Build a profitable business- the baby steps part 7

In this part of our guide we aer going to discuss something that has become quite a classic distinction in business terms. Over the year we have thought a lot about this issue and while it deserves a lot of coverage we will give a short introduction to the subject in this part, “Build a profitable business- the baby steps part 7″. We are reffering to the difference between owning a business and owning “a job dressed up as a business”. We find this topic to be very important indeed. The reason that we find it to be so important is that we know from experience that even quite successful entrepreneurs can fall into this trap. Most of us have at one point or another.

We think it has to do with the exceptional work ethics that most successful entrepreneurs possess. You will rarely find a successful entrepreneur that hasn´t worked his butt of at some point of time in their career. It comes with the territory, and a storng work discipline and the ability to withstand periods of ridiculous work-load is mandatory for the would-be entrepreneur. But there is a difference between the ability to work hard, and the neccessity to do so. If you are working too hard with the daily choirs of your enterprise you wont have time to take a strategic look at what you are doing, and where you are going. Most entrepreneurs start their business around a certain skill that they possess. In many cases they have developed the skill set working as employees for somebody else. Or they aquire their skill set since they are so passionate about something they have devoted a large amount of their spare time to it over a long period of time. Those are the usual backgrounds of most entrepreneurs. But those backgrounds may lead to problems down the road and it is important that you are aware of those problems and how you might tackle them.

If you´ve been working as an employee for many years and you decide to start your own business, chances are you will look at your new job as just that- a job, an employment. But things have changed. You are now an entrepreneur and you must not make the mistake of letting your new-founded business turn into an employment. It´s such an easy road to chose, especially if things are going well. You sort of slip into it. After all the many different aspects of becoming an entrepreneur are not nearly as familiar as the same work you´ve been doing as an employee during the last couple of years. Besides, it´s that work that will pay the bills, at least initially, why shouldn´t you focus on it? That´s how must of us rationalize it, and really you can´t blame us for it. Anybody learning the ropes of a new area of expertise will tend to stick to familiar ground in the beginning. It just feels good sticking around in the comfort zone. And we don´t blame you, at least not initially.

Let´s look at a real-life example. We know an entrepreneur that fits the bill perfectly on what we are going to describe. Suppose you are a great chef with years of experience, and you decide to follow your dreams of opening your own restaurant. You put down all of your savings, get some investments from friends and family and also make a successful pitch to the local bank office. You keep working long hours at your current employer to get your hands on some extra cash. After all, you are expecting something of a dry spell initially, before you create some buzz, get some regulars in place, and business starts to pick up. As you approach the day of the opening you start becoming nervous. Will it pan out? Are you as good as you think you are? Will you be able to handle everything else besides preparing tasty food? Will you be able to pay yourself a decent salary? What will everybody say if you fail?

The kick-off turns into a success and you even get some rave reviews from the local reporters you invited to the party. Life is good. As time passes by you begin getting some regulars, mostly people living in the neighbourhood buying one or two meals at a time. Not exactly high-margin business, but every restaurant needs a backbone, something that brings a steady stream of cash flow, smoothes out the cyclicality and covers some of those monthly bills. A couple of years down the road you feel like a success. Well, at least you should. Your restaurant is doing great. You are fully booked on all weekends, and you have a decent turn-up on most weekdays as well. Even Mondays can be wuite busy at times. But things haven´t really turned out as you figured they would. You are worrking longer hours than you expected. You rarely get any time off. There is always more work to be done. Cooking the food, which is you life-long passion is only one small part of the puzzle. There are lots of other things to manage. Paying your employees, kepping your books in order, staying on top of deliveries, planning the menues, cleaning and keeping the equipment in shape, sorting out the occassional quarrel, and

Vacation seems impossible. You are on your way to becoming affluent, but you are a long way from being financially independent. You work so hard, you earn decent money, but you rarely have the time, nor the energy to enjoy it all. By the standards of society you are a success, and yet you can´t help asking yourself; surely this is not it, there must be more to it than this? Instead of a beacon of freedom your enterprise has turned out to be a formidable prison, keeping you

You become desillusioned and start thinking about selling the restaurant. You quickly realize that a lot of the value of the restaurant is still dependant on you being there. Youvé become indispensible. You and your business are one. In fact you don´t really own a business, you are in reality a glorified employee. You work harder than ever before, have little or no vacation, and although you don´t have a boss you have more obligations and less play time than before. You begin to contemplate over the position you find yourself in. It becomes clear that you need to rethink what you have been doing. As your business starts to find some solid footing and the enormous workload of getting everything off the ground is behind you, you start considering a long-term strategy, and not just short-term tactics. And this is when you  start thinking about turning your business into a business, as opposed to a “job dressed up as a business”. But in order to do this you need to be able to clear your schedule for a short period of time and just consider your options, and get a bird`s-eye view of the situation.

Since January is the slowest month of the year (that is the case for many restaurants in Europe, since Christmas is such a spending bonanza) you hire a part-time chef, close the restaurant on Mondays for the next couple of weeks, collect a few favours from friends and benefits and use your new-found time to ponder on what to do next. Over the next year you completely remodel the way you do business. You eliminate yourself from the picture. At least when it comes to the daily running of the restaurant. sure, you don´t make nearly as much as before in  profit. But you are making a profit. And you get the feeling that you could improve on that profit. You hire an inexpensive young promising chef and educate him. You start experimenting with lunch delivery to some of the large companies nearby. You build a website offering some catering and while it starts out slow business starts picking up after a while. You end your current lease of kitchen equipment and invest in new equipment that improves cooking output. You do a complete remake of your Friday afterwork offers and hire some student to handle the extra crowd. You are working just as much as before, but you can see the light at the end of the tunnel, since everything you do is actually reducing the dependancy of the business on you.

After a while you find yourself having lots of spare time. You feel energized, and full of life. You even take some time of for vacation. You can´t stand it. All you keep thinking about is your business, and how you can improve on it. You decide to open another restaurant. Your first venture has worked out so well, and you have learned a lot. Should you decide to open up another one, you could probably reduce the costs of setting up by some 40 %0 compared to the first time around. In the next decade you open up 17 more restaurants, most of which turn out to be quite successful. The last three restaurants you build have a square metre cost (or square foot if you are american) of less than half compared to your first restaurant. You have perfected the process of researching new potential space, building the restaurants fast and at low cost, hiring staff, and creating some buzz around it all.

At 18 restaurants in total and 12 years since you started your first restaurant, your brand name is slowly becoming a houshold name in your community. In your 13th business year, you get approached by an company offering you a respectable check for your business. The negotiations take one and a half month, and the deal is almost cancelled twice. In the end you sign some papers and cash in. You now have more money than you can possibly spend in a life-time. You retire still in your early forties, and spend more time with your family and kids. Of course, you have been bitten by the entrepreneurial bug and you will start a new business in just a couple of years time, but that is a different story altogether.

The moral of this story is that a business entity can initially be less profitable than a “job being diguised as a business”. But while a business is perfectly scalable, a “job disguised as a business” is not. If you build a real business you succeed in eliminating yourself from the equation. You no longer need to sacrifice time for profit. While your profit is (initially) smaller than before, you now have a business that is scalable. You figure you´re earning to little on your restaurant? What if you had 5? Or 10? Or 18 of them? What if you made some of the later restaurants bigger and went for even better locations? Would you be interested in working less, but earning more? Would you like to be in control of a real business and freedom, or would you like to have a 24/7 job disguised as a business?

We all need to have the time to stop and reflect from time to time. Making it as an entrepreneur means being disciplined and being smart. Being disciplined in terms of geting work done. And being smart in terms of getting the right type of work done. The beauty of it is that the restaurant chain story is true. And we don´t mean “Hollywood true”. We mean it all actually happened. By taking the step from self-employment to business-owner the real money materialized. By building a scalable business, the freedom lifestyle was suddenly a reality.

Self-employment is not bad. But being in charge of a business should be your long-term goal. It sounds a lot more complicated than it need be. Just get one profitable unit in place.

And then repeat the process.

Over and over again.

That´s it for now. We will move on to discuss the importance of managing your time effectively and how successful entrepreneurs make the most out of their day in “Build a profitable business- the baby steps part 8″. We hope you would like to join us!