Category Archives: Leverage

Leverage Yourself

Most small business people, especially when you are starting out are cash strapped and basically have to do everything or at least know how to do everything.

Time Limits to Growth

But, there are only 24 hours in a day and you can only do so much. How do you leverage yourself. Because if you don’t figure out how to multiply your efforts, your business is never going to grow very large. It is going to be limited by your abilities.

If it is all based on your work and it is a service business, then the amount you can charge per hour limits how much you can make. And if you can’t work, you can’t make anything.

Similarly, if you are selling a product, there is only so much you can sell, make and ship before you are maxed out. The only way to make more money is to sell more expensive products or hire someone to help.

Where is the Value Added?

So you need to figure out where you can make the most difference in the company, where you add the most value and then see who you can hire (part time, full time, contract basis) that can do some of the work so you can focus on the more important things and on the business.

As soon as possible, you want to hire someone to do the $10/hour jobs so you can focus on tasks that are $100 or$200 or $500/hour in return.

What are You Good At? What Do You Enjoy Doing?

Some things you aren’t good at, others you don’t like because you haven’t learned how or aren’t good at. Some things simply need to be done. Others, you might need to spend some time learning. Once you have practiced something you might find you are good at it.

One of my daughters growing up would try something once and say I am no good at it, I give up, I am not doing this. (Other things she would tackle till she persevered.) Part of the problem was that she wanted to do things perfectly the first time and didn’t like to fail. When this was pointed out, she would get on with things and do fine.

If you are better at technical aspects, then you might want to find someone for sales. If you are great at sales, you might want to find someone who is very organized and can run day to day operations.

Even though you are paying people to do different aspects of the business you will grow larger and faster than if you try to do everything yourself to save money.

Why You Don’t Want a Salary

I know I have already done a post on passive income. I was sitting down one day and wrote out some more by hand. Sorry if some of this is a repeat.

Passive Income vs. Active Income

What is passive income and why do you want it? Basically passive income is making money while you sleep or vacation. How would you like to go on vacation and come back with as much or more money as when you left? (And not because you hit the lottery while you were on vacation.)

Active Income

This is basically your salary, your paycheck. The problem is that you are trading time for dollars. You only get paid for the hours that you work. If the work is something that a lot of people can do, it doesn’t pay well. For example, washing dishes or digging ditches. You can be really good at it and you still won’t make much money.

The more unique your skills, the more you can make per hour. Lawyers make $200-500 per hour and sometimes more. A doctor is similarly highly paid because of their specialized knowledge. But even among doctors, some with unique skills are paid much more than other doctors.

BUT. They still only get paid while they are working. If they take time off or go on vacation, they aren’t making any money. So their income is capped by the hours they can work unless they have another source of income.

Passive Income

Passive income is not dependent on how much time you put in, but on how smart you are in how you use your time, resources and money. Passive income can take various forms. Following are a number of examples of passive income.

One way many people do it is investing in stocks or bonds. The assumption is that you will receive income from dividends and also that the value of the stock will go up over time. The problem is that sometimes the value drops so you not only aren’t getting passive income, you are losing money.

Another way is to loan money and earn interest. A wise person once told me that smart people (and often also wealthy people) earn interest and that foolish people (and usually poor) pay interest.

Hard money lenders

One example of this are hard money lenders. These can be anybody. There is a doctor locally who is a well known hard money lender. They lend money to people rehabbing houses. Frequently they take a fee of 5% of what is loaned and the interest rate is often 12-15%. Why would someone borrow at such high rates and with such high fees? Hard money lenders are more flexible than banks. (But they aren’t stupid. If you don’t perform, they will end up owning your house, although for most, this isn’t their goal.) You don’t need all the paperwork associated with a bank loan. It can be done much faster. And what if you have a ding on your credit and can’t get a bank loan? The hard money lender only cares about if the deal makes sense and not your credit rating.

You would never use a hard money loan to buy a house and rent it out. You would lose your shirt. The loan makes sense when you buy a house, take 1-3 months to fix it up, then sell it. So you are only paying the high interest rates for a short while and if you did the rehab right, you have significantly increased the value of the house and you will make a nice profit despite the high interest rates.

But, for the hard money lender, rather than making 2% interest in a bank account, they are getting 5% of what they loan and then 12-15% interest. And, if the rehabber is fast, they can do this with their money 3-4 times a year. It only takes them a few years to double their money.

Book and Music Royalties

If you write a book or write a song or sing a song that is popular, you can earn a lot of money on the royalties. Of course, many people write books and songs that aren’t that popular and never make much money. But the idea is that you put in the time on a one time basis and then you can make money from it for years to come.

TV and Movie Royalties

Similar to book and music royalties. If an actor is in a TV show or a movie, they will get royalties whenever it is shown or a DVD is purchased. If it is popular in reruns, they can make money for years for the short period of time they did the acting. However, this isn’t true for all actors. Performing on stage is like having a salary. You only get paid for the performances you act in and the salary is limited by the size of the audience in the theater. But for TV and movies there are two effects that make for a much greater income. The first is that the audience can be in the millions and therefore the pay is greater. The second has already been mentioned in that you not only make money at the time, but each time it is show in the future which can’t happen with a play or musical.

Inventors, Patents and Royalties

Another way is to be an inventor. You can then patent the product or process and license it to a company who pays you a royalty for the use of the invention. Another way is to create a company around the invention that grows and if run well, allow you to step away while other people run the day to day business.

Starting a business

Some people start a business and they spend even more time working on  it than they did when they had a job working for another company. The key is to create systems so that other people can be trained to do the work and you don’t have to be putting in crazy hours all the time. There is a great book on this topic called the eMyth Revisted by Michael Gerber.


Software

Another way is to write a piece of software or an app or plugin which people then buy. Or you can set up a marketing / sales funnel on the internet which brings in leads or sales automatically for you.

These are just a few ideas for passive income.

TV Shows & Game Shows Business Model

TV Shows Business Model

The other day, House of Cards was filming at a church right around the corner from where we live in Baltimore. Quite a site, with trailers all over the parking lot, food trucks, generators, limos, hundreds of people from the actors to all the support staff.

There were tens of thousands of dollars being spent on this and it was just one scene from one show. How do they afford this? Continue reading

Are Sports Players Overpaid?

Do you think sports players are paid too much? Why are they paid as much as they are? Is it just because they are good at what they do? If so, why does a professional lacrosse player with tremendous talent have to work a job as well as play lacrosse, whereas a baseball or football player makes enough money to retire after a few years of playing if they want to?

And why are they paid so much more than people who have other jobs who work just as hard. It can’t be because of physical danger. Otherwise we would pay police and firemen and miners a lot more money. Many people don’t understand it and are angered by it, like this article in TeenInk.

It is because of the leverage they bring. People like watching the games. Lots of people! Companies need to sell their products and they are always looking at different ways to market and advertise their products. So the large audience that the athlete’s generate is very attractive to the advertisers.

It is like a cycle that reinforces and gets stronger as it goes along. The companies advertise on television and radio because they know they have a large audience and they can determine some general interests of the audience so they know which products to target. The radio and television companies then pay the teams for the right to broadcast the games. The larger the audience, the more they will pay.

So that is why football and baseball teams can afford to pay so much more than a lacrosse team for instance.

But once this is set up, you have a lot of people with a vested interest in having it continue and helping it to grow. If the audience grows, advertiser will pay more, the teams will receive more money and the athletes will be paid more. The local newspapers, even though they aren’t directly involved in the way radio and TV are paying fees to air the game, they write about the games and the athletes because it helps sell newspapers. The writers and the TV and radio announcers have an interest in promoting the sport and games as well because it gives them a job and the more popular the sport, the more they are likely to get paid. Just not as much as the athlete’s.

Before they formed unions, the athlete’s were actually underpaid. If their abilities get enough people watching that the advertisers, the TV and radio stations and the teams are making millions or billions of dollars, the athlete’s should be getting a cut of that.

It is similar to television stars. The more people who watch a show, the more the actors will be paid.