Which business is right for you?

What is a business? In simplistic terms, a business is an ongoing concern in which a dedicated person or group trades goods or services for capital.

There are two important words in the phrase.

“ongoing”: This means that if your sister pays you $40 to watch her dog while she is on vacation, that would not pass the “ongoing” test.

“dedicated person or group”: There need be someone dedicated to the ongoing upkeep on the business.

As important is what is not included in the definition.

“incorporated” (i.e. legal): A business concern can and often operates outside of the legal structure of the jurisdiction of the state or country it operates in. This may be especially true in foreign countries where starting and maintaining a legal corporation is complex and bureaucratic. These unincorporated businesses are often cash-based and small. A lawn-care business, child care service, house-cleaning service, or fitness consultantancy are examples of businesses that often operate without legal incorporation.

Businesses come in all shapes and sizes. There are three categories that we can bucket the groups into for easier comprehension.

1. Labor and time-intense.
2. Skill-oriented.
3. Innovative or complex.

The journey of the labor-intense business startup

The labor and time-intense businesses are the easiest to start. These organizations require little startup capital. The work is often repetitive and physically intense. The learning curve is modest. These opportunities exist because others are willing to pay a reasonable fee to outsource the work.

The challenge with these businesses is that the barriers to entry are low. In many cases, the customer can choose to handle the work themselves.

A business-woman may invest in a vacuum cleaner, mops, brooms and cleaning supplies. This investment is not high enough to prohibit competition from others.

These businesses are not to be trivialized. They are noble in their ability to lift hard-working individuals from poverty and lethargy. In the process of running their business, sole-proprietor gain valuable skills such as budgeting, customer service, and time-management. As important, being a business owner gives the person confidence, purpose and self-respect.

The physical demands are impossible till they are not

Although the capital expenditures are low to begin, the labor-intense business is physically exhausting. It is easy to give up before the rigor of a full day of work becomes second nature. Only those with extremely focus and determination will withstand the temptation to quit. An analogy is the progression of a distance runner. Running a marathon is a 26.2 mile journey. Asking a person who does not regularly run to complete this distance is destined to fail. Instead, a trainer would ask the runner to run a more modest distance before progressively increasing the distance of the runs over months of training.

A schedule might looks like this:

Weeks 1–4: 3 mile runs every other day.

Weeks 5–8: 5–6 mile runs 4 days a week.

Weeks 9–12: 6–8 mile runs (4 days/week), 8–10 mile run (1 day/week)

Weeks 13–16: 6–8 mile run (4 days/week), 12–15 mile run (1 day/week)

Weeks 17–20: 6–8 mile run (3 days/week, 8–10 mile run (1 day/week), 12–15 mile run (1 day/week)

Weeks 21–24: 6–8 mile run (2 days/week), 8–10 mile run (2 days/week), 15–18 mile run (1 day/week)

This slow build up provides the runner the ability to get accustomed to the physical demands of a long distance run. An added aspect of the ramping up process is to build up a habitual schedule of regular running. As the runner’s body gets accustomed to the increasingly longer runs, she will develop the physical strength, mental toughness, and the habits to reach her goal. Sticking to this intense training schedule, she will view a 10K (6.2 mile run) as a task she can easily handle. She has come a long way from her first 3 mile run where her lungs, legs and spirit were screaming at her to give up and forget her dream.

To be relied upon, be reliable

We explained one of the pitfalls for the labor-intense businesses is that the barriers to entry are low. Taking a closer look, there is hope. A sole proprietor is blessed and cursed with freedom. The business owner can sleep in and take the day off. There is no boss to fire them. Unfortunately, there is a high cost for this behavior. Unreliable businesses lose customers, and more damaging, reputation. Customer loyalty takes months to develop. The growth engine of these labor-intense businesses are two-fold. Retention of satisfied customers and word-of-mouth referrals from these same customers. Word-of-mouth can be a lift or a drag on a business. Good word-of-mouth can lead to new customers. Bad word-of-mouth can derail critically important referrals.

Back to our distance running analogy. Putting in a full day of work is the equivalent to running a 10K race each day! Mentally and physically punishing at the beginning, but manageable after months of dedication. This is the true barrier-to-competition for the business. Customers may be dazzled by a motivated competitor who initially does an incredible job while trying to win new customers. Over time, your competitor will have to prove equally determined and reliable to succeed.

Reality check

Few people have the discipline and determination to stick with these businesses over the long haul.

Are you still there?

After 3–6 months of struggle, perhaps 20% of the business owners will still be in the race. An interesting thing begins to happen at this juncture. The 10K race is no longer a struggle to finish. The race is now run with commitment, but lacking the mental and physical strain. Another amazing thing happens. The customer referrals begin to stream in. Your initial customers see that you understand how to do your work with confidence and professionalism. The business is now providing sustaining income for the business owner.

Time to increase your rates

As the schedule begins to fill, you have few open slots for new customers. No need to charge your old customers more, but it is wise to increase your rates for new customers.

WARNING: It is a good idea to alert your referring customers that your schedule if filling up. You can assure them that you don’t plan to raise their rates, but will start charging new customers a higher rate. This makes your existing customers feel good about your loyalty to them, while keeping them from setting an incorrect rate expectation for their friends.

Over time, your customer base will turn over. Provided that you can continue to attract and keep a busy schedule, your overall earnings will begin to improve as your legacy customers are replaced with higher paying newer customers. If you find that can not hold onto new customers paying the higher rate, you will need to reduce the rates to avoid a churn problem.

Still too busy?

Are you still turning away customers after raising rates? The next question is a big one. Are you ready and able to build and manage a staff?

Managing employees requires a very different mentality and skill set than managing yourself. You may be a great athlete, but can you be a great coach?

Train one

Now that you can complete a full day of work without difficulty, you may have forgotten how difficult it was at first. Don’t forget how tempting it was to stay in bed rather than going to your customer’s house in those first weeks.

Guess what. That is what your new assistant is feeling. This is your business. To them, it is just a way to earn a few bucks. How can you motivate them to stick with it?

Are you providing your employees with:

• valuable training,
• empathy and appreciation,
• firmness, and
• fair compensation?

Even exhibiting these leadership and management skills will not always work. If you have hired the wrong person, you will not convert the individual into a reliable and high-quality assistant. Provide the motivation and set a high standard of expectations for your employee. If they are unmotivated or unreliable, try again with a new assistant.

Your customers have come to expect high-quality work. As you bring on your first employee, be careful. Training will slow you down. Shield your customers from disruption as you get your new employee up to speed.

Shadow, supervise, then audit

Your new employee can shadow your work initially. They will be bored pretty quickly. Don’t spend too much time with shadow work. After they see how you do the job, get them involved in the work. You can watch them initially, but this is also stifling. After you are pretty sure they can do some of the tasks, you can turn them loose.

Let’s go back to the example of the house cleaning business. While you are vacuuming and handling the general cleaning, your assistant can do the laundry and dishes.

Have them report to you once they have completed their work. If they had made mistakes, that’s ok. Don’t overly criticize them. Explain what they have done correctly and what needs improvement. If the quality of the work is not sufficient, ask them to redo the work. It is important to instill a quality standard and instill a sense of pride in their work.

Once they have completed the work satisfactorily, you can begin to reduce the frequency of the work audits. After they master the various work items, have them manage the end-to-end cleaning process. A checklist for them is a systematic way to ensure that the work is done to your and your customer’s standards. Once your assistant is completing the job without needing rework, you can minimize your spot checking frequency.

Your employee is now adding significant value to your business. You can grow your business and take on new clients.

What if they quit?

They will. Such is life. Good employees move on. Worse, you will hire sub-standard employees that you need to let go as you search for a good assistant.

These are the growing pains of a business with more than one principal. Ask yourself this question. What would happen if one of your best employees suddenly quits?

Would you be ask a friend to help out?

Could you work extra hours to cover your customer load?

Would you need to refer some of your customers to competitors?

It is better to grow smart than fast

It is tempting to grab as many customers as you can, and throw new staff at the opportunities. This is a dangerous plan. If there is not enough time to train your new employees and audit their work, your business expansion will be short lived. As with any business, a labor-intense business is only as good as its people. Hiring, training, auditing and retaining good people is hard.

Until a leader can successfully train and retain their first good employee, the business is not ready to grow aggressively.

If the business owner feels confident that they have developed:

• a easy to follow training program,
• a checklist and audit system for quality control,
• a fair compensation system to retain good employees, and
• an effective communication system to schedule and listen to employees,

the business can pursue new customer opportunities and hire accordingly.

Train the trainer

The next inflection point comes when the business grows beyond 4–5 employees. The business owner will be overwhelmed with paperwork, customer relations, hiring, training and auditing. The business will not be able to grow beyond this modest size unless the owner can find someone to manage the new hires and audit process. A team leader may not exist within the business’ current employee base. The leap from producer to supervisor is huge. The owner needs to think about the challenges she faced as she began transitioning her work. Can one of her existing staff succeed with the transition to manager? If none of her producers are suitable for a supervisory role, she will need to hire for this role. She will have to develop a system to measure, train, and monitor the supervisor before she can minimize her direct supervisory responsibilities.

The sky’s the limit

If the owner has successfully trained a trainer, the business can now grow exponentially.

…but it is not going to be easy.

Let’s take a non-scientific guestimate at the difficulty in succeeding and reaching major milestones for a labor-intense business.

STEP 1: Move from dreaming to launching a new business (50% success probability).

STEP 2: Launching a new business and surviving the initial endurance test (20–25% success probability). Months 3–6. Cumulative chance of getting to this step: 12.5%.

STEP 3: Growing the customer base and increasing rates to build a self-sustaining business (60% success probability). Months 6–18. Cumulative chance of getting to this step: 7.5%

Note: For many business owners, the sweet spot is reaching Step 3.

STEP 4: Adding the first employee to handle business growth. (30% success probability). Months 18–27. Cumulative chance of getting to this step: 2.25%

STEP 5: Expanding to 4–5 employees and moving to a full-time supervising and management role. There is little production work for the owner at this point. (40% success probability). Months 27–36. Cumulative chance to getting to this step: .9%

Note: For labor-intense businesses, it is rare for the business to grow beyond a handful of employees.

STEP 6: Train the trainer. Growing past 5+ employees. (30% success probability). Months 36+. Cumulative chance of getting to this step: .27%

It is very difficult to provide true data on the success rates of these labor-intense businesses. These numbers are based on the following assumptions.

1. These business are easy to start, but difficult to make successful.
2. Getting word-of-mouth referrals is a slow process requiring trust earned over time.
3. Most of these labor-intense businesses are sole proprietorship. Why? Finding dependable employees is difficult. Good employees can easily start their own business. Many of the owners of these businesses are better operators than supervisors.
4. Focusing on supervising, recruiting and training is distracting. The business may lose the high-quality of the owner’s production that led to the business’ customer loyalty.
5. Training the trainer is difficult. As a business grows past a handful of people, the complexity of the paperwork, communication and logistics of the operation requires a high level of business sophistication.

The sweet spot for the business may indeed be an army of one.

Benefit of a one-woman show.

1. Employee you can trust (hopefully you can trust yourself at least).
2. Simple paperwork.
3. High quality work.
4. If the demand is high, rates can be increased.

Howdy partner

Another successful formula, which has pros and cons is to work with a partner.

Pros:

1. The partners are financially motivated to provide high-quality work.
2. The partners can back each other up in case of vacation or emergency.
3. The business can grow its client base so it is not overly dependent on a one big customer.

Cons:

1. Partnerships are difficult. Rarely is the work exactly split 50/50. This inequality in effort or business acumen can lead to resentment.

Labor intense versus other businesses

We began this post segmenting business ventures into 3 distinct categories. We have gone in depth into the first category, the labor-intense business. Many of the aspects of the labor-intense hold true of the other two business categories. In the next posts, we will dive deeper into the differences and unique aspects of the other business ventures.

Part 2: Building a skill-based business. https://medium.com/@ken_getquik/the-skill-based-business-venture-eaf0b350b652