Cut through the chase: I suggest you sign up with FreeUp and get your Virtual Assistant as soon as you get at about 70% of your capacity. Want to know more about having one or more assistants? Continue reading…
As you start making money or if you have another job, you’re going to slowly notice that your throughput is somewhat limited. After all, there are only so many hours in a day and if you want to write 10 articles per week, it’s not going to happen unless you do just that. The problem when you do just that on your own is that it’s going to very much limit the number of hours you can spend on other things like research for proper articles. It’s great to write content, but it should still be directed by What is going to matter to my readers?
70% is the new 100%
This is not something new. There is a saying that once you are swamped with work, you are stuck because you won’t be able to take on more work or manage a team to help you. So when you reach 100% of your cycles, you’re just simply in a position where you can’t increase your throughput at all.
Large companies increase their throughput simply by hiring more people or acquire other companies that have already gone through the process of hiring good workers. For your business to continually grow, you must go ahead and start thinking about hiring people to help you. In most cases, you want to hire people to do work that you are not particularly interested in. Say you hate doing your books, hire an accountant who has an assistant who can do that for you. Say you write content for the sake of getting hits on your website and provide links as an affiliate (which is the point of this website!) Then maybe you like to take care of those links, but not so much in writing a lengthy article.
The 70% rule is simple. At the start, do all the work up to about 70% of your capacity. Once you reach 70%, see how you can hire someone to help you with the work. At that point, you should already be making some money so it is a matter for you to accept to share your money with an assistant. I know it’s hard at first. This is money you worked for and you probably would like to get that new car or fix the back door at your house…
Here is how it works: You get to 70% of your capacity and get one assistant. With that one assistant, you realize that you can increase your throughput to 100%. But the good news is that you now work at only 50% of your capacity! So now you have throughput is 100%, you work less and yet you increased your income by about 30%. That’s 30% that you can use to pay yet another assistant and increase the income by another 25%. Then you are on the road to having many assistants who can work for you and you now are at 0% of your capacity. In other words, you do not have to work in your company but you still get your paycheck at the end of the month. Although you may still want to work there, it gives you a great feeling to achieve that level. One main reason for that: a business that runs itself is easy to sell for an amount equal to:
its revenue after expenses × a factor
For a profitable business, the factor is going to be between 1 and 22. For most small businesses, use roughly 2.5 to have a pretty good idea of your business’ current market value. Some Internet-based businesses, such as marketing, e-commerce, SaaS, may use a factor between 5 and 10. To have a good idea, ask around. Many CPAs know these numbers, for example.
So if you have a regular business that makes about $200k of profit a year (including your salary if you draw one) then you can sell it for about $450k ($200k × 2.5) to a person who is willing to purchase it.
Don’t get me wrong, this doesn’t take one or two days. It’s a long process. But that’s the only process I know of to transform your work into an actual business. After all, if you create a job for yourself, you may as well make it worth your while and transform it into a business. Otherwise, you could just get a job at a company and just work your 40h/week and don’t get the headaches that come with building your own business.
Just remember, if you are at capacity already (you work 100% of the time or more) then you will not have the time to consider hiring people. You’ll get overwhelmed and in the end, you’re not unlikely to lose a lot more than you make.
Employees Getting Overwhelmed
Just like you, your employees need some breathing room. They can be working 100% of their time once in a while, like say 1 week per month. However, you do not want to work out your employees at 120% ongoing. It’s going to get them tired to work with you and they’ll leave. Although some of them may be able to sustain such schedules, not very many can and, in most cases, you’ll lose really good employees.
Instead, monitor how much work they get and make sure to give them the help they need to sustain the work. This may mean hiring more employees. It will eat a little of your income, but long term you’ll thank yourself for doing so: you’ll have more work getting done because his new employee can take on 20% of five other employees!
In some circumstances, you may want to take on contractors. People who come and work for you for a short period when there is an overload of work. You then let them go once the work is done. Keep in mind that contractors (as opposed to employees) expect to have a limited amount of work and be done with it. Employees should not be used that way because those are your company’s blood and you probably want to keep them long term.
The Bumpy Road
In many cases, entering the business realm, especially by yourself, is going to be a bumpy road. You will have ups when you get new clients and downs when the clients run out.
Why do clients run out? In most cases, when you are in your own business, you do promotions of your skills at one point, get clients, get a lot of work, and then it stops. At that point, you have to search for new clients.
Here we see two common problems of new entrepreneurs:
1) There is only one of you, so you should consider hiring someone with similar skills to take on some of your customers if you are the one to continue working on finding new clients and you have too many clients to handle all the work on your own.
2) If the sales aren’t your forte, then you are very likely to stop that work as soon as you get a good client. This means no more clients just coming through the door to hire you until you restart a campaign. Hiring a salesperson is your best bet here. Of course, that means you’ll have to share the proceeds with the salesperson. Not only that, if the person is likely to provide your business with many more clients than what you can ever handle, then you hit the problem described in (1) above: you must now consider hiring others with your skills to increase the business’ operations.
With this, we come back to the previous point of the 70% workload. If you are overloaded with work, you will have a really hard time getting to the next level. Plus, running all the parts of a business can be overwhelming: sales, marketing, finance, operations, thinking of next year’s strategy…
Fixing the bumpy road to a point where the company is always making a fairly consistent amount of income is the best achievement you can make. It should happen within the first 3 years of your startup.
Seasonal Products and Services
Note that the bumpy road I’m talking about is seen in some businesses because they are seasonality. For example, a ski station is going to be opened in the winter and make possibly 100% of their money at that time. A station with a hotel may make money all year round, but much less in the summer.
Those businesses are called seasonal since their income changes depending on the time of the year. The worst case I’ve seen is for people who play Santa and can make enough money in one winter. That’s definitely seasonal! Although I suggest you choose a different job because malls are closing since no one goes there anymore.
Other types of seasonal businesses:
- Toys—those often sell more at the end of the year.
- Academic Books—those sell more just before the start of the year, so often this is in July/August
- Boats—in many cases, larger sales of boats happens in spring and the summer when people who buy boats are going to have fun on lakes and the oceans
Websites selling those seasonal products are going to have what looks like a bumpy road. What is going to be difficult with this one is managing the income of the business for the whole year when most of the income happens during 2 or 3 months of the year. This is particularly difficult if you are making less than $1M because the IRS wants to tax you on the entire income before you have a chance to pay your employees. Make sure to hire a good CPA who can help you with that part of your seasonal business. Depending on your country, you may be able to change the date when you have to pay taxes or clearly show in your accounting that the amounts due to your employees should not be taxed.
There are many ways available today to find employees, especially now that we have the Internet.
Although there are websites such as Fiverr and WorkUp, I do not recommend those. Not that the people there would not be able to offer you good work. However, these websites are hard to work with. You’re on your own to find workers that are a good match… and you have all kinds of people registering on those sites (i.e. they are not vetted). However, if you are looking to hire someone for one specific short job, this is often a very good solution.
For longer-term workers, I would suggest you use the services of a company such as FreeUp. You can also get people for the short term. Now there are three things I like from FreeUp:
- The company vets the workers, so you do not have to waste your time on that part of the hiring process.
- They manage the payments and you have one week to protest on the work and thus avoid paying if the work wasn’t done properly (Good luck with that one on Fiverr and similar sites).
- They have many workers eager to help businesses like ours so they can get someone within 1 business day, at times on the same day you post your request.
The one other important thing: They send you ONE person at a time. You can check their resume and decide whether to work with the person or not. If not, you can choose the next person. For content writers, for example, you may want to check out their existing writing to see whether it matches what you already have on your website(s). If so, great! If it’s too far off, you may want to skip that person and move on to the next.
Still, getting a single resume at a time is delightful to me. Opposed to that, the usual hiring process is to get 4 or 5 when using an agency and hundreds (or zero!) when posting an ad on a job website. If you have an HR department and one staff whose work is to go through resumes all day long, that makes sense. For us, busy as we are already, having a single person to deal with at a time is an incredible time-saver.
So, I suggest you sign up with FreeUp and get your first staff within 1 business day. You’ll very quickly feel the difference and grow your business seamlessly. And the beauty of it, you do not have to hire someone full time or even part-time. You can start with just one hour a week. See how that helps you and increase the help as you start making money in your business.
One thing to keep in mind is the legal aspect of hiring employees. When you hire through an agency, 99% of the legal matters are handled by them. Payments, complaints, etc. are all going to be directed at the agency either from your side or the worker’s side.
When you hire directly in your company, then you are 100% responsible for the new hire. In that case, you need to talk with your CPA and attorney to make sure you’re covered with the payroll and the potential litigation that could ensue. I suggest you take that route at a later time, once you have enough cash flow to cover all the extra expenses.
One important thing to consider when hiring someone as an employee, look at the costs of laying off (or firing!) the person. In Europe, the legal system offers a period when employees are being tested. During that period, you can let go of the person at no extra charge. If you are in Europe, do use that period to test your new employee and make sure that they are performant in whatever job you hired them for. In countries where you do not have such a period, make sure to understand how much it will cost you to let go of the person.
Attracting Workers: Bonuses and Ownership
One thing that can be difficult is to keep workers on your payroll. Although it can be difficult to layoff somebody, it can be even worse having to hire new people every three months because they leave your company as they find another with better deals.
This is the other advantage of using a service like FreeUp. Freelancers and contractors are not looking for perks in a company. They are way more interested in receiving a larger pay right now.
On the other hand, many employees do want perks. This could be a larger paycheck, but in many cases having a more flexible job (i.e. work from home most of the time), getting health insurance paid by the company (especially in the US, although in France it would be what we call “Complementary Insurance” and that’s also a great bonus), getting a paid-for membership at the gym, fly to Hawaii for the company’s party in December, receive stock, etc.
Notes about offering stock to your staff: make sure that it doesn’t generate a taxable event or if it does that the employee is aware of the potential issue and has enough cash to pay said tax; also, I strongly suggest that you set up a form of road map or milestones before the employee receives the stock; it should take some time before the first stock can be purchased (i.e. maybe 6 months). Although there is a problem of dilution of the stock when offering stock to your stack, the main problem is for you not to lose control. Don’t get 51% thinking you’ll be fine. If you offer stock to many, the extra 1% won’t count and soon enough you’ll lose the majority. Also, employees getting a C-level position (a.k.a. CEO) usually get a pretty large percentage of small businesses, such as a whole 1% to 5%. In all cases, you should consult with an attorney and a CPA so you can be sure that what you are doing is legal and financially feasible. A final note about equity: You do not have to share with your employees. Until you make millions, it’s probably not useful anyway (i.e. your employees would not get anything from those shares and if you’re not publicly traded, there is no hope to easily selling those shares either).
Keep in mind that it costs you much less to offer perks, whichever ones you can afford at first, than looking for new hires. In most cases, insurance is very much what people look for at first in the US. This is why having Virtual Assistants is much more affordable. That being said, if you spend 8 hours hiring someone when your 8 hours are worth $5,000, hiring someone new is very costly. Although by the time your 8 hours are worth that much you should already have an HR person who takes care of that work for you.
Another important part of keeping people around is making it enjoyable to work in your environment. When you have people who just pressure employees to do all their work 100% on time, yell at them for any mistake they make in their work, make comments each time the worker is late, etc. you can be sure that the employees are going to leave quickly.
What you want is to be open.
Make sure the work gets done. Expect employees to be able to do the same work as you at about 80% your speed/effectiveness, and when that happens, gratify them (i.e. a Thank You goes a long way!). Don’t forget, at first you’ll have to train them so they will reach that effectiveness only after a little while. Depending on the work, it could be one or two days to a whole month, actually, in engineering, it could even be six months (but I don’t think you’d be reading this if you have such hires… you already have a huge business making millions in that last case). Of course, after a while, your existing staff can help teach your new hires.
When they make a mistake, work with them to correct it. A good leader is someone who helps others. The one possible problem here is: the worker repetitively makes such a mistake and they are just not able to fix it, whatever amount of help you offer them. This can happen, but frankly, it’s rare.
When they have to be on time, remind them that meetings are a serious part of the business. But please keep in mind that things happen; you just can’t expect people to always be perfect.
Finally, pressuring people adds a lot of stress. That’s a sure way to get them to leave your place of work, get PTO, and a few other similar things. Of course, you want the work to get done. But just so you know, 99% of the people out there already know that and that’s why they come to work for you in the first place. Also, stressed people do not work as effectively as happy people.