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Why you Will Always be Vulnerable to Recession with a “Dollars for Hours” Mindset

June

25th

Wendy Piersall

Last week, I had an aspiring entrepreneur contact me and ask me if she could ‘pick my brain’. She was stuck in the corporate world and described herself as ‘obsessed with entrepreneurship’. She felt like her job was sucking her dry, and said she had a driving desire to start a business support/virtual assistant business for other entrepreneurs and business owners.

I felt like the deal of a lifetime had just landed in my lap. Here I am, in desperate need of administrative support, and I have more than 15 years of business experience I can share with her - on top of the fact that I am a certified coach. So I offered her a trade - she helps me with my business, I offer her exposure to her target audience, advice, and structured mentoring every week to help her grow her business enough to leave her job.

Her response, though pleasant, was:

“I would be happy to help you, but at this point I need to make sure I’m getting compensated for the work I put forth.”

I can understand where she is coming from, and I certainly hold no hard feelings. But her short-sightedness tells me she is not ready to be in business for herself - yet.

So let me take a step back for a minute here. Even if you are in a full time job, you are still in business for yourself. You have a product you are selling - you are selling your hours for dollars.

If you make $80K a year, you have sold your product (2,080 hours per year) to your employer in bulk at $38.36 per unit.

You are accountable for delivering your product as promised (doing your job as described when you were hired)
You must manage and track your account receivables (by doing your taxes, budgeting, etc.)
You are responsible for customer satisfaction (keeping your boss happy)
Else you risk losing your customer (getting fired)

Let’s look at this briefly from a business perspective -

You have only one product
You cannot increase your inventory (even working overtime has its limits)
You have only one customer (maybe two if you have to)
You have only one chance a year to raise your prices
And you are limited by what your customer is willing to pay for those units, because they know they have complete control over your account receivables

It doesn’t take an MBA to realize that this is not the business in which you want to be. In short, you have a business that is not very scalable, has all of its eggs in one basket, has limited long-term growth potential, and you will go out of business immediately or run your business in the red if you:

Lose your inventory (retire, get sick, have a family)
Lose your customer (get laid off or fired)
Have account payables that outweigh your account receivables (like when you have to pay $600 a month for gas, which eliminates your food budget for the month)

What makes a good business?

A good business is structured in the exact opposite manner than that of a J.O.B.:

Diverse customer base (A good rule of thumb is that no one customer rules more than 40% of your revenue)
Diverse income sources (For example, the M&M’s brand sells candy packages and ice cream flavors, as well as stuffed toys, toy dispensers, and has a museum and store in Las Vegas)
A scalable business model (so that profits can increase without adding employees or overhead)
An innovative marketing team (to generate new profit centers as well as sell existing product lines)
And most importantly, a good business invests profits and resources back into their company knowing that more work now will translate to bigger profits 1-5 years down the road.

Back to my VA.

As long as she still thinks that she must have dollars for every hour of her work, her business will be forever constrained by the amount of hours she can work in any given year. Even if she has employees down the road, she will still have a finite number of units she can sell - 2,080 per person (technically less than that, but you get my point). Yet if she had taken me up on my offer (or if she found any mentor for that matter), she would have been making an investment in the long-term growth of her business. She would have found clients by being involved with Sparkplugging. I would have given her the opportunity to write for the network. She would have gotten free advertising. I would have helped her market her business and build her visibility among her potential customers.

Most of all I would have taught her the most important less she needs to learn as a business owner - until you can get out of the “Dollars for Hours” mindset, your business is not scalable, is completely vulnerable to the economy and outside forces, and cannot grow beyond the 2,080 units you have to sell. If you are in a service-based business, of course you have to bill for your hours - don’t get me wrong on this. That being said, you must invest time and resources back into your business in order for it to be healthy, sustainable, and scalable.

And if you are stuck in that corporate job, I hope you see that you are a lot less secure than you might have thought you were. Everyone is a business owner. It’s my hope that everyone starts thinking like an entrepreneur - which is the best way to recession-proof your career.