I am a horrible hourly employee. Not because my employers were bad people, it’s just that I don’t like working hourly—to be trapped to making money for each hour absolutely kills me. I was salary for a long time. It was better than hourly, but it didn’t take long to figure out the hours I was working and what I was paid that I was back to an hourly worker.
Now I’m going to toot my own horn for a few minutes, so just go with the flow for a minute so you get the idea. I am pretty smart (at least that’s what some people say) so I work very hard to solve problems in smart ways, and those ways save time. So the more time I save, the less money I make. Even if you’re salary, you’re still expected to work 60 hours a week, so being smart and saving time doesn’t really help the situation—it actually makes it worse. Because the more time you save, the more time you are expected to save, but the rate isn’t commensurate with what you get paid.
Back in the day when I was a computer guy, I was tasked with switching 500 PC’s from one email program to another. This was back before automated push systems do it automatically, so this had to be done manually, or at least that’s what corporate and the software vendor decided. I didn’t like that plan, so a friend and I figured out how to automate the push. It took us three days to figure it out and two days to push—a total of five days. Five hundred PC’s were converted, and it went smoothly.
If we were to do it manually as it was recommended by corporate and the vendor, the best that could be expected was eight per day/per person or 16 a day (or 31 days for the entire project) if we were very diligent. Factor in disruption costs, lost productivity, and the usual headaches that go along with projects of this magnitude, the cost is fairly significant. It could be that we saved at least $100k on this alone. I didn’t get any of that money and neither did my friend. I did get asked to document how we did it and give it to the other company locations, which is about another 10,000 PC’s. Which could save the company millions, and we didn’t get any of that money either.
After that project was complete, my boss, Alan, often liked to use the word “impossible” when taking with us, because it spurred us to do the “impossible” on a regular basis. We were a money-making machine. We did work for problems that were at other corporate locations, we never saw a dime, and we still continued to work 60 hours a week.
My friend and I weren’t any better off for being smarter than the average bear. We got a plaque sent through corporate mail, but there was no ceremony, and definitely no bonus.
Even though I went from hourly to salary I was still selling my time and no matter how smart I claim to be, I can never make more time.
Progressing forward, through the years, I have done quite a bit of things that automate, streamline, and save substantial amounts of time, but I found that unless I was working for myself I never really saved any time, and I just freed it up to do more stuff. From a previous post I mentioned the value of time is the value of the next best thing I could be doing, since even as a salaried employee I was expected to be available 60 hours a week and the value of my time was fixed at my rate. I could never increase my value. I was trapped.
I now work for myself, which has changed the way I look at time and now I never sell my time or any derivative of it. You will never hire me hourly. I don’t disclose how much time something takes me to complete on my side. I sell a product or a service, which is indivisible. How it gets to the customer, how many hours it takes is simply not discussed. I have never asked McDonald’s how long a Big Mac took to complete, and then balk about the hourly rate. It is my trade secret and I guard it with vigor.
I mention this because it’s common in the service industry—white or blue collar—to charge by the hour, and after which you now become a slave to the clock. The maximum amount of money you make can never be greater than the hours you work at your hourly rate. You can never outsmart time.
We’re going to use Sue as an example. Sue is an accountant. She charges $30 per hour and works out of her house. She doesn’t want to own a company, she doesn’t want to get rich, and she simply wants to make the same money she did before she quit her job to stay home with her kids. The maximum she can work is 30 hours a week and $900 a week is the maximum income she can attain or about $45k per year (the salary she used to make). Market forces determine the $30 per hour; it’s the going rate and it’s almost impossible to exceed the market rate for long. Sue finds three small business customers and divides her time evenly among them, at first while she is first setting up the books that works well. She is billing the full 30 hours a week and making the maximum income. Sue is a great accountant, and it doesn’t take long to maintain these customers at just three hours per week each. Because she is smarter than most, she has now worked herself out of $630 a week (21hrs * $30). She now makes about $13.5k per year (50 weeks) and has a serious problem as she now has some choices to make: become a “real company” and get some employees, lie about the time and pad the bill, or talk to her clients who are very happily now paying $90 a week for her services and “break the bad news.”
Where did Sue’s plan go amiss?
She ignored a few very important things.
First of all, she ignored Parkinson’s Law, which is that “work expands so as to fill the time available for its completion.” When she was working for someone else she had to be there 40 hours a week, and you would be astounded the amount of wasted time that happens when you are smart and trying to fill the day. I can personally look busy for days as a salaried employee; she was doing the same thing, but never realized it. BTW: Market forces automatically include Parkinson’s Law in the going rate, so they automatically compensate for the slack in the average workplace. Working alone at home without distraction is not average, so the rate doesn’t correctly correlate. However, it’s hard to sell it to customers that way.
Second, she didn’t figure out how smart she really is. Necessity is the mother of invention, and Sue did what she does, and invented numerous ways to save just a pinch of work—just ever-so-small amounts of time. The cumulative time she saves each day adds up and starts compounding time. That’s how she saved all the time. Some would call it entrepreneurial spirit or whatnot. Either way, she worked herself out of a job. This is also a function of the learning curve, as production doubles, time halves.
What could she have done?
She could have sold her accounting as a packaged or bundled service. When she marketed to her three customers she could have sold it as a single service at $300 per week, or $15k per year per customer. The customer is happy, because they believed the cost was going to be $300 per week anyway, fixed or hourly makes no difference to them. She is happy, because she is now paid for her innovation and her experience as a top notch professional, plus the flexibility she wanted in the first place. Finally, it provides an incentive to innovate and gives her an opportunity to increase the value of the services to the customers she serves while adding no true burden to her side other than what she originally agreed to in the first place. In turn, this makes her more valuable to the customers and further cements the relationship with them which she is trying to protect. (The term here is “sticky.”)
Let’s get sticky
“Sticky” is the term used to describe business relationships that are hard to break because of the value you provide. In our example, Sue is a really good accountant and now because she sells her services as a complete indivisible package, she no longer worries about hours billed and she focuses on delivering the best product with the smallest time investment. She gets better and faster! She knows accounting competition is tough. So, she expands her services to handle the customers personal accounting as well and she partners with a tax guy and negotiates a package on the customer’s behalf, so everything is handled in one step. She also partners with a para-legal and negotiates a package on the customer’s behalf to handle all the business paperwork to keep the business running.
In the latter two cases Sue does not do the work, she just makes sure the accounting is done in a way the tax guy wants so that it’s smooth for him, he bills less that way, plus she maximizes tax advantages. She does the same with the para-legal; she just keeps track of the required business time tables and makes sure the para-legal files everything on time.
Yes, this will take Sue additional time, but it’s not as much as you think. These things are usually just an annoyance to the small business owner, and since Sue handles the money and interacts with the customer regularly anyway, it really not that big of a deal for her.
What has Sue really done?
She handles the accounting of three small business customers and handles the personal accounting of the owners of the three small businesses. She also interfaces directly with the tax guy and makes sure the three customers have nothing to worry about from the IRS and they are getting the maximum tax advantage possible under the law. Lastly, the three small business owners know Sue who handles their money also makes sure the business licenses and fees are up to date and paid properly, but doesn’t have to do it directly.
Sue has secured a position within these three small businesses where she is very difficult to replace, she offers a great value that is very hard for a competitor to come in and threaten, not to mention the trust and reliability she has established over time. She has become sticky to their business and their life.
How do I know this?
I know Sue, and she is not a slave to the clock.
