Your Own Business

In a previous post I mentioned that if you are the type of person who focuses on personal productivity, you probably shouldn’t be working for someone else.  I wanted to explain why. Many people focus on being highly productive, but no one seems to talk about how to actually benefit from being more productive.  Sure you can make your boss really like you, but just because you are helping your employer be more efficient doesn’t mean you are going to see any personal benefit–other than being well liked.

How Businesses Make Money

Businesses make money by selling items or services for more than it costs them to produce those items or services.  The dry cleaner may charge you $2.00 per shirt, which is probably at least twice what it costs them to actually clean the shirt.  If you are paying for their services then $2.00 must be less than the value of your time to do it yourself.

In most businesses, they make money not because their employees are highly motivated pinnacles of productivity, but because they have a good system in place.  The employee that cleans your shirt isn’t necessarily any more productive than you.  However, they have access to equipment that you don’t have and have a procedure for cleaning and pressing the shirts that allow them to do it more efficiently than you could yourself.  So it isn’t necessarily their personal productivity that allows the business to make money, but the productivity that comes from following the business system using the business tools.

Some businesses make money by having employees that will work for a much smaller amount of pay than what the company can get away with charging.  Consider the recent lawyer graduate who works for $75 per hour for a firm that bills them out at $275 per hour. The firm provides assistance and gets clients that the lawyer probably couldn’t get on their own, but when it comes down to it, the work the lawyer does is much more valuable to the client than the amount the lawyer is being paid.

When You Should Consider Starting Your Own Business

If in your employment you fit with the dry cleaner example, you probably shouldn’t go out and try to start a business. The individual working for the dry cleaner is making money by following a process–not by being particularly efficient or productive.

However, if you fit in the young lawyer category, you are unlikely to be paid what your time is actually worth. If you are highly motivated and really focus on being productive and efficient you will make a great deal of money for your employer, but very little of that will ever make it to your pocket.

Consider this: If you are able to refine your productivity habits to the point that you are twice as productive in your line of work than the average employee, how much more do you think you will be paid? How likely is it that your employer will pay you double what your co-worker makes even if you produce twice as much? It is very unlikely. In a large business it is very unlikely that you’ll end up making even 15% more than an equivalent co-worker based on your higher productivity.

Benefiting from Higher Productivity

If you really want to benefit from being a highly productive individual you will have to go into business for yourself. A highly productive employee that only costs 10% more than an average employee is an employers dream. It is like getting an extra employee almost for free–especially after you take into account the additional cost of benefits, vacation time, etc.

This isn’t to say you should just quit and go into business for yourself. Starting a business is a difficult undertaking. There may be valuable things you can still learn from your current employer and getting paid to learn is always a good financial choice. But, your long term goal (if you want to really benefit from being productive) needs to be putting yourself in a position where your ability to do more work translates into a bigger paycheck.

Why People Don’t Start Their Own Business

Starting a business can be scary. Leaving a steady paycheck and insurance benefits and depending on your own ability to run a business isn’t something you should do lightly and it isn’t something you should do without some serious study. You have to understand what you are doing. The great thing about already having a job is that you can learn about starting your business while you work for someone else–in many cases you can even start your business while you are still an employee.

To start your own business you’ll eventually need to get over your fears and step out. This isn’t for everyone, but if you are serious about being productive it is probably the only way for you to really benefit from your investment in yourself (unless making your employer very very happy is enough of a reward for you already).

Originally published February  22, 2007.