Some businesses have a fundamental model that means they end up working hard all the time, often for relatively little money.
This typically involves getting paid by the hour: No matter how hard they work, they can’t earn any more because they don’t have any more hours in the day.
The concept of leverage is about multiplying the effort you put in, to get a greater amount out. For example, if you spent a hundred hours writing an e-book and publishing it, the number of times you get paid for those hours could be many thousand.
If you invent something and then keep selling it, again you get paid many times over for the original time and effort. But businesses can’t see how to leverage in that way, so the alternative is to create leverage through a team.
Many self-employed businesses grow by taking on more clients, and then increase their prices.
They start out charging £20 per hour for their service and eventually they’re booked solid every month. So they put up their prices and lose some of the customers that aren’t prepared to pay the higher price, but quickly replace them with some who want the quality and reliability. So they increase their prices again and that cycle can continue successfully until the price is at a level where others offer the same quality for less, and growth stagnates.
Once a business owner is charging as much as they can for their own time, leverage starts by employing people.
Often they employ someone to handle admin and free up more of their own hours to sell. (A Virtual Assistant is usually a better solution, but that’s another story!). There’s less profit because the employee is now an added overhead. Eventually they employ someone to do what they’re doing, but pay them less than clients are charged for the service – that’s the gross profit.
If this stage is left too long, the business owner is already so busy servicing clients that they don’t have time to train and manage the employee(s) and the business performance is poor. Or more often they just haven’t developed the knowledge and practiced the skills of leading and managing staff, so much of their time and the employee’s time is wasted.
In a business where the leverage is about people, the profitability depends upon good leadership and management.
Suddenly the self-employed person doing the work has taken on the role of leader and manager, but often fail to realise how different their role should now be. They feel frustrated with their staff and with the business they created. They need to get some training and support, in planning, leadership, delegation and general management.
The purpose is all about leveraging their own time through their employees: Training a team and then getting paid over and over again for the work that the team does. The successful business owner recognises that the way to grow is through their team. It’s about recruiting the right people, training them (and continuing to train them regularly), and putting in place the systems and structures.
Business owners understand that if they have an hour to spare, it’s better to use that hour to motivate and manage an employee and send them off to generate ten hours of valuable work, rather than them doing an hour’s work on their own.
Leverage through a team means making that team better and better so that they continue to multiply the business owner’s input.
As a business owner, the job should increasingly be about setting the direction, setting clear goals, hiring and training good people, and motivating them to achieve the goals. The more effectively this is done, the more successful and profitable the business.