Hal looked tired when he arrived at the restaurant.
“You look beat,” I told him.
“I am,” he said. “I’ve been working nonstop, running from my home in Canada to my office in Honduras and then visiting all my projects in Central America. I’m too old for this.”
“How long have you been working at this pace?” I asked him.
“About 20 years now. Since I left the corporate world and got into my own business.”
Hal’s “business” was designing beach houses. His clients were mostly North Americans who had expatriated to Central America. He had a good reputation and that kept his small firm busy. He has designed and built dozens of great buildings. With a partner, he virtually transformed a small fishing port on the Great Lakes into a thriving, upscale village.
But he was only netting about $90,000 a year.
“You started with nothing, and you’ve built so many beautiful things,” I told him. “You know all sorts of interesting people, have friends all over the world, and enjoy a lifestyle many people would envy. Except you work too hard and make too little money.”
“Amen,” he said.
This is a common problem for talented people who start businesses without understanding how businesses work. They’re not what I would call a business at all. I call them self-employment companies.
A self-employment-company is one in which the success of the business depends on how long and hard you work. Many professionals fall into this category: lawers, doctors, physical therapists, and sports trainers, to name a few.
I’m not knocking self-employment businesses. They can have some definite advantages over working as an employee. For example, you will usually enjoy:
- a higher income
- a sense of accomplishment
- significant control over what you do
That’s a lot. Hal and others in his position are better off than they would be working for someone else. But there are two important things they don’t have:
- the potential for unlimited income
- an asset that can be sold for a great deal of money
A real business to me is one that doesn’t forever depend on the owner. After the start-up, it can grow and produce more cash and become more valuable as the entrepreneur gradually works less.
Several of my clients have such businesses. They worked hard in the beginning but now they hardly work at all. They have people running their operations. They stop by every once in a while to check on things. If they don’t want to stop in, they can have their profits wired to their personal accounts.
The other big advantage of real businesses is that they develop equity. Equity means real value – something you can sell. One of my clients is virtually retired from his business. But he still makes tens of millions of dollars a year from it. And if he ever sells it, he could probably get a billion dollars.
I gave a speech last week at a Dan Kennedy event. Afterward, I signed books for several hundred people. Many of them wanted to talk to me about their businesses. Of those I spoke to, many had self-employment companies.
One young couple had started a fitness training service. They were the trainers. They were charging a good deal of money: $80 an hour for their time. They seemed happy about it and so I congratulated them. But then they asked the right question: “So do you think this is a good business?”
I asked them what their objective was. Were they happy making a hundred grand a year (which is about all they could do)? No, they said. They wanted to become rich.
“Well then,” I said, “You need to understand something.” And I told them what I am telling you today.
If you want to earn a good living doing something you like, a self-employment company may be right for you. But if you want unlimited income and the chance to make money without working long hours, you have to have a real business.
How do you tell if you have a real business or a self-employment company? Answer the following questions:
- Does your income depend on how many hours you work?
- If your customers discovered that you were no longer actively working, would they continue patronizing your business?
- If you decided to stop working next month, would your employees be able to run your business without you?
- Could you sell your business for a lot of money – enough to retire on?
If you answered “yes” to all of the above, congratulate yourself. You are the owner of a valuable business.
If you answered “no” to any of them, you need to consider the advice I gave to the two young trainers – the same advice I gave to my friend Hal:
Make yourself less important.
Understand that every business has two aspects: producing a product/service and selling it. As an owner of a real business, you don’t want to be the product/service provider. You want to be the marketer.
Being the marketer means you will work in the background. That means less glory but more money and free time.
It is gratifying to know that your customers want you on the job. But as long as they feel that way, you are tethered to their schedule. If you want to be able to control your own time – to come to work when you wish, leave when the whim to do so hits you, and take long, worry-free vacations – you must become replaceable.
There is only one way to do that: Find a superstar who has the potential to replace you as the most valuable person in the business. And don’t stop when you find one superstar. Two is better. Three is heaven.
The goal is to transform the organization from one that is based on you to one that is driven by marketing. This is a difficult challenge – especially for people who like being “in demand. “But it is essential if you want to sell your business, as a business, sometime in the future.[Ed. Note: Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]