That was the worst $600 I ever saved.
In retrospect, I should have spent a few extra dollars more on the Nissan Altima I bought in 1992 and installed air conditioning. But I was trying to save as much as I could. At that time, my company was barely making any money, so I thought I couldn’t afford the extra $600.
I very quickly regretted that decision.
I did a lot of traveling in that Nissan, and when I arrived at the client site wearing a suit and tie, the back of my shirt was wet.
After the sales appointment, I would change in the car—from my suit to jeans, a golf shirt, and a tool belt. Then I’d head to my next appointment to do a service call or installation. From there, I’d head back to the basement office to catch up on admin work.
I was a jack of all trades. But my passions and areas of expertise were sales and marketing.
Conversation with My Father
Then my dad explained my earning potential in practical terms.
“Jeff, what’s your time worth?” my father asked. “Give me a figure.”
“$75 per hour,” I responded.
“And how much time are you spending on bookkeeping and other administrative tasks?” he asked.
“Maybe five to ten hours a week,” I replied.
“And how much would it cost you to hire a junior admin clerk and bookkeeper?” he asked.
“$15 per hour,” I replied. (Remember, this was 1992.)
“Jeff, you need to put a value on your time. That’s the only way you’re going to create wealth. Consider all of the things that you’re currently doing for your business, but that you could hire someone to do for less than your current hourly rate. Then you could stop doing those less expensive administrative tasks.”
I graduated from Business School, so I definitely understood the concept of opportunity cost. But up until then, I didn’t appreciate its practical application.
I know many business owners who are doing $1 million, $2 million, and (in some cases) even $3 million in revenue per year. And they’re still doing all of the business’s bookkeeping.
As Entrepreneurs, We’re Control Freaks.
We think, “No one else cares about my company as much as I do, so no one will do it as well.”
Even though you may not be sacrificing AC or changing clothes in your car, there are probably things you’re currently doing in your company that you shouldn’t be.
Once you scale your business past the first few team members, it becomes crucially important to understand the role you’ll play in building the business.
You need to constantly ask yourself these questions:
- What do I love doing?
- Where are my skills and interests?
- Where can I add the most value to the company?
- What’s your core competency? Is it sales? Marketing? Maybe software development?
You need to put a value on your time. Let’s say your business made a profit of $200,000 last year, and a revenue of $2 million. Perhaps you’re the business’s best salesperson, and you brought in $1 million of the $2 million in revenue. How much would it cost you to hire a salesperson to bring in $1 million in sales per year? Including commissions and salary, let’s estimate $120,000 per year. At that rate, the salesperson’s time is worth approximately $60 per hour.
Are you still doing your company’s books? If so, it’s time to stop doing them, hire a bookkeeper for $25 per hour, and invest that time in either:
- Taking some time off (if you’re working too many hours)
- Spending more time in sales, which produces a value of $60 per hour
Your time is valuable, but it also has an opportunity cost. For every lower-value project and job that you’re doing, you’re losing money. Stop doing it, and hire someone to do that work for you.
Focus on Your Strengths, and Delegate Your Weaknesses
For any aspect of the job that you’re not amazing at, hire people who can do it better than you’re currently doing. Train these people. Manage them. Motivate them. Treat them like gold.
Now repeat that process. Over and over and over again.
Start building a team of competent people around you who are experts in their respective fields, and who you want to learn from. You don’t need to know more than they know. You just need to make sure that they’re motivated, want to learn, and love coming to work every day. Now lead them, and get out of their way.
Building a strong team is one of the biggest challenges in business. Before you even begin, you need to understand the role you play in the business, and where your strengths and weaknesses are. Admitting your weakness is often a more difficult task then you’d think, which I’m still working on every day. I’m learning new ideas from books and podcasts, trying to understand my strengths—what I love, what I want to be doing more of, and (conversely) what I want to be doing less of.
When I started my business, I was doing everything. I couldn’t keep up with the hours and knew I wasn’t enjoying the administrative work. So administration was the first responsibility that I gladly relinquished.
After that, I got so busy with sales and installations that I no longer wanted to do installation work. So in my second year of running the business, I hired my first technical employee. It was such a relief to exclusively focus on sales, and leave the administration and technical work to experts who could solely focus on those responsibilities.
So, what is the one question more entrepreneurs should be asking themselves?
What is my time worth? And, the second I should have asked myself … why didn’t I buy air conditioning?
I published a book during the summer of 2018, “The Kickass Entrepreneur’s Guide to Investing, Three Simple Steps to Create Massive Wealth with Your Business’s Profits.” It was number 1 on Amazon in both the business and non-fiction sections. This post originally appeared here.