Some of my readers want to hear more on the business / startup front, which is where I have spent most of my working life …
…. but, it’s important to realize that the vast BULK of my $7 million that I made in 7 years (starting from $30k in debt) was made from investing – primarily in real-estate and stocks (mainly real-estate).
[AJC: That’s not to say that I didn’t make a lot from business as well – in fact, I exited three of my businesses to a UK listed company. But, that came a couple of years after I made my first $7m7y.]
Anyhow, since business is an important avenue for many of my readers to increase their income (so they can invest more), I like to offer the occasional tip. I love this one from Venture Hacks (via Twitter):
Why do companies brag about how many employees they have? They want to spotlight their inefficiencies and poor leverage? http://vh.co/euaB2h
Why indeed?
Number of employees is another example of what Eric Ries calls a vanity metric: a number that makes you feel good, makes your investors feel good, makes your bank feel good, even makes your wife feel good (and, your friends envy you) …
… but, tells you NOTHING about your business. At least, nothing actionable.
If more employees is good, then add employees to grow your business!? I don’t think so … adding overhead is a great way to go broke.
I have personal experience with this; back in 1998 my business was growing gangbusters:
I started with 4 or 5 employees, then won a couple of contracts in quick succession.
So, we rented a new building – our first ‘professionally fitted out corporate-style offices’ [AJC: actually, the ‘gentleman farmer’ who owned the building rehabbed the office himself … I mean, he and his sons wielded the hammers, nails, drywall, paint, etc. themselves! But, that’s another story …].
It was an 8 year lease, but something in the back of my head told me to negotiate for flexibility, so I pushed hard and got 4 by 2 year leases (our option to extend each renewal) instead.
Surprisingly, we grew from 5 to 16 or so within 2 years and were busting the ‘new’ office at the seams.
So, I scrambled out and hastily bought my own office (cost me nearly $2 million after fit-out), and I determined not to make the same mistake again: we moved into the office with 22 people but I fully / completely fitted it out, including workstations, phones, and so on for 50 people.
I made my self Growth Ready.
And, it worked!
We won more contracts and grew to 30 people. But, there was a catch …
We weren’t making money. The bigger we grew, the more money we lost.
I slowly came to the realization that my business didn’t have a Break-Even Point … our operating cost (i.e. expenses) was directly related to our revenue: the more we earned, the more people we needed to fulfill our service, the more money we lost 🙁
Luckily (!) we lost a major client and had to cut heads from 30 to 20 … it was a sad day for me.
Ultimately, though, it proved to be the first major turning point for our company: we created a new technology platform that allowed us to quadruple our business with fewer people; in fact, we maxed out at 22 after quadrupling our business.
Needless to say, we were suddenly – very – profitable.
So, now I was in an interesting position …
I could no long brag about having 30 staff … but I was rolling in cash, but who likes to brag about money to friends?
What would you rather have?
The vanity metric or the bottom-line results that come from understanding what really drives your business … then, doing it? 😉
Great story AJC. most employees think of themselves as being a commodity that a company cannot do without.But Point in fact(at least in the U.S.) with all its rules,regulations,and Government oversight),it becomes increasingly difficult to make a profit after employees expenses are figured in.This is central to why so many businesses have out sourced to other countries.Its not the lower labor costs so much as the Fewer Government requirements.Total Labor costs.
This is 1 reason why if I were to won a business in the U.S., it would most definitely have to be one where there were few if(any) employees involved.;)