By
Bruce Hoag
You probably know this already, but before you start a new
business, you need to think about what the cost will be to you. That's
so that you don't get half way through the process and find that you
don't have enough to get you all the way through it.
Costs can take on many guises: they can be for tangible items or intangible items of high value, such as intellectual property. They can be for consumables, such as stationery and printer cartridges. Personnel can double your expenses in no time at all. If office space or another kind of workplace is required, then that, too, can considerably increase your expenses.
One area that is overlooked routinely is the value of the expertise that entrepreneurs bring to their new enterprise. Most people make three mistakes in this respect, all of which concern their time.
1. The first mistake that entrepreneurs make is assuming that time is money. Nothing could be further from the truth. An hour of your time doesn't have the same value as an hour of someone else's time. So comparing units of time is similar to comparing apples and oranges.
2. The second mistake is assuming that people buy time and not value. Apart from as quickly as possible, no one cares how long it will take; they only care about what they'll get for their money. Why force them to think of what they buy in terms of the time it took to produce it?
For example, imagine going into a showroom to buy a new car. Instead of seeing a sticker price that listed the cost of the car, dealer prep (which is nonsense anyway), shipping & taxes, you saw a different list: 47 hours in the molding room at $20.36 per hour, 29 hours assembling the engine at $57.42 per hour, 10 hours in the paint barn @ $69.20, etc. What would you think about that? When you buy a car, you want to know the price of it, not how long it took them to put it together.
3. The third mistake made by entrepreneurs is assuming that their expertise is free.
Just because it's your business doesn't mean that the expertise you bring to it is free; or to think of it another way, is worthless. There's a thing called "opportunity cost" that needs to be evaluated as well. The cost of the opportunity for you to do something else with your abilities and skills needs to be compared to the long-term cost of using them in the new business that you are proposing.
If you had to hire someone to do what you will be doing, there would be a cost for that. When, then, should you assume that if it's your expertise, that makes it free?
Costs can take on many guises: they can be for tangible items or intangible items of high value, such as intellectual property. They can be for consumables, such as stationery and printer cartridges. Personnel can double your expenses in no time at all. If office space or another kind of workplace is required, then that, too, can considerably increase your expenses.
One area that is overlooked routinely is the value of the expertise that entrepreneurs bring to their new enterprise. Most people make three mistakes in this respect, all of which concern their time.
1. The first mistake that entrepreneurs make is assuming that time is money. Nothing could be further from the truth. An hour of your time doesn't have the same value as an hour of someone else's time. So comparing units of time is similar to comparing apples and oranges.
2. The second mistake is assuming that people buy time and not value. Apart from as quickly as possible, no one cares how long it will take; they only care about what they'll get for their money. Why force them to think of what they buy in terms of the time it took to produce it?
For example, imagine going into a showroom to buy a new car. Instead of seeing a sticker price that listed the cost of the car, dealer prep (which is nonsense anyway), shipping & taxes, you saw a different list: 47 hours in the molding room at $20.36 per hour, 29 hours assembling the engine at $57.42 per hour, 10 hours in the paint barn @ $69.20, etc. What would you think about that? When you buy a car, you want to know the price of it, not how long it took them to put it together.
3. The third mistake made by entrepreneurs is assuming that their expertise is free.
Just because it's your business doesn't mean that the expertise you bring to it is free; or to think of it another way, is worthless. There's a thing called "opportunity cost" that needs to be evaluated as well. The cost of the opportunity for you to do something else with your abilities and skills needs to be compared to the long-term cost of using them in the new business that you are proposing.
If you had to hire someone to do what you will be doing, there would be a cost for that. When, then, should you assume that if it's your expertise, that makes it free?
By the way, if you're thinking of starting a business of your own, then you might be interested in http://www.terrydeaninterview.com.
Or, if you'd like to learn more about staying employed, then download my new FREE ebook. You can get it at http://www.p-advantage.com/freeEBook.html.
Or, if you'd like to learn more about staying employed, then download my new FREE ebook. You can get it at http://www.p-advantage.com/freeEBook.html.
No comments:
Post a Comment