Show notes from podcast episode 38.
I talk a lot about doing the important but not urgent work it takes to be successful as a business owner. I believe it takes a certain mindset to know what the hardest work is or even exists and needs attention. That’s the type of work that separates the people who run and scale successful businesses and those that fail or simply create themselves a job they can’t escape.
As an entrepreneur it’s easy to get caught up focusing on money and profits and what you can buy with the money and profits. After all – money is tangible. We can see it in our accounts. We can spend it. We can buy things we like.
The hard and important work is understanding value. It’s easy to ignore value because we can’t see it, touch it or count it. It isn’t liquid this very moment. In order to trade it for money we need to nurture it and invest in it and make it legible to others. The successful entrepreneurs know this all too well. They know how to recognize it. They know how to measure it. They know how to grow it. They know how to invest in it and build it.
After all – money isn’t the same as value. It just moves value around. Value is different for all people. The value is in the things, the time, the experiences or whatever you decide is valuable to you.
So why is this important and how does it relate to entrepreneurship?
If you think about life and business in terms of money it’s easy to be short sighted. It’s easy to make decisions based on maximizing near term money. This is why so many people trade their time for money and watch 5 hours of TV per day. Work an hour now get paid $15 now. Do what I want tonight. Think about tomorrow tomorrow.
Value is different in how it relates to money. Value is money, happiness and opportunity later. Add an hour worth of value now and get paid $20 per day for the rest of your life starting a year from now? Add value now and enjoy opportunities two years from now? Add value now and spend your time doing what you want to be doing five years from now?
Estimating and determining how much value is being produced is a skill and a practice. It takes forward thinking. It takes making educated guesses. It takes thinking 5 years down the line at all times.
So you started a business. Is the goal to maximize profits today? Well that would be nice. But if you think like that you’ll give up the second week when you realize that’s not how entrepreneurship works. It takes focused energy over a long period of time.
There are many many examples of value. I’m only going to highlight a few. A few things that you can do now that will add value that aren’t immediately tradable for money.
Time saving systems
Time is money and most people don’t realize that. Why else would the average person waste so much?
Entrepreneurs understand that anything they can do now to save them time later is extremely valuable. While it might not directly affect the bottom line right now it will definitely do so over time.
Make the one decision that cuts out 100 future decisions. Do the one task that cuts out 100 future tasks.
An employee training video series is one of many great examples of the value mindset when it comes to time savers.
Making a youtube training video series for your employees might cost you a lot of time in the near term. A typical small business owner might not see the reason to do it. It’s important but not urgent. It won’t directly lead to higher profits or more customers. It’s not measurable in dollar signs today.
It’s the one task that cuts out 100 future task. Instead of running through the 2 hour training spiel with each new hire once every two weeks for the next two years you can spend a full day one time and have that asset forever. Instead of using the emotional and mental energy putting a new employee through the process you just sit them down at a computer, tell them there will be a quiz afterwards and they are expected to ask 5 questions so they better take notes and you get back to work.
So instead of spending 104 hours over the next two years training employees you spend 8 hours one time and you have 96 hours over the next two years to do other important things to grow the business. Thats long term value.
Quality improvements
Not only does a training video series save you time but it also increases the quality of the training and thus the work drastically. The video can be perfected. No stutters. No missed topics. No unclear statements. The employee can pause, rewind, take notes and revisit later if he or she has questions. Simply put – it’s a lot better end result. Not measurable now – but measurable over time in value.
Quality control is another great example. Maybe you put in a system that requires an employee to upload photos and notes of their work for management review and record keeping. In the near term this only slows you down but in the long term it would prevent complaints, refunds, negative reviews, unhappy customers and all the administrative headache and time associated with dealing with these things. Thats long term value.
Long term profit potential
Money is here, now, what have you done for me lately? Value is measured in long term potential.
Amazon is the classic example of this – it’s one of the most valuable businesses in the world and it has yet to make a profit. Its wildly profitable in the United States but it continues to make long term investments overseas with the goal to have even greater profits later. The markets recognize this potential and this value and the share price reflects that.
It’s the marshmallow game. Eat the marshmallow now or wait 5 minutes and get two marshmallows.
Dan and I operated Storage Squad basically at cost for several years knowing there was long term value in having brand awareness at each school we operated at. The volume, while not producing profit now, was worth something later. We would have had a really hard time growing the business if we priced our service at market rates right off the bat. We learned the systems, reinvested, gained momentum, added value first and now we are enjoying the fruits of those sacrifices.
The longer you can go without pulling money from your business the better off you will be and the faster you will grow. Either invest in volume by offering a low cost service for a while or re-invest the profit back into the business to build systems, brand awareness and set yourself up for future profits. Thats long term value.
Recurring business
If you are lucky enough to operate a business with recurring revenue on a scheduled basis then you have serious value in each signed on customer.
The self storage business is a perfect example of this. The average self storage customer stays in their storage unit for 18 months. That means they’ll pay the rent each month 18 times on average. Many others will stay for several years.
The big storage players recognize this so they are willing to spend big bucks on marketing and offer deep discounts to get customers in the door. They understand that they don’t need to profit on customers month 1 or 2 but they can wait for months 3-18 to profit and there is significant value in waiting a while to cash in.
The mom and pop operators nickel and dime the tenants upon move in. A $20 admin fee. A required $20 lock fee. A security deposit.
The real operators make it basically free to move in and offer a free month. They understand it’s not about profit right this second. Its about long term value.
Adopt this mindset in your business.
Open market resale value
It’s easy to forget that your business (if built the right way) is a valuable entity that someone else could buy from you down the road. The value in the business is gained over time and isn’t liquid or measurable in money in the early days. But that doesn’t mean its not there.
Expanding on the previous point, if you have a book of recurring business it can be very valuable to a competitor or potential purchaser. Getting customers is one of the hardest parts about business.
Say you spend 4 years building a small business from scratch and then you sell the business for $500,000. Thats an additional $125k a year in value you have added over time above and beyond profits and future profits. Thinking in terms of value vs money in this sense is a really good way to push through hard (or tiresome) times when the excitement wears off and you have to put your head and work through the dip.
Experience
Learning and getting comfortable with business is half the battle. This is why I’m such a firm believer in starting small and starting in college. Just get the toes wet with something low risk.
I believe that if any self made wealthy individual lost it all it would only take a few years for them to get wealthy again. Knowing how value works and how to create it and multiply it is a skill that you can only fully understand by practicing.
Your first business won’t change the world. You shouldn’t try. You should use it to learn and get better and treat money as a means to an end. The sooner you can stop relying on a paycheck from somebody to live the better.
Network
We’ve talked about networks before. If you don’t bring anything to the table a network is useless. Your network grows as you gain experience and skills and – you guessed it – can add value. When you get really good at something powerful people who need your expertise start to show more interest in working with you. They’ll invest in your next company if you have a track record. They’ll partner with you on the next real estate deal. Thats long term value.
A few side benefits:
Understanding value separated from money can help you make very wise purchasing decisions. If a 5 year old base model truck and a brand new loaded truck have exactly the same utility and value but one costs $12,000 and the other costs $55,000 a wise entrepreneur won’t think twice. It’s easier to take emotions like ego out of the equation when you look at something in terms of value vs monetary price.
Understanding value can help you set priorities and goals in life. Money is simply a means to the end. Value is up to you.
Be careful.
Early on its easy because you have no profit. You are forced to think in terms of value. As you gain momentum and money starts to appear it gets harder. There is a lot of pressure to focus on money alone.
Its harder to focus on long term value when money is easily gained, especially if investors are involved. They want money and they want it now. What value was created that ultimately lead to that money and how to create more of if isn’t always obvious.
Understanding that something is valuable and working hard to make that value manifest itself in the form of money over time is the hard work of a successful entrepreneur.
Want more? Subscribe here to get short, concise emails from me once a week to help you build a better business. I also share a business idea like this each week to get you fired up and get your gears turning.