I am working on a new theory and business philosophy built on my post Building a Business vs Making Money. The summary of the theory is this: To build a profitable business it has to be profitable for you and that making money is not the same as building a business. It also goes beyond that though and I think certain types of traditional businesses are doomed to fail.
I think that as an entrepreneur you must selfishly demand a return for yourself and those that build a traditional company with large overheads like rent and lots of employees must push for continual growth constantly to keep it from all going down the drain. I am starting to believe there is no comfortable, ultimate operating level for a traditional company. Unless continual growth and momentum is maintained, failure is almost inevitable.
As I pointed out in my post building a business vs making money some entrepreneurs are sucked into the myth that they can build a business that will either make them a fortune a reach an ultimate level that would make them a regular income while they sit back and enjoy it. What most of them don’t realize is that there is a less glamorous but much easier and far more profitable option available to entrepreneurs. A way that most entrepreneurs quietly choose and even more quietly make great money from.
Even Richard Branson and other very well known entrepreneurs know this and even though they have started large enterprises they often sell them at a certain level or selfishly demand a return quickly while they move on to something else. They are not emotionally tied to one business except the venture that revolves around themselves.
This theory has taken shape as I have witnessed it first hand myself and through friends, relatives, clients and associates.
To highlight my point I want to layout a case study. This regards an actual business that is operating now that I have good knowledge of because it is run by a relative and I have done consultancy work for this business. The figures I use are indicative but not real and accurate.
It is a privately owned business run by a first time entrepreneur the company has been running for about 4 years the company is doing relatively well and is making some money.
The turnover is approximately $1,500,000 per annum and you might ask what’s the problem but the problem is this: With an office rent of $15,000 per month, 35 staff with a monthly wage bill of over $95,000 plus other operating costs and insurance it leaves her with a personal income of about $90,000 per annum.
Now you might say that’s good, she’s running a successful business and she is making money. But my opinion is that $90,000 a year is not nearly enough for the owner of a successful business who works over 10 hours a day with more staff problems and responsibilities to give anyone a nervous breakdown. Plus this is when things are going well what about when a big client is lost or key staff leave?
Make no mistake this woman is not Mark Zuckerberg and her company is not Facebook, like 99% of businesses they are happy to be rolling along and making money. However much they would like to be 99% of businesses will not be working towards a billion dollar IPO or selling out to the competition. That’s not to say a lot of entrepreneurs don’t make great money and have a nice life. Also remember for every Facebook, Google, Nikon or Sony there are millions of start-ups that have failed altogether.
So we have a small success story and I want to knock it, why? I just think that the entrepreneur at the heart of it should be making more money for less work and she can very easily, this is how:
The company is turning over $1,500,000 every year so that income is coming in but mostly going straight back out because of the usual expenses. If the outgoings are stripped back significantly while maintaining the workload then the entrepreneur in question could seriously increase her annual income. This is how I would suggest doing it: The business already uses self employed consultants to do a lot of the actual paying work and a lot of these guys are capable of working remotely from home so I would find a way of measuring their work and send them home to work.
The highest paid members of staff in the office are not doing any client facing or profitable work, they are the ones employed to take care of the staff and the office etc. If you get rid of the office you can lose them too? Offer the remaining “customer facing” staff the option to work on a self employed basis from home as the others have done already and send them home to work too. The technology exists now to make this work without any customer or supplier even knowing that you and your staff operate from home. major companies have legions of customer service and support staff answering routed calls from home.
By removing the office or at least downsizing it significantly and removing the highest paid members of staff, insurance, office hardware costs and maintenance plus other expenses the company is now still making £1,500,000 per annum but the costs have dropped so the profit is now around $400,000 a year for the owner.
So she now works from home and conducts her 30 or so freelance consultants from her spare room/office. She doesn’t have her own parking space outside the flash building anymore and it might seem a lot less tangible and glamorous but who cares when you have less problems and 4 times the income you had before.
Believe it or not most successful entrepreneurs are operating as a “one man band” and these men and women are often quietly making hundreds of thousands or millions every year for themselves.
Some of you might be thinking “this is not a new theory, I know this already.” Well my theory goes a little beyond the basics here and I think that with the costs and overheads involved (and by overheads I don’t just mean financial ones) that exist for most traditional companies it is impossible to succeed and eventually it will fail unless growth is continuous or it’ll become too much for someone. Match this against the success that a technologically connected and fluid business can provide with minimum commitments, tiny overheads and much larger profitability.
I am starting to believe that in ten years time if entrepreneurs go down old traditional route with “staff in the building” and attempting to create a “company” then they will inevitably be doomed to failure. In fact it might not take 10 years, we might be there already.
Go out there and make some money, who cares how many staff you have or haven’t got, what district your building is in or whether you have your name above the door, it’s all irrelevant when your bank account is over flowing and you are working from a beach in Fiji.
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