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How to Build Your Business and Escape the Self Employment Trap

The traditional way to build a business is to build an owner reliant, Level Two business. In a Level Two business, you as the business owner gather up the reins of power. All decisions are run past you. You create the plan, you lead the execution of that plan, you do all the hiring. You meet with all the key clients and perform most of the important work of the business. Sure, you have people to help, but they’re there to do just that-help-not to lead or take ownership of central parts of your business.

The core knowledge of how to manage and direct it is locked up in the gray matter of your brain. If something should happen to you, your business would crumble. If you manage to somehow escape for a short vacation, you probably sneak your laptop or iPhone with you on the trip and check email when your spouse and kids aren’t looking.

What’s the real reason typical Level Two business owners want all the control? It’s the fear that if they don’t stay in control, things will go wrong. They’re afraid that their staff will screw up and they’ll lose a customer or face a lawsuit, or even that the company will fail. So they clutch at the security blanket of control, never seeing that it binds them in a trap that holds them in their businesses forever.

Remember the scene in Godfather III in which Michael Corleone (played by Al Pacino) wants to get out of the family business? He turns to his sister Connie and says, “Just when I thought I was out, they pull me back in!” Well, that’s exactly how many Level Two business owners feel over time.

While there is nothing wrong with the traditional model, and it works to build a successful Level Two business, it has three serious pitfalls to it.

The 3 Pitfalls of Building Your Business the Level Two Way

Pitfall 1: It caps your income and your success.
If your business revolves around you and your personal production, as you become more successful, you’ll smack up against the ceiling of how much you personally are able to produce for your business. You can personally only do so much and run so fast before you just can’t do any more.

Pitfall 2: It puts everyone at greater risk. If you stop working or get injured, your business dies-quickly. This is risky for you, your family, your employees, your customers, and your investors.

Pitfall 3: It eventually corners you in the Self-Employment Trap -the more success you have, the more trapped you become inside your business. You’re so busy doing the “job” of your business that you can’t step back and focus on growing your business. As you grow your sales by personally producing more, you take on increasingly more overhead. That means each month, your starting point requires you to run even faster just to cover your fixed costs. It traps you firmly inside the suffocating blanket of your Level Two business.

So what’s the way out of the Self-Employment Trap?

In the traditional Level Two approach, you try to escape by personally working harder. But that’s like stepping on a treadmill and saying that the way to get off is to simply run faster. Not so. The faster you run, the faster the speed of the treadmill. You take on more overhead and hire more employees, but you put them into a Level Two model that merely increases your personal pressure to produce. And what happens if you ever stop running? You come crashing off the treadmill and your business dies.

Escaping the Self Employment Trap

A job is something that you do yourself; a business you build does your job for you! Getting your business to do more means building the infrastructure that profitably produces value in the market in a scalable way.

This means building your business with the end in mind, the end being the day when it no longer needs your time and attention on a daily basis. In fact, building a Level Three business is a lot like raising kids. Immediately after birth and for the first few years, you put in a tremendous amount of care and feeding, not to mention changing a few diapers! This requires lots of your time.

In the early years of your business, you’re naturally the main engine driving your business forward. You’ll wear all the hats at various times, and you’ll have few formal structures and systems within your organization upon which you can truly rely. But as it matures-like when your kids start school-you create some breathing space. You’re confident you’ll generate enough consistent sales that your business stays profitable.

As you enter Level Two, you’ll face a crucial decision point at which you can settle for owning a Level Two job or instead choosing to raise your business to be a strong and independent entity that benefits from your involvement but is ultimately independent of it. Just like your goal as a parent is raising kids who can eventually stand on their own-independent and self-supporting-so your goal is to create an organization with the systems, team, controls, and scalable solutions that allow it to stand on its own.

The traditional Level Two approach is for you the owner to work harder, to do more-to work at the job of your business.

The Level Three solution is for you to do less and get your business to do more. Remember, the more you do, the more you have to keep doing! The more you get your business to do, the less you have to personally do, freeing up your time to grow and build your business.

Family Businesses – Your Eight Key Stakeholders?

Depending on circumstances, there are usually eight groups of key stakeholders in family businesses. This may vary slightly from one family business to another, so it’s always worth considering every possibility. Each is important to understand and work with, for the future of the business and morale in the bigger team.

Family Owners

The most obvious group and depending on your point of view, probably the most important. With the proviso that without others in the team, they will find it hard to be successful on their own. The business began here and often they hold the biggest share in the value of the family business.

Current Families

Whilst often not having a direct share in the business, the folks at home can often have a significant influence on those who do. These might be husbands or wives or children of the first group, or even wider. If this group is not fully appreciated, their actions, attitudes and beliefs can impact on the behaviours of those who do own sizeable chunks of the business.

Non-Family Shareholders

In many family businesses and for a variety of reasons, some of the shares in the business might have been given to others from outside. These might be commercial decisions to raise capital or simply where senior managers have been introduced for their expertise and have been offered a stake in the business success. They will usually have a smaller share than family members and need careful involvement to ensure the value of their ownership is maximized.

Future Generations

Although not financial stakeholders, the influence of those who will form the next generation of owners of the family business will be significant. Many family businesses have a sense of purpose around leaving a legacy for the family and current owners will often shape their thinking around what they are creating for their children. The influence is subtle, subconscious and generated internally by those protecting a business for their children.

Non-Family Employees

Most family business enterprises will have many more non-family employees than family members. Purely because of the numbers needed to build even a modest business, it will be necessary to entrust the business in many areas to outside help. Good communication will be vital with these people and actions taken to integrate them with the values, standards and ethics that the family feels important.

Customers & Clients

Many say that the customer is the most important asset to any business. Others suggest that those employed in the business are at least as important, if not more so. This group is a pseudo-stakeholder in any business, family or otherwise. Yet for family businesses, the relationships they hold with customers can be a huge asset. Nurturing what might have been generations of interdependency is a critical role in both directions, so this group is a valuable stakeholder in the success of the family business too.

Suppliers

As with customers and clients above, generations of relationships between a family and their suppliers can often be found. It’s more likely to be amicable and synergistic when years of trust have built up. As stakeholders, there is ‘mutuality’ about each being supportive and enthusiastic about the other’s success.

Non-Executives

This group could sit partly in other sections and yet, there is a difference. The best family businesses bring others in from outside to support their growth and health. Non-executives provide this function often with little tangible reward. They are the essence of a stakeholder who seeks success for the business, as an inbound paid expert who can bring wisdom and experience.

These are the 8 key groups of stakeholders in most family businesses of any size. It can be difficult for inward looking owners to pay respect to each of these groups and yet, when they do, their business has the likelihood to be more successful; better motivated and ultimately well-placed for a successful handing down to future generations.

The Physics of Business

Running a business is part of life. And life is subject to the laws of Nature. Therefore, it is logical that business must also follow natural laws.

Just think of some of the sayings that are commonly used in business. “We need to accelerate the growth of the company.” The business is starting to gain momentum.” “Things will take off when we get enough leverage with the market.”

It is clear that people intuitively know that life and business follows the laws of nature. The problem is that we tend to forget that since it is a ‘law,” it always applies. We think that we can escape through some short cut or special exception. However, to hijack the famous quote from George Santayana “Those who cannot remember the laws of nature are condemned to repeat their failures.”

Basic Physics

To start off with the science discussion, let’s first visit some laws of physics. Sir Isaac Newton developed Three Laws of Motion, which describe basic rules about how the motion of physical objects changes. Newton was able to define the fundamental relationship between the acceleration of an object and the total forces acting upon it.

To illustrate the relationship with life and business, let’s focus on just the first and third law for now.

The first law states that every object in a state of uniform motion tends to remain in that state of motion unless an external force is applied to it. A pool ball runs in a straight line until it hits another ball or one of the bumpers. If a business is failing, it will continue to fail unless some action is taken.

The third law states that for every action there is an equal and opposite reaction. If one jumps off the dock into a rowboat, the rowboat moves away from the dock. If a business lowers their prices, sales will increase.

“A more meaningful translation of Newton’s third law is — for every effect there is a cause,” says Hugh Shearar, an international trader who developed a course blending business, life, physics and ancient wisdom together called Wisdom, Wealth & Success.

If one’s business or life is not where it should be (the effect), what is the cause? To make any changes, one needs to move beyond the “effect” and focus on adjusting the “cause.” If a car is stuck in the mud (the “effect”), there is no sense focusing on that fact. Action needs to be taken to create a new “cause” and a different “effect.”

Just because we live in the physical world, we experience the impact of these laws everyday. We as humans often feel we are exempt from the consequence if we ignore the laws. A business owner needs to keep these laws in mind and apply them to their advantage.

Thermodynamics and Energy

Jumping to thermodynamics, the First Law is that heat supplied to a system equals the increase in internal energy of the system plus the work done by the system. In its simplest form, the First Law of Thermodynamics states that neither matter nor energy can be created or destroyed.

The amount of energy in the universe is constant – energy can be changed, moved, controlled, stored, or dissipated. Heating up a pot of water will increase the energy (temperature) in the water while the bubbling and steam can be considered work (release of energy) done by the system.

For a business, the energy one put into the business, will be transformed into the energy of the business. The trick is to put the energy into the right parts of the business. How often will a small business owner put tons of time into something like designing their own website, only to see the return on their effort as a failure. Website design is a commodity that is best outsourced if one is an insurance agent.

The focus of energy for an insurance agent should be on selling insurance. A business owner that wants to grow should shift their focus from them personally selling insurance to instead creating a business structure with many employees that sell insurance.

Many people work really hard on their business with poor results. The key is to use their energy in the areas that are most meaningful. A small concentration in the right area will deliver better results than spreading lots of energy over a wide area. The goal is to work on the business, notin the business.

Also, if the right amount of energy is focused in the right area, but the results are less than expected, then the energy is being dissipated, usually through friction or resistance. Friction and resistance take energy to overcome. More “work” can be done with less “power” when “friction” and “resistance” are reduced.

Note the areas in the business where “friction” or “resistance” is wasting energy and causing poor results. This could be an employee with poor morale, or a producer that ignores policies and procedures, or a client that always has problems. Removal of “friction” should then produce the desired results.

Power, Time and Work

Another law of physics is the equation for power. One way to define it is that power is equal to the amount of work done over a specific time period. It takes a certain amount of power to push a stalled car along the road for 5 minutes.

In life, the power we achieve is based on the amount of work we do over a period of time. People who have a lot of “power” in a small town are those that spent a lifetime building up their success. It is important to note that power can be derived from the accumulated work of others. Rockefeller, Gates and Buffet leveraged the work of many people to gain tremendous amounts of “power.”

“Power can also be measured in terms of money,” notes Shearar. “Those who producer more work over more time have generated more money.” This is a tangible way to show the value of work and time. An experienced CSR that handles a large book of business should get a larger paycheck that a new employee that is less productive.

Shearar also points out that the time to do a task can be “calculated” by using the power equation. Time equals the amount of work done divided by power. So, in other words, the time for someone to do a task decreases with the amount of power they have.

Think of employees, if they are not given a lot of “power” (such as resources and authority) it will take much longer to get the job done. So, providing employees the right “powers” to get the job done will make the business much more productive.

Summary

How can this be applied to business and the daily lives of a business owner?

There are no secrets to life and business success. It is all out there in the open. Successful people have “learned” how to apply the laws of nature to their lives and their businesses.

Most people, however, feel that they or their business is unique and that what others did will not work for them. However, if one is always getting poor results, then something is wrong with the system, such as how and where energy is applied, or the loss of energy due to friction.

The key is to realize that one cannot escape the laws of nature, so it is best to use them to one’s advantage.