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
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?