Conquent: Without Limits
Conquent: Without Limits
John Bissell's Blog

Why Go Into Business?

2010-03-02 20:15:02
Shortcut URL: http://t.conquent.com/6A00

Trying to talk about business planning with friends it is always interesting. There is an assumption that because I own my own business I have what everyone wants. I have autonomy, and I make money, and I get to keep the money I make, not give it to the man and settle for a pay check. That’s what it’s all about right?

Not really. Businesses get started because a really good technician does a really good job. (By technician I mean anyone who does any kind of technical work – from writing to doctoring to engineering). He/she thinks “I’m doing such a good job, I’m making big money for my boss – my boss, that guy – he can’t do this work to save his life. I can do better than him – or anyone else in this company – Yah, that’s it – I’ll start my own company, then I’ll get to keep all the bucks I make.” And with that a business is born.

The problem is that a business takes the ability manage, not just the work flow (which is much harder that the technician thinks), but also to manage contracts, clients, employees, payroll, bills, taxes. The business owner has to plan for the future, to guess what kind of product will be needed next year and in the next five years. And on top of that, you don’t get to keep all the money because now you have to pay rent, equipment, electricity, and both the employee and employer tax contributions.

Thus most small business owners end up making four jobs for themselves – the CEO, the CFO, the COO and the technician doing the job. They only get paid for the work done by the technician; the other three new jobs are overhead. The new business owner cannot afford to hire three overhead positions, so he/she does those three full time jobs plus the job he/she gets paid to do. Now he/she is making less money and working four jobs – and regretting ever getting into business ownership.

The new business owner bought into the fallacy that if you do a good job the work will flow AND that flowing work means good money. We all know better than that. Just ask yourself: Is the best MP3 player the one that captured the market? Was Blue Beam really better than HD DVD? Was VHS better than Betamax? As good technicians we want the best product to make the most money, we believe it should be true, but really we know it’s not true.

And even more than that, many businesses (law, medical, engineering, accounting) work by the hour. So even if your product is better, you can only charge a marginally better hourly rate. Thus the only really way to make more money is to work more hours. So now the work is flowing, and you have the four jobs, but add to that plenty of overtime for the technician (you).

So here’s the thing: The small business owner got into business ownership, but not into business. The small business owner created a job for his/herself that has more responsibility, more time commitment, more risk and less pay than the job he or she left behind. If your boss came up to you and made that offer you’d laugh. In anything else, no one would take those odds.

So what do you do about this? If you want to go into business you have to figure out why you are going into business. You have to make a basic plan with numbers then figure out what you really have to do to make the plan work. If you really want your plan to work it needs to be scalable and repeatable. You need to be able to create systems so that you can hire people who can do what ever it is you do, while at the same time you need to stay relevant and continue to innovate. The way you make money needs to be related to the value added to the client not to the hours you work.

Two examples so this: Several years ago I needed a bicycle component. The component was three times more expensive than similar components, but was the only thing available. I asked the sales guy why this thing was so expensive. He said: “This is something that triathletes use. Triathletes will pay anything, so the manufacturer marks up the price.”

The other is a company that makes a component that saves tons of fuel for airplanes. The component is not very expensive to make, but it saves millions of dollars for the airlines. The company sells this device for a percentage of the savings rather than for the cost to manufacture.

If you can create a realistic plan that you can systematize, scale, duplicate and repeat, that adds enough value for someone to want to pay you more than an hourly wage – then you might have something worth going into business for. Otherwise, you need to be a good technician and do good work for a good wage, and be happy with what you do.




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