Your overhead (and maybe your ego) is too big

So, I’ve made a lot of mistakes in the past.  I’m sure I’ll keep making them until I learn to listen to my wife!  One of my largest mistakes since founding 2020 REI was rapid expansion.  Not only of office space, but also expenses and personnel.  Operating under the standard entrepreneur ideology that if you build it, they will come.  We’ve gone from a 300 square foot office with two couches, two people and a desk; to 5,000 sqft overlooking downtown with 50 people; and back to 1,300 sqft in the corner office with five people.  Should we have ever grown?  Should we have used debt?  Should we have used profits?  It’s all really debatable.  I’ve seen this scenario play out a dozen times (at many levels of operation) and it always works out different.  I think the answer to the question really lies within one question.  Why?

It’s one thing to grow because you can’t fit everyone into your current space (office space, time capacity, or other limitation) but it is completely something different to grow because you have big plans.  I think you have to simply ask yourself, “Why?”

• Why do you want a bigger office (or in some cases to get an office when you are a home based business)?
  • If the answer is because you already have customers coming into you home or office and you need something different, then ok.
  • If the answer is because you plan to have customers or employees coming to your business, maybe you should wait.
• Why do you want to hire that next person?
  • Is it to free up your time?  If so, what are you going to do with that time.  All too often, we become entrepreneurs to spend more time with our family, traveling, etc; only to create a JOB out of our passion that makes it where we can’t spend time with our family, travel, etc.  Funny how it works.  So, if you are freeing up your time, to spend more time doing what it is that you really care about, GO FOR IT.  Make sure you can really afford it.  Don’t just hire someone so you can delegate what you are really good at, just so you can spend you time doing something you are not good at, or that you don’t enjoy.
  • Are you trying to GROW?  If so, have you really thought about what percentage of your current revenue this new expenditure will consume?  Many times we hire people and simply lower our profit margins.  Then, we are forced to conduct more business, to earn the same net profit.  Then we have to spend more money (advertising, etc), to conduct that business, which then further reduces our net profit margin, which then forces us to do more business.  It can be a vicious cycle.
  • Are you growing for growths sake?  Are you hiring that person just because you read a book or went to a seminar or saw someone on Facebook do it?  If so, my lord STOP yourself!
• Why do you want to do more? (buy more houses, sell more widgets, whatever)
  • Can you maintain your operating margins?
  • Can you “scale”?
  • Does that incremental revenue create more net profit at the end of the year?
  • Are you working towards an exit by merger or sale of the company?

There are many scenarios, and many questions to ask yourself.  I’ve seen people who buy two houses a month “earn” just as much net profit as people who buy ten houses a month.  I’ve also seen people who buy four houses a year “earn” twice as much net profit as people who buy 100 houses year.  On the same token, I know people who work a 9-5 W-2 job that create more wealth annually by keeping two or three houses than the people who buy 100 houses a year and sell them to “earn” a living while paying three times the taxes as the other person.

These are just random thoughts.  I’ve gone back and forth in the past 36 months about which one is right for me.  I’ve made a lot of friends, made some enemies, and even lost some friends.  An entrepreneur “on a mission” can “scorch the Earth” on the way to success; and many times it’s not necessary. So, if I ran you over on the way to my enlightenment, I apologize.  Ultimately, I’ve landed in a comfortable place where everything I do is only about my “Why”.  I am an entrepreneur not to get rich, but to have freedom to spend my time with my family, coach my kids, and travel when I want.  Getting back to this mentality has added 10 years to my life it feels.  So, if the “grind” turns you on; have at it.  If you just want to be happy, and live a fulfilling and peaceful life, do that.  As they say, you can’t take it with you.

That’s just the “Way I See It”

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