reallysmallbusiness.com

In a couple of articles and multimedia pieces this year, the New York Times covered the experiences of former corporate high-fliers who have now fallen on hard times. In one, a former manager who once oversaw a seven-figure budget and staff of hundreds is now working as a janitor for $12 an hour. In another, a majority of people interviewed at a dismal job fair, some now considering waiting tables, had been tossed out of comfortable management positions at large corporations.

It’s hard not to have sympathy for these people, especially when they are trying so hard to find work, and seem willing to do just about anything. But if you’ve ever worked in a company with a deep management hierarchy, you probably saw them during their happier days as well, and I’m guessing it wasn’t always pretty. Managers not understanding anything about the productive work being done by the younger workers under them. Managers putting a majority of their energy into ensuring their own employment. Managers lying and feigning expertise, especially upward, to deceive those above them into believing that they still understand the work they oversee.

When the goal of enterprise is to generate wealth (value, prosperity, usefulness), spending your time managing upward to keep your paycheck cannot be considered productive. And if it’s not productive, it must be overhead. For a long time, corporate careers have worked on a system of unequal reward, with a progressive payoff over the long term: Work hard as a good producer in your early years, then move on to the bigger money positions where the ‘work’ consists more and more of just holding your spot on the gravy train. This is a closeted form of the early payout experienced by successful startup founders. Except that instead of actually being guaranteed the payoff (and then being free to contribute their time and money more productively, as entrepreneurs or even as angel investors, for example) upper managers need to maintain the appearance of importance, a time-consuming and typically much less productive occupation.

When the true story of such ‘work’ comes out, it can be shocking. A friend of mine who was once a VP at a major Internet company confided that “all he did for several years” was try to keep on top of the vocabulary the 100+ people under him were using so that he could say things that sounded smart in meetings. I’m sure this was an exaggeration, but it must not have been much of one, since he quit and found a better use for his talents at a small start-up. It was a drastic move since it involved losing a lot of pay. As it turned out, his self-respect was greater than his desire to reap the reward of the earlier effort he had made in lower positions, so he gave up the deferred reward.

The rust forms quickly on a skill-set in fast-moving technical fields, but keeping proficiency intact is probably only about as hard as exercising regularly. If you have any genuine respect for your craft, you will keep your fingers in the grease at least a couple of hours per week.

Better still, if you have (or can create) this option, is to not to manage anyone. Instead, spend your time directly adding value to the economy.

When you feel sorry for a guy who once managed hundreds of workers, but now pushes a mop himself, consider this: If he had tempered his move into management with a resolve to never stop directly contributing real value to the economy, he might be a happier worker today. But it’s never too late, and with some effort and inspiration, he might, entirely on his own sweat and ingenuity, invent a better way to clean floors. Painful as they may be, recessions are good for this: The reallocation of resources toward more productive use.

Next up: EAD: Eliminate, Automate, Delegate!

If you are depending on a full-time job to cover your living expenses, it may seem unlikely that you can really launch a new business in your spare time. One perception of the startup business is that speed to market is everything, and that to give your project less than 100% of your available effort pretty much guarantees failure. But is this the reality of the situation? Does it mean you can’t succeed at starting your own business without the sort of seed funding that lets you quit your day job?

Of course not. Unless you have absolutely no free time at all, you can always start something small that has the potential to grow into a replacement of your day job. Take an example from the publishing world. Virtually no one gets funded to write a first novel, and yet you can read plenty of examples about how it’s done in just one or two spare hours a day, on the train or after the kids go to sleep, eventually producing a fabulous income and new career for the successful author. Of course, few people can endure the long reward cycle and extreme risk of novel writing, as it can take years to write one (whether in one’s spare time, or not) and the chance of success is extremely low. So, unless you have that sort of extraordinary patience and risk tolerance, it’s important to have the right sort of business strategy. Let’s go over the basics:

1. Avoid competition.
2. Produce something of value, in batches as small as you can make them.
3. Exchange the value you produce for income as quickly as possible.
4. Repeat 1 and 2 like clockwork: daily, weekly, bi-weekly, monthly, or quarterly, in that order of preference.

This plan should sound like the opposite of sinking into a hole for years to write a blockbuster novel, and it is. With an emphasis on low risk and quick results, the idea is to build progressively on small successes: Start by selling something modest and affordable, and as you build income, gradually grow your offering. To do this it is essential to work efficiently, and more importantly, to package the value you produce in a way that provides a quick turnaround on your effort.

Additionally, there is a constraint on every new business that levels the playing field a bit: The delay in obtaining all-important customer feedback. Developing a great product or service requires a certain amount of back-and-forth with your customers, as they experience and think about your offering. No matter what you do, this takes time, and the initial phases are best done with a small group of trusted and tolerant clients, who will give you the freedom to replace things that don’t work with new things that do. This is a crucial aspect of business development process that may not speed up much no matter how much effort you throw at it, so why not make a buck working on something else while your customers are taking their time getting back to you?

Next up: Producing vs Managing Others, which is the Better Career Bet?…

Being your own boss is not as easy as you might think. It’s not just a matter of being self-employed. Working as a self-employed contractor for a single client is usually just like being a salaried worker, except that you might get out of some of the company culture. The painful thing is that there is still someone supervising you, who can cut you off from your work, and cut your income by an amount that will have a big impact on your happiness. If you don’t get along with that person, there is going to be trouble. As long as this is the situation, no matter how the IRS defines it, you are not your own boss.

Being your own boss, in my definition, means not being at the mercy of someone else’s personal quirks.

Fortunately, the situation should get progressively better as you spread out your income among multiple clients. Ask yourself: Would you rather have a single person buy all your output at $300k a year, or have 25,000 unrelated people buy it at $10 each per year? The latter, although $50k less, is a wise choice if you want to be your own boss. A customer that is too important to lose inevitably becomes a boss. If your income is well distributed across a large customer base, you only need to do logical things to keep those customers happy, since you can only hope to meet their shared, normal needs. Keeping a single boss happy, by contrast, often forces you to do illogical things, since it’s often not about shared, normal needs, but idiosyncratic, personal ones.

Be your own boss. When designing your business, aim to have a lot of customers, even if each one pays you just a small amount. The best way to do this is to leverage technology to tap into a larger market.

One concept of starting your own business–and probably the most popular, especially in the tech sector–is that you get a great idea, find investors to back it, and then work like crazy for a few years to scale it up until you can sell for a large amount, at least several million. This is called the “exit”, and the goal of the whole effort is wealth. Paul Graham has written quite a few essays on how much less expensive it is to get such ventures off the ground than it was previously, and I enthusiastically agree with him. On the other hand, the startup game is still about the big payoff. No one in it is aiming to stick around any longer than necessary, and the typical founder’s end goal, presumably after a few years on the beach and some art classes, seems to be a career as an angel investor, using his or her money and knowledge to participate from the sidelines in the next round of startups.

Graham is such an investor himself, using the millions he made selling the technology that became Yahoo! Store to start Y Combinator, a novel sort of venture fund that encourages young techies to start companies on a shoestring, typically less than $20,000. His scaling down of the startup game is fascinating, but the game remains the same. As he writes in How to Make Wealth:

There is a conservation law at work here: if you want to make a million dollars, you have to endure a million dollars’ worth of pain. For example, one way to make a million dollars would be to work for the Post Office your whole life, and save every penny of your salary. Imagine the stress of working for the Post Office for fifty years. In a startup you compress all this stress into three or four years. You do tend to get a certain bulk discount if you buy the economy-size pain, but you can’t evade the fundamental conservation law.

Personally, I would call this “law” the Conservation of the Puritan Work Ethic, or similar. It seems like it could hold true, but only if you regard all work as painful, differing only in the intensity of the pain. The financial freedom at the end of the startup game is a definitive end to this pain.

I worked with a young programmer at a startup in the Bay Area who seemed pretty miserable. He was working such long hours that he was sick for weeks at a time, and one day I couldn’t hold back, I said something like: You know, you’re probably going to be doing this for decades, you ought to pace yourself. He looked back at me like a cornered animal, a mixture of terror and desperation. Clearly he wasn’t interested in less intense pain for a longer duration. He just wanted the pain of working to come to an absolute end.

Some people, maybe even most people, might feel this way about work, but I don’t.  While working at that same company, I mostly enjoyed what I was doing. I never worked more than a reasonable amount, and even took some months off for a trip to France. My boss encouraged learning and let me expense all the programming books I wanted, and I was free both to read them and to experiment with new techniques. All I needed to do in return was to eventually show a certain amount of payoff from the effort. The aspects of that job I didn’t enjoy, and the reason I eventually left, had more to do with the organization’s structure and its business strategy than how I spent my time. After a while I just got sick of watching things being done the wrong way. But I was never miserable; far from it.

So Paul Graham’s conservation of pain and wealth doesn’t really work for me. I’m in no hurry to exit my profession and become an angel investor instead. Nor do I want to work so hard that I miss out on everything else in my life, even if it only lasts a few years. What I want is freedom, but not freedom from the pain of working, just freedom to do my work how I like. And it seems to me that a lot of people just want that.

Going directly toward that sort of freedom means doing things differently than they do in the startup game. For one thing, you want to avoid investors as much as you can, since investors are always aimed at the exit, and also need to be consulted to some degree about how the business is run. Without investment money and without employees paid for by that money, you need to be pretty humble about what you attempt. Especially if you are pacing yourself for the long haul, you really need to be careful not to attempt too much. This becomes pretty much the whole problem: How little can you do, that is still enough to replace your day job and pay for your kids college?

Once you’re drowning in a flood of demand for your product or service, staying motivated shouldn’t be a problem. But what about when you’re starting out? The crucial gap is between no clients and even just one. If you have someone waiting on you to help them with a problem or need, you have your first reason to get something practical done. Resist the impulse to labor on your grand project in secret. Even if you feel a stealth period of development before a blockbuster roll-out is warranted, you can still enlist a friend or two as trusted clients to use and benefit from the product of your efforts. Whatever risk you perceive in sharing your idea with a couple friends is probably paranoia. And in any case, the risk of never finishing due to motivational failure is probably a more serious consideration, not to mention the benefit you will get from their feedback.

Now, how to pick that first client? Trust, access, and need are probably your top considerations.

Trust is absolutely essential. You will be exposing some half-baked work, and will probably make more than a few mistakes before you get things right, so choose someone who makes you feel secure. Charging your “trusted client” should be more or less out of the question, the payment you receive should be honest feedback and a collaborative attitude toward improving your offering.

Access is something you should not overlook. Your first client has to have time to describe his or her needs, discuss your business offering, and go over what is and is not working, regularly and in detail. At an absolute minimum, you need at least an hour a week together.

Finally, need is important. This can be a bit of a problem, and may require some creativity if no one among the people you trust and have access to needs what you’re offering. Indirection is the key to success here. You may have to develop something similar to, but not exactly the same as, your actual business offering. Who knows, you may discover while substituting x for y that you never want to switch back to y. Be open minded.

Sharing is a wonderful impulse, and when you’re starting a small business, it’s natural to want to invite somebody to join you. You’re probably not in a position to hire anyone, but you can offer to “partner up” easily enough, because the arrangement is usually simple: To contribute according to ability now, and divide the spoils later. There is so much work to do now, and so much potential upside later, and so much more fun to be had when you’re not alone, that the the risks of sharing seem minor. It’s almost irresistible.

But wait. Not even considering all the usual, mundane difficulties, such pro-rating uneven contributions or overcoming communication barriers, here are the big-ticket risks to consider:

1. You’ll be less likely to quit
2. You’ll be more likely to compromise
3. You’ll be more likely to waste time

Quitting This is the big one, the number one reason to go it alone. Quitting at the right time, before too much opportunity is lost, is often the key to success. The problem is, the more you invest in a business, the more you own it. It doesn’t matter if the business has zero tangible assets and zero liquidation costs. It doesn’t matter if the only thing you spent on it was sweat. So-called “sweat equity” is just as powerful a contributor to the endowment effect as anything else. The problem is that you need to make quitting as easy as possible. Even with a good idea, not every path leads to success (most don’t), so when you sense a block or dead end, you should back up and start fresh. The difference between a dead end and a mere rough patch, as Seth Godin explains in The Dip, is hard to distinguish logically, and most likely best sensed intuitively. Try convincing your partners that you should throw away all of your investment to date because of “your feeling” or “your intuition” and see what they say! If you’re alone, you can quit when you feel you should, regardless of logic, and increase your chances of winning.

Compromise To start with at least, you need to do one thing and do it well. The difference between success and failure often comes down to focus. A small business by definition has limited resources, so you can’t spread your chips across the table like the player with the deep pockets. That’s the bad news. The good news is, with fewer interested parties involved (read: no investors other than yourself), you can focus everything on one play, execute with a single-minded passion, and when you do win, win big. Adding a partner risks diluting the vision, compromising focus, and spreading out the play. If you do partner with someone, write up a mission statement that is as specific as possible, and keep it visible. If someone starts to deviate from it, that’s fine–both the world and our understanding of it changes every day–but make sure you both realign your vision together, and come up with a new statement. Don’t simply add a new mission in addition to the old one. A really small business must be focused to succeed.

Wasting time Working with friends, and having fun while you work is great, but only as long as someone else is paying your salary. Even if you have no day job, no family, no hobbies, and 40-50 hours a week to spend developing your business, it’s still probably not the right approach when starting your own really small business. Why not? The answer is somewhere in the truth behind that old adage of giving something you want done to a busy person to do. To be successful against competitors many times your size, you need to leverage that kind of focus. Apply the lessons of the 80/20 Principle: For every task that ought to get five hours, give yourself only one, and spend the first five minutes of that hour in triage mode, filtering out the essential from the merely important. When working like this, you should feel like the ball could drop at any time. Of course, balance it out by spending time reading, golfing, gardening, or whatever else puts you into a state of mind where you can think strategically and reflectively about your business. But when it comes to working, maintain intense focus. Have fun with your friends outside of work.

Hopefully, even if you decide not to go solo in your small business, this essay will provide some cautionary advice that you can use. Humans are a successful species due to our cooperative nature, but it’s probably the cause of most of our mediocrity as well. If you do partner with others, be wary of mediocrity, and do whatever you can to sustain focus and vision.

Let’s go over some reasons that may have caused you to start your own small business, or to consider doing so:

• You can’t stand the waste you’ve seen at work, in terms of wasted time, wasted effort, wasted talent, and wasted money
• You feel that the end consumer of your work could receive a much better product or service, and that it should be the right thing, in the right amount, at a fair price, and on time
• You suspect that involving too many people in a creative effort, no matter what their talents or skills, usually results in mediocrity
• You don’t want to see the same mistake made over and over again
• You’re tired of parasites, especially parasites who make more than you do
• You’re tired of office politics, workplace drama, people exploiting workplace for their social needs, and workaholics who don’t actually do any genuine work
• You don’t want to worry about losing your job
• Even if it means less income to start with, you hope to eventually gain much greater financial reward from your skills, talent, and efforts
• You want the freedom to design your own workplace, and to find the correct balance between your work and other aspects of your life

Sounds like a lot to ask for, doesn’t it? But there’s no reason why starting a small business that meets all of these goals is not possible, even when the economic climate is gloomy, and your current circumstances don’t give you a lot of slack. If you focus on the right principles, turn your obstacles to your advantage, refuse to consider anything too difficult, scrutinize your approach for things to improve, and put your time in, you can do it. And best of all, you can start small. Really small.

I once read in an investing book that for most people, one’s greatest financial asset is the income earned from one’s career. This seems pretty obvious, but I appreciated that the author took the trouble to mention it, because a lot of missteps arise from overlooking the obvious. (I will update this post later with the author and title if possible).

What occurred to me recently is that if you are running your own business, quite likely your biggest financial liability is going to be other people’s careers. Paying people to do work for you–especially skilled work involving computers, the law, design, etc–will cost you a bundle. I should know, I’ve worked for years as a technology professional on projects where pay rates are roughly about $100/hr, for ongoing, steady 40-hour-per-week work. I doubt that any readers working in the tech industry even find that number interesting. On big, stupid, bloated projects with less accountability, the rates can be much, much higher.

So, if you can, go into a business where you can leverage your greatest asset: the skills you have, and the skills you can get. Pick a business where the majority of the work will be within your core competency. Then look for angles that will leverage old, neglected skills that you haven’t used in a while (landscaping, drafting, writing?), and to add new skills that are not much of a reach.

Don’t pick something where you will be the “visionary” (i.e., the pocketbook), and others will be doing the work, and meanwhile pocketing your cash. No matter how much money you have, this relationship will most likely leave you bored and anxious. Giving an inspirational pep talk every week or so is only so thrilling.

Of course, no matter how carefully you plan things, you will probably not be able to do everything yourself. Later on, I’ll go over some ideas for keeping costs low even when you must outsource. But at least start out on the right foot, doing the work yourself, risking nothing but your own time. Even if your business fails, you will have much less debt to cry over, and razor-sharp skills as a consolation prize.

Before I get too far along, it only seems right to give a partial listing of the most important influences on my current thinking about really small business. This is just a summary; in later posts I’ll go into more detail on each of them.

• The Godfather of Less is More, Taiichi Ohno, whose genius with the Toyota Production System is truly mind-blowing
• Kent Beck, the creator of Extreme Programming and a very critical thinker about business, collaboration, and communication
• Eliyahu Goldratt, author of the business novel The Goal, in which he presents his useful Theory of Constraints
• David Heinemeier Hansson, Jason Fried, and the others at 37signals, who wrote Getting Real, and have made presentations such as David’s at Startup School and Jason’s at Business of Software.
• Richard Koch, whose book The 80/20 Principle contains some really interesting ideas about time management
• Chogyam Trungpa, a buddhist author whose secular work Shambhala: The Sacred Path of the Warrior lays out some great reasons why you should never feel bad about having to get up and work in the morning.

There are plenty of worthy writers and thinkers about business, of course. But in my mind, if you’re interested in pushing the envelope of just how small, nimble, and efficient you can go, these are the ones to start with.

I'm writing this blog for people in really small businesses (And I mean really small, like three buddies in a garage, or most commonly, the only employee is yourself). It's also for those who hope to improve their work lives by starting their own small business. Its goal is to provide some ideas, tools, and ways of doing things that might make the difference between living the dream and going back to work for the man. Its mission flows from the following observations:

1. A lot of people like productive work. The don't want to manage, and they don't want to sit back while others sweat. They want to use skills they've developed to work in a craft they love, and make a direct, tangible contribution to the world.
2. The way big companies run things so often goes against this. They define a hierarchy where there are those who work, and those who manage. Only the managers have a future. (And worse yet, it seems many small companies are trying to imitate the big companies.)
3. It's hard, maybe impossible, to change an organization from below. I know, I've tried.
4. The best option is to start your own thing, and work according to your own principles.
5. But running your own business can be really tough. For a lot of people I know, in the end it's just not worth it.
6. However!
7. Computer technology is changing the world, and it is also changing the playing field for really small businesses. The costs of production are plunging, and markets that were inaccessible are opening.
8. Smart people have developed ideas about doing business differently, in ways that play to the strengths of the resource-constrained.
9. With proper execution, a really small business can thrive, beat the big guy, and create a great experience for its employees.

There it is. If you enjoy working at your craft, but are frustrated by the organization you work for (even if you created it yourself), I believe that the path of the really small business can be, and will be, much better.

And if you happen to have the power to change things in a not-so-really-small business, I hope to provide material that you can use as well. Doing so might help you keep some talented producers from jumping ship by making them happier. And that might prevent you from losing market share to a smaller, more efficient competitor in the future. If you are a manager in a traditional organization, this is no time to be complacent.