Build a Business that Won’t Trap you in Self-Employment
Starting a company is easy. One form and $0-$100bucks depending on what state you live in. That's all. A company is just a legal entity, its what you do within it that matters. One guy in a basement doing web design is a company. So is Google. A company is what you make it, and there are a million different ways to make a company.
Owning your own company means that you have the option to build it in such a way that profit, (your income) is no longer dependent on the time you spend on it. Now, are there businesses that are still dependent on the time that you put in? Of course. For Example: if you start a business knitting newts, and you can only knit 5 newts per hour, and you sell each newt for $3, you are still making at most $15/hour (it would be significantly less, with administrative time, selling time/cost, overhead, etc. Important considerations.) So your newt-knitting business is not really a scalable business. This is an incredibly important point: Most people's 'businesses' are just jobs that they've created for themselves. There is nothing wrong with this and is what many people want when they are starting a business. But, at that point, it is not a scalable business.
Photo Credit: Steve Jurvetson, my favorite Venture Capitalist
Math backup: Say your actual profit for newt-knitting is $12/hour. Costs of production, selling cost, etc. all average out to you making 12/hour. Though you own your own business, you are making only a job-type wage, and to make our goal of $47,000 you would have to work almost 11hrs/day for 365 days/year. Even if your business did incredibly well, you spend 20 hrs/day knitting newts to sell. This would still be a dismal situation. Though you would be making more money, it would still be directly correlated to your personal sacrifice. All the money in the world doesn't matter if you are busy knitting newts 20 hours/day.
Now, there is absolutely nothing wrong with creating a business to create yourself a job, but it is an incredibly important distinction. It is important to understand the goals the business you are building from the very outset. Be sure to control expenses, price, and plan accordingly. You don't want to end up furiously knitting newts, making only $12/hour. This is a tough place to be, because you are trapped into the prices and expenses, without the margin necessary to hire people, or accumulate the cash necessary to invest in infrastructure. You are forever knitting newts by yourself, for $12/hour. This can be avoided (or achieved) with proper planning.
There is more in this topic in my previous post about building a scalable business
As always, there is much more to come on this topic. Stay in touch.
EJ
September 13th, 2010 - 17:32
To make this business scalable seems pretty easy. Just hire people who know how to knit newts.
October 4th, 2010 - 23:07
it’s not really about how many you can knit, it is about how many you can sell. You can hire other people to knit them, but if only five people a day are willing to buy one you can’t get anywhere, but I understand what you are getting at.