Few entrepreneurs can say with much accuracy what an hour of their time is worth. Even fewer realize that not knowing the exact figure could be holding them back.
Nearly every person who starts a small business is smart and works hard, probably to a fault. And that fault is at the heart of the DIY trap. Many people think they have to do everything themselves. They’ll even take out the garbage at the end of a 14-hour day if they have to. But when they do that kind of work, they are effectively paying CEO money to themselves to be a janitor.
That’s inefficient. It does not save money. Worse: it costs money. Realizing this and changing these kinds of habits is what The Golden Formula is all about — and it’s easy. You can fit all three questions on an index card. Keep that index card close to you because you have to obsess over the questions on it every day:
- How do I spend my time?
- What’s the cost of my labor?
- How much value am I adding to my business?
It’s with these questions that the difference between cheap and efficient becomes clear. As an entrepreneur, you must focus on the core of your business, and the work that only you can do. Delegate everything else. If it’s hard to let go of control, you must accept this hard truth: those other people to whom you delegate tasks will do them better and faster than you can.
You have an expertise and you should focus on it. The growth of your business depends upon it.
As an example, let’s say Samantha is launching a clothing store in Los Angeles. She knows everything there is to know about haute couture.
But what has Samantha been doing with her time? Multitasking. Stop multitasking. (It’s a myth). Worse still, she’s DIYing. Rather than hire a bookkeeper, she spends her mornings struggling with paperwork. At night, she’s folding clothes on shelves and working on the store’s website, which she knows a little bit about but not enough to speed through it with any quality work.
She might think that she doesn’t have the money to pay someone to fold the clothes or to build a website. But before investing herself and her business, she was making around $85,000 a year at her day job. That’s about $50 an hour. If she chose to, she could still make the same rate doing similar work part-time but she’s been focusing on launching her store.
Samantha spent dozens of hours on her website and it still isn’t ready. At $50 an hour for 24 hours, that’s a cost of $1,200 for something that to this point adds zero value to the business.
Time to apply those three questions.
- Where am I spending my time? Samantha was folding clothes and doing amateur web design.
- What is the cost of my labor? Since she could have made $50 an hour at a part-time job, every hour she spent on the website effectively cost her $50 in forfeited wages.
- How much value am I adding to my business? Based on the quality, her DIY web design work was worth about $10 hourly.
She tried to build the website herself because she’s a hard worker and isn’t afraid to face challenges. Plus, she’s smart and has never had much trouble learning new things. But when we look at the numbers, trying to build the website herself is a waste of time and money. She’d forfeited $1,200 in potential wages to build a site that still doesn’t work and is worth about $240. DIYing cost her $960 and 24 hours that she can never get back.
This is why entrepreneurs must know what their time is worth. If she’d known, she never would have worked on the website in the first place. It’s much smarter to pick up that $50-per-hour part-time work, and pay an expert to build the website so you can focus on the most important things required of you to launch a successful business.
What’s cheap is not what’s efficient. There is usually a huge gap between the two. But by paying someone else, she can expect better, quicker results, while redirecting her efforts toward her expertise.
Once she knows what her time is worth, it becomes clear what she should delegate. She has to add at least $50 of value to the business for every hour she works. That means making sure that the clothes that she hires someone else to fold and hang on the racks are the best that they can be for the fashion-smart clientele she’s targeting.
To dig a deeper into The Golden Formula, download this free white paper. It will help you determine exactly what every hour of your day is worth — and you’re worth more than you think.