financial report sent over by our accountants, I had a stunning realization: our net income had dropped 87% in 2022 compared to the year before.

From an incredible 64% profit margin in 2021 we ended 2022 with a razor-thin 6%. The picture got even worse when we took into account the enormous growth in our subscriber base: revenue per email subscriber fell from $38 at the peak of the pandemic in spring 2021, to just $3 in fall 2022, a 92% drop.

I knew our business had slowed since the last several launches of our cohort-based course had been smaller than previously, but I had no idea the drop was this severe.

As I dug into the numbers, I saw that the COVID-19 pandemic represented an outlier: a huge surge in revenue for online courses like ours. As the pandemic subsided in 2022, people were returning to their normal lives, which didn’t involve spending hours a day on Zoom.

Graph of Cohort Launch Revenue vs. Subscribers

I thought we had hired conservatively, growing the team from 4 full-timers to 9 over the previous couple of years. But the fixed overhead cost of our staff combined with a precipitous drop in the revenue from our only product brought us to the brink of unprofitability, which is especially troublesome for an Internet-based business that is supposed to have high margins.

I met with the team, consulted a range of mentors and advisors, and decided to embark on a series of decisive actions to turn the company around. Six months later and I can confidently say we succeeded, though it was a hard road.

I’m sharing the story of what we did and why in the hopes that it will provide some ideas for other online businesses that have experienced the same downturn as us. 

There were five main decisions and initiatives we committed to:

  1. Changing our planning horizon to the short term
  2. Cutting $27,000 in expenses and conducted 3 layoffs
  3. Recruiting facilitators so we could turn our attention elsewhere
  4. Creating multiple new revenue streams
  5. Changing our policies and priorities

1. Changing our planning horizon to the short term

The first shift we needed to make was rooted deeply in our culture: to temporarily shift the horizon of our thinking and planning from long-term and growth-oriented to short-term and revenue-oriented.

I’ve always tried to think as long term as possible, making decisions that would pay off years from now even if they seemed risky in the present, planting lots of seeds for future products and services, and not worrying too much about our spending.

These attitudes and assumptions had been baked into the company culture, and thus my first task was to communicate to the team clearly, in ways direct and indirect, large and small: now it’s time to figure out how to make money.

The book Double Your Profits in 6 Months Or Less (affiliate link) by Bob Fifer was the perfect antidote to my previous attitude of not caring about profitability, and I ate it up eagerly.

2. Cutting $27,000 in expenses and conducting three layoffs

Profitability always has two main components – revenue and expenses – and expenses was the next place I looked. Costs have the benefit of being something you can cut immediately, whereas growing revenue always takes time.

In the ten-year history of the company, we had never conducted a wide-ranging cost-cutting initiative. In fact, for all that time we had always struggled to find new ways of spending money, given how high our margins were. It felt like an abrupt change in direction to review every transaction from the last six months looking for anything we could cut, reduce, postpone, or renegotiate.

That process took us about two weeks and resulted in $27,000 in expenses (much of it recurring) we could eliminate with minimal impact on the business, which you can read about in full here.

I also had to make the difficult decision to let go of three full-time staff members, as labor is by far our biggest expense. Our team shrunk from nine to six people, which meant we had to be even more selective and strategic about how to use our time for the decisions to come.

3. Recruiting facilitators so we could turn our attention elsewhere

Next, we turned our attention to the revenue side. I knew that we needed to create new sources of revenue, but that any new product line would require my bandwidth, at least in the beginning as it started up.

The problem with that was that most of my time and attention was taken up teaching our live cohort-based course, Building a Second Brain. We’d hired “alumni mentors” for the last several years to serve as coaches and role models for new students, but now I needed much more from them. I needed them to teach and lead the cohort itself.

We decided to create a new role, BASB Facilitators, and significantly increase the authority we gave them to teach not just breakout sessions, but the main “live sessions” that made up the backbone of the program. We recruited some of our most experienced graduates, increased the support we provided to them, and placed them in charge of the core curriculum.

We’ve now relied on facilitators for a couple of cohorts, and have been pleasantly surprised by how quickly they’ve become self-reliant and capable of delivering the program. The feedback from students has been mostly positive as they’ve appreciated the wider diversity of perspectives, which has led me to step away from teaching the cohorts knowing our students are in good hands.

4. Creating multiple new revenue streams

With the rapid decline of our cohort revenue, I knew that the only way back to profitability would be to find new sources of revenue.

We did a survey of all the available opportunities, at least a dozen in total. Here are the ones we decided to invest in and launch:

  • Publishing The PARA Method book using mostly existing content on the blog (totaling nearly $100,000 USD in book advances within a couple of months)
  • Upgrading our affiliate program, including a new Recommended Tools page listing all our favorite SaaS tools, and establishing affiliate relationships with a dozen of our favorite courses (generating 4 figures recurring per month)
  • Soliciting sponsored YouTube videos and newsletter placements, making use of the work we were already doing to produce high-quality videos and send out our free weekly newsletter (5-figures recurring per month)
  • Turning our annual 2023 Second Brain Summit into a paid event, based on the value we knew we could deliver after hosting the event before (5 figures in revenue, plus ongoing sales of the recordings)
  • Offering a new virtual workshop on How to Use AI for Your Second Brain, summarizing everything I’d learned over several months of immersion in the generative AI world (5 figures in revenue, plus ongoing sales of the recording)
  • Creating an all-new BASB Foundation 2.0 course, applying everything we’d learned from YouTube to completely redesign and reshoot it (the relaunch generated 6 figures in revenue, and the course is now sold year-round)

To summarize, within a few months we were able to create or massively upgrade six separate revenue sources, totaling multiple six figures ongoingly, using only the existing team and existing assets. Some of them brought in surges of revenue upfront via launches, while others provide a steady stream of recurring income over time.

This to me is one of the most remarkable aspects of information-based businesses: you have saleable assets just lying around everywhere. All it takes is some repackaging and repurposing and they can be turned directly into revenue-generating assets relatively quickly. 

The core asset that makes the business viable is the aggregated attention of our subscribers and followers. As long as that relationship is strong, there are any number of needs and problems we can solve for them.

All these decisions and projects together have worked wonderfully, completely turning around the business and returning it to profitability. After losing money for the first few months of the year, the last few months have been some of our most profitable ever. Not to mention, our culture feels more supercharged and determined than ever as we tackled this crisis and resolved it through sheer ingenuity and hard work.

5. Changing our policies and priorities

The transition from 2021 to 2022 was the first time in the company’s history that we failed to grow. Instead, our revenue shrunk by 1/3, from about $3 million to $2 million USD.

I hadn’t realized up to that point how much of our culture, strategy, and mindset was shaped by this background expectation that growth was guaranteed. We always had the luxury of preparing for the long term, committing to long timelines, and investing now to reap the benefits later, all because we could rely on revenues growing seemingly on their own.

The first half of 2023 was a jarring return to reality, and I was surprised by how many things had to change about how I operated and made decisions. Here were a few of the most substantive shifts I’ve made as a result:

Preferring contractors over full-time employees

I had always strongly preferred to hire people full-time, as W2 (or equivalent) employees with good salaries and substantial benefits. I saw it as a moral duty, recalling the precarity of my 20s.

But this year, I learned that the ability to be generous is a privilege. It’s tremendously gratifying, but can only be justified if the underlying business is healthy and profitable. As a result of giving away more than the business could support, I had to lay off three people.

There are also several major risks with employees that only came to light in a downturn: salaries and benefits are easy to raise, but basically impossible to reduce. Employees can’t be dialed up or down based on the company’s needs – they are always at 100% capacity. And in many countries, laying someone off triggers onerous requirements for documentation, mandated retraining, and severance payments that I wasn’t fully aware of upfront.

Going forward, I’m going to prefer keeping people as part-time contractors, only increasing to full-time if the needs of the business truly justify it, and reserving employee status to a small, core team of people that are essential to the business’s survival.

Diversifying the business

For many years, I’d resisted diversifying the business into different products and services, because I wanted to focus 100% of our attention and effort on making the cohort-based course as good as it could possibly be.

That strategy paid off handsomely when the pandemic started because we had the most well-known, mature live program just as people wanted to learn new skills in a social setting. We were completely dedicated to it, resulting in big leaps of improvement from one cohort to the next. This was in contrast to many creator-led businesses who I believe diversify too early and split their attention across too many things to make any of them truly excellent.

But the tables turned as the post-pandemic slump caught us off guard. Suddenly people distinctly did NOT want to take live programs – they wanted to see their friends, travel, and go out. The tried-and-true launch process we’d perfected over 14 cohorts suddenly kicked into reverse gear, and since the whole company depended on it, we had no secondary revenue stream to fall back on.

From this point on, I’m going to proactively diversify our business so that we’re insulated from dramatic swings in the market. We now have a strong brand and highly capable team that I believe will be able to maintain and improve a full portfolio of offerings, while leaving me free to create new ones. We’ve now grown up and matured into a “real” business that can do more than one thing at once!

Preparing for a new chapter

I’ve always thought about my life in terms of stages or “seasons.” A chapter often opens with me moving to a new place, starting a new job or relationship, or embarking on a new endeavor.

It’s clear to me now that the business also moves through seasons, and it is approaching the end of one. The BASB book that defined the last four years has now been out for more than a year and is thriving on its own momentum. 

The follow-up “implementation guide” The PARA Method came out on August 15th, 2023. The team is fully integrated and confident in its abilities, I’m no longer involved in teaching our courses, and have stepped back from almost all day-to-day operational duties as our new COO Monica takes over.

I recently wrote about my most important realizations and insights as this chapter closes, which emerged from a mastermind retreat I hosted with other creators in June 2023. It was a wonderful opportunity to step out of my normal reality and take stock of everything that’s happened over the last year, especially as seen through the eyes of others.

I don’t know what will happen next, but I have a strong intuition that whatever it is, it will be the most exciting season yet, building on everything we’ve accomplished before in ways I’m confident I can’t even imagine.

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