Build a profitable business- the baby steps part 12

4. Selfemployed-group. We could just as easily have called this group the “Your job as a business”-group. Most entrepreneurs start out this way. Unfortunately most entrepreneurs tend to stay in this category for the remainder of their entrepreneurial life. That has to do with the reason most people become entrepreneurs. The biggest group of entrepreneurs are people with a specific skill set, passion or job experience. They build their enterprise around themselves and their own skills. Thus, their business is not really a business- it´s more like a job disguised as a business. A hairdresser, plumber or chef might decide to take the plunge into becoming an entrepreneur. What they often do not realize is that they are not really business owners in the true sense. They are simply self-employed. In this part of our guide we will have a look at some of the key factors that define the self-employed group. In the next part we will look at the key attributes corresponding to a business system entrepreneur. But first, here´s some common denominators among the self-employed entrepreneurs:

Their profits are based on time, their time. Since their business is based on them doing a job, they are in fact trading time for money. If they put in the hours, they get paid. If not, they risk finding themselves out of business.

They can´t take a vacation without affecing the functionality and profits of their business. They don´t have a business system in place. Instead, they are the business system. This means they are a central part of all value-creating activities and they are closely tied to their businesses.

Their business is based on what they want to do or what they can do. Interested in art? Start a gallery. Good at baking cakes? Start a bakery. Got a job as a hairdresser? Start you own hair dressing saloon. That´s how most entrepreneurs are reasoning. They are starting enterprises, not because of a need in the market, but rather because they want to work within a specific business area or feel they have skills in that area already. That´s alright though. As long as they make sure that you are also tending to a need, and providing value to the market place.

They have few or no employees. In most cases they tend to base their business around themselves. In some cases they have one or a few employees. It´s not ussual for this group to employ part-timers, to help them out when there is high-season or they need to go on a business trip or short vacation.

They avoid to delegate. They are not comfortable delegating work to others for many reasons. In most cases they just feel that they can do the job best themselves. This group tends to have a problem with delegating in any area of their business, since they feel they want to do things “their way”.

They spend much time with micromanagement. It saves costs, it is often a neccessity in the beginning and they like to have control over minor details of their business. Of course, what they save in terms of cost, is often paid in the currency of time.

Their business is not very scalable. Built around one person and constrained by that person´s time, this business is only scalable up to a certain point. The solution of cousre is that many selfempleoyed work longer hours and sacrifice more weekends and vacations in order to “upscale” their business and go for that extra profitability. This can be done to a certain point, but any attempt to do it for prolonged periods of time will lead to increased risks of negative stress becoming an issue. Since the business is not scalable, they are missing out on one of the most important driving forces behind wealth: leverage.

They have a customer based tied to them personally. They have a loual following of customers who they know intimately and with whom they have been doing business for a long period of time. Their business relationships are built upon the trust customers feel for them as individuals. If they started their business after a career as employees, they are more than likely to have a solid customer base that migrated with them from their previous employeer. This is an important aspect, since being able to bring in customers is what ultimately makes or brakes all small businesses.

They employ little or no automation. They neither have the time nor the money to buy and implement equipment that automates processes. They do what they´ve always done; continue to trade their time in order to save the extra costs of automation.

They work for primarily for salary. If their entreprise provides a healthy profit, that´s just a bonus. But it´s the salary and the thought of having no boss that´s the primary driving force behind it all. They are often thinking small, and not really seeing their enterprise as a business, just a modified type of job.

That should cover it. We have given you some of the most dominant factors present among self-employed entrepreneurs.There are more, but these are the most important ones. As you can see there are a number of wealth constraints to this model. Perhaps the most important constraint is that they trade time for money. Failing to see that time is a valuable commodity is a common mistake among new entrepreneurs. As Warren Buffet put it; “The rich invest in time, the poor invest in money”.

Another of the more important drawbacks is the lack of leverage. Since this business model is not easily scalable, the road to wealth is blocked by yet another constraint. We oftenget the question regarding what category franchisees belong to, or if they should have a catergory all to themselves. That depends. Although it is not exactly a perfect fit, we believe that most franchisees belong to this category. While they are not really self-employed, we don´t se most of them as business system entrepreneurs either. Unless they operate a number of franchising units they don´t really fit the bill of a business system entrepreneur.

The true business system entrepreneur is the franchisor and not the franchisee. It is the franchisor that employes scalability and leverage to the fullest in their business model. It is the franchisor that controls major parts of the underlying business assets. To some extent, the franchisee is really an employee of the franchisor. That being said, we know several franchisees who own a chain of units and are raking it in faster than they can count it.

Let´s take a look at the final and most promising road to wealth: the business system entrepreneur.