Yet many of those entrepreneurs get caught up in a downward trap.
They view the value that they generate for potential clients and customers as the number of hours that they put in.
They view the time they put into their work as the output, the value differentiator.
“If my competitor works 12 hours a day, I’ll work 13!” they think.
It’s the same at the job. While there are studies that correlate more work with more pay, the boss doesn’t care about the hours you are in the office as a measure itself.
Do you have on your performance goals to work X hours per week?
The Number of Hours You Put In to Your Work is the Wrong Measurement
I’ve been in environments where it appeared important to be seen in the office. From the military, where commanders and their staffs were on post long after everyone else had gone home or to the barracks to corporate life where people would (I kid you not) brag about needing cots in their offices. It was if there was some crazy warrior ethos where the war scars were not actual battle wounds but the number of stories you could tell about how much time you spent at the office.
Yet, three of the most effective people I worked with left at 5 PM every day. They weren’t e-mailing after hours or making phone calls. They were done.
Why was that?
It was because they valued their work product rather than the work itself.
Look at Tim Ferriss or Ramit Sethi. Both of them take copious amounts of time off, but probably make seven digits a year.
It’s because they value outcomes more than anything else.
Know the metrics that drive profitability
The first thing that an entrepreneur needs to understand is what the metrics are that drive profitability.
If you work in a corporate job, understanding where the profits come from that pay your check is also very useful.
However, just seeing a balance sheet or a profit and loss statement won’t tell the whole story.
You need to dig a little deeper.
Revenues is generally driven from awareness, interest, narrowing down of choices, and a final purchasing decision. It’s called the sales funnel.
The same is true with expenses. You have fixed expenses (lights, rent, licensing fees, etc.) and the cost of goods sold (inventory, upfitting, marketing, etc.).
You need to understand what activities have the greatest impact on the largest drivers of both expenses and income.
This isn’t just spending money, either. It’s your time. Can you write an article that is seen by a thousand potential buyers? Can you network at an event where 25 potential buyers will be in the room? Can you pay someone to do the work that has to be done but doesn’t affect profits (such as accounting), freeing you up to generate more profit? Can you hire someone to generate more profit for you? If you get more sales, will the incremental cost of fulfilling each additional sale be so expensive that you would wish you hadn’t sold more?
Stop throwing spaghetti at the wall
As an entrepreneur, it’s tempting to want to try everything under the sun. In my software development company, for years, we labored under the “general development” rubric. We didn’t want to focus on a niche because (gasp!) we might lose some sales!
But we’d never actually evaluated what kinds of clients were the most profitable for us. Instead, we kept throwing spaghetti at the wall, trying to be all sorts of different things to different people, hoping something would stick. We were so afraid of losing revenues that we forgot one of the most important words in an entrepreneur’s vocabulary:
Once we looked at what clients were most profitable, we decided we could cut out a huge swath of work and maintain our profits. Our revenues shrank for a year, but profit increased. After that, we grew as we established expertise and a reputation in our much narrower field.
Plus, the amount of work I had to put into the company dropped. We weren’t chasing nearly lost causes – the types of opportunities that we had a 5% chance of landing, were worth a couple of million if we won, and required me to put in weeks of work to bid.
Funny enough, we never won one of those low probability opportunities. My estimation skills on the tails were terrible.
Our biggest impact activity was speaking at conferences. Most people came to the conferences we spoke at looking to solve problems. We showed how we’d solved similar problems for other clients. They saw our speakers and though “that sounds a lot like me,” and we had conversations that led to work.
Because we measured what we did and where our clients came from, we were able to identify high-impact work.
As an entrepreneur, your most important metric is profits.
Happy clients leads to profits.
Identify the things you can do that lead to more happy clients, and you’ll unlock the puzzle.
But, don’t get into the trap of thinking that you have to work more hours. Sure, you’ll need to work hard to succeed, and you’ll have to do something different and noteworthy to get people to hand over hard-earned dollars; however, work for work’s sake is not the answer.
Measure. Analyze. Focus. Cut. Cut ruthlessly. Don’t lose sight of the goal.
Have you spun your wheels before as an entrepreneur? What was your biggest time-wasting activity that you thought you had to do at the time only to realize later that it contributed nothing to your profits? Let’s talk about it in the comments below!