Jim and Pete were self-employed in the same city, although they had very different lifestyles. For Jim, being the owner meant his desk was definitely the place where the buck stopped, at least that's how it was the last time he could actually see the top of his desk. Today, on his way in to the office, he had to swing by the mechanic shop to pay for more repairs on one of his three aging service vans. With another year of payments before he could think about replacing them, breakdowns were just a nuisance he'd have to endure. The best he could hope for was that he could keep the vans on the road without a major expense like an engine or transmission replacement.
Once he arrived at the shop, he checked his messages. Mrs. Anderson called wanting to know when he was going to clean the carpet after his plumber had dragged a leaky water heater down the hall. Jim sighed. The carpet cleaner was going to clean away any profits there might have been in the water heater job.
His next message was from his banker. In order to improve cash flow, Jim was inquiring about factoring his receivables, a process where the bank would pay him for invoices he hadn't yet collected on. The good news was that the bank had worked out the deal. The bad news was that it was going to cost 18 percent of every invoice he presented. This percentage was much more than he even earned in profits so, in effect, he would be paying for the privilege of working for customers when he didn't collect C.O.D. Yet another frustration.
In his heart, Jim wished he'd never started this business. He was charging nearly $70 per hour, more than any other plumber in town, yet he still wasn't able to bring home as much as his employees did. He'd hang it all up and walk away, but he couldn't even sell his assets for enough to clear his bank notes. What a mess he was in.
Different, But SimilarPete's day was vastly different. In the mornings, it was tough to leave his expansive, multimillion dollar residence but his enterprise was so lucrative, he knew he would hate missing any opportunity. With his assistants in tow, he'd usually be on duty by 10 a.m. For Pete, income wasn't the real problem. Instead, figuring out what to do with it all was the tougher challenge. His compensation easily approached $70 per hour plus fringes.
Stress? Pete's occupation was practically stress-free. All he had to do was show up and people would give him money. Responsibilities? Unlike Jim, who seemed to be carrying the world on his shoulders, Pete had no responsibilities at all. Just show up, take money, go home. What a life!
You see, Pete is one of those guys you see on the street corner with his “Will work for food” sign. His income is conservatively estimated at $67 per hour for him and his two dogs. Some people wonder how a homeless guy can afford to keep dogs but it so happens that another perk of his “enterprise” is that he gets as many as five combo meals per hour from a nearby fast food restaurant (some people prefer to give food rather than cash). His dogs are among the best fed animals in town! (See the end of this column for notes about these statistics.)
So, why am I comparing a homeless guy to a struggling plumbing contractor? The main reason is to illustrate that the homeless guy, who lives under a multimillion dollar highway bridge, has a better net worth and fewer worries than the contractor who has lost control of his business. Being homeless may not be a lifestyle we'd all choose, but you have to wonder if Pete's unfettered lifestyle might seem tempting to Jim.
I'm not going to argue whether or not homeless people are victims of society because this is a column about business, not societal issues. All of us face our own unique set of circumstances, opportunities and challenges in life. Pete is a vagabond largely by the choices he has made. Jim is choking in a business that's undercapitalized and overextended because of choices he has made. Both Pete and Jim live day to day, hand to mouth. It wouldn't take much of a hit for either enterprise to topple.
Both Pete and Jim have another similarity. Neither have enough vision to see past tomorrow, maybe not even this afternoon. All they're doing is the same thing they did yesterday and the same thing they did last week. Both could vastly improve their lives if they'd just get a vision to do something better.
What could Jim do to improve his lot in life? For starters, he needs to decide why in the world he's in business. Is it to keep the bankers off his back while struggling to make payroll or is there something more? Could it be that he wants to be in business because his customers need someone reliable, honest and devoted to service to take care of their plumbing problems? If he's sure he has a reason for going on, then the next step is to figure out what it really costs to be there when his customers need him.
He also needs to figure out a better, more profitable way to deliver that service. For most contractors in Jim's position, making the switch to upfront pricing proved to be the catalyst for their turnaround. Upfront pricing, calculated to make a profit, would certainly help Jim, but that's only one part of the equation.
Other steps he could implement would be to reduce his receivables. If he's not making money off of credit work, then why do it? He could just turn it down flat and be better off than doing the work only to find all his profits sitting in his customer's checking account while he pays interest on the supply house bill. If he figures preventive maintenance into his budget, he's less likely to suffer from a major repair on his rolling stock, plus he has the advantage of picking when the vehicle is out of service.
Do any of these steps sound like some strange alchemy or magical concoction? It's really just a matter of identifying what needs to be done and doing something about it. Will these few changes solve all Jim's problems? Probably not, because a fundamental premise of being in business is that the business person takes risks in hopes of earning above-average compensation. Jim took on the risk but he didn't calculate the costs, which resulted in his profits simply withering away.
If Jim ever wants to be worth more than Pete, he's going to have to see beyond tomorrow's set of circumstances, decide why he's in business, count the costs and charge accordingly. Otherwise, his lot in life will never be as good as Pete's.
How We Figured Out What 'Pete' EarnsEight community activists in my area pooled their pocket change, which averaged out to $1.25 per person. Using this figure as an estimated average transaction, they studied “Pete” as he worked a street corner. At only $1.25 per transaction, Pete was earning $67 per hour while he stood on the street corner. Some people gave food - which worked out to five combo meals per hour. No wonder Pete had two big dogs!
On a more personal note: Years ago, I campaigned for a U.S. congressman who had once lived on the streets of downtown Fort Worth. He won the seat because he had vision and was able to excite others to share his vision. “Jim” could do likewise, but not if he keeps thinking like “Pete.”