The Compound Interest Effect of Niching Down

Written in 2017 for Universal Analytics. Kept online as published — the screenshots are historical, the concepts still apply. For current Google Analytics 4 training see the Agency Jumpstart Course.

When you first start selling your services, it’s common to hear yourself saying “I can do that!” to anyone with a dollar in their hands.

Anything to bring revenue in the door. 

You position yourself as the solution, even if you've never provided that particular service before.

And it's easy. It's easy to get sales when you can provide all things to everyone. Sales that bring in a nice little side-income. Momentum so you can finally quit your day job, and pursue providing services full time.

It's what I did for years. I said yes to everything and came away with all kinds of experience.

To begin my freelancing career, I did the following gigs to make money:

• Designed and programmed a website that provided NFL mock draft results
• Campaign manager for direct mail campaigns sending baby formula coupons to expectant mothers
• Manually added/removed contacts from a marketing automation system for a home-exteriors company
• Scraped HBCU college listings from a website and built a better, search optimized version to sell AdSense ads
• Took photos for a restaurant with my crappy point and shoot camera, and used them to build a custom-programmed 7 page restaurant website
• Generated 100 variations of a landing page with keyword-specific URLs to try and drive favorable local Google AdWords results (i.e. domain.com/replacement-windows-st-cloud-mn.html)
• Submitted websites to directories from my .edu email address, trying to game Google's system. I took on the persona of "concerned college student" who just happened to be surfing the Internet one day and noticed a link to website A, and thought that a link to website B might be "relevant to your audience" as well. I was 3 years out of college by this point.

And those are just the things off the top of my head that I remember doing in my first 6 months as a freelancer.

$250 here, $500 there. Occasionally reaching 4-figures. Spending the money in my head before it was earned. Telling all of my friends how much I was killin' it and that they should drop everything to be an entrepreneur like me.

I must have been insufferable. It was an incredible time in my life.

Treating the projects you choose as an investment vehicle

Starting with my laundry-list of services, I'm now reminded of someone just getting started in investing.

When most people are just getting started in investing, they try many investment vehicles to see which ones work. $250 here, $500 there. Occasionally reaching 4-figures. Hopefully taking off from there.

It's common to try making several investments, to see what works for you. Most of them will fall flat. But the ones that succeed produce outsized returns. Might be market timing, might be dumb luck.

Eventually you develop momentum. That will turn into an investment thesis. You make fewer broad investments, and instead double down on what is working.

You find your niche, and you go in depth on that one area of focus. You start saying NO to any distractions, and focus on what you know works.

You might find that one niche is all you need to survive. Or maybe you hedge, and choose two or three niches where the majority of your investments go. Because you recognize the need to diversify. You may choose to invest in commercial real estate and emerging markets. Or cryptos and senior housing. Or biotech and municipal bonds.

Once you choose your investment niche, the fun starts to happen. You see the compound effects of your investments. With diligence (and a lot of luck, let's be honest), things start to take off exponentially. Over time, real wealth is generated through focused, disciplined investing.

It works the same way when providing services

At some point in my journey, beginner Jeff started to realize that not all projects were created equal. Web design projects seemed to take forever, and I could never price them right (many times leading to getting paid $9/hour due to scope creep).

Other projects were true one-offs, like the baby database. There was no way to leverage that project elsewhere. It was truly one of a kind.

Then there were projects that took almost no work, and generated a ton of profit. Managing Google AdWords campaigns was the first service that fit this description. I was managing 1, 2, 5, 10, and eventually 20+ accounts at a time.

I was becoming more efficient with each new client. Within 18 months of going on my own, I was making $20k/month building niche landing pages and sending PPC Campaigns their way. It was basically copy + paste marketing, but the results were tremendous for clients. Their campaign performed 5x better than industry averages.

Selling new deals was a breeze. I could simply point to the results, sell my "knowledge of the industry," and clients were faxing over signed contracts left and right. Yes, I built my online business getting contracts sent through a fax machine.

Managing PPC was the first service that I could provide at scale, and the money was coming in hand over fist.

Naturally, I started to phase out the other services, and double down on what was working. I niched down, and things started to take off. This niche checked all of my boxes for success, and I stumbled into it through dumb luck.

Your services are investments, but niches are what generate the big returns

When you look at the phases of your business, it's important to understand how each client investment brings you closer to your end-game.

It's OK to try many things. To throw things on the wall to see what sticks. To say yes to everything.

But at some point, successful business owners flip the switch and double-down on what is working. They concentrate their efforts.

They compound their results. 

And that compounding effect is what we all see when the iceberg surfaces. And we all assume it happened overnight. That someone got lucky with their niche. That the results came easy.

"It takes 20 years to become an overnight success."

- Eddie Cantor

Nothing happens overnight. But you will get there much more quickly when you focus on the niches that work.

What is your investment thesis? What is your niche? Let's hear it!