Monday, April 26, 2010

Personal Success vs. Structural Success

From time to time I ponder my life and all the things in it. If you follow anything I do then you know I am just at the end of a stupidly busy travel season. The season is, in fact, continuing without me. There are so many events this year it is impossible to keep up. After all, I'm not a reporter.

Anyway, I've reached a point where there are many opportunities open before me. I could choose to do many things. And I'm going to make some changes. I just don't know what they are right now.

Hence the pondering.

Along my path I have realized that a good deal of the success I've experienced in the last five years has been due to a specific approach to success that I adopted. I call it Structural Success. Structural Success refers to a process of designing a business model, getting it going, and handing it to a team for execution.

This would be in opposition to a Personal Success model which requires you to stay personally involved at all levels.

If you haven't read Michael Gerber's book The E-Myth Revisited, please do that now. Great book and it will change your business. Trust me.

All businesses start out with one person who does everything. Figuring out what to sell; selling it; delivering it; marketing it. Many people stay at this stage for years, some forever. Some will hire 1-2 people and then stay there forever. This is the "Sole Entrepreneur" you've heard so much about. This is the most common kind of success.

And even when they grow slightly larger, most business owners retain this model. The owner is involved everyday at every level. The owner is the business. The key strength of this model is that a good owner/manager can reach a very comfortable living and comfortable lifestyle, and it gets easier over time. There are two key weaknesses.

First, when the owner slows down (or goes on vacation), revenue goes down. So when you get into retirement age, the revenue begins to diminish. Second, the amount of revenue you can bring into a service business with this model is directly tied to hours worked. You can ask for more and more money for your time, but at some point you can only sell so many hours and then you're done. If that's "enough" money then you're good to go.

As I said, most businesses start out with this Personal Success model. And most stay there.

While personal involvement of the owner is a key weakness, there's a bigger one: This company can only do one or two things really well. If it tries to be a Jack of All Trades it will do nothing well. Doing only one thing means a full-on commitment to one business model, one service, one product line. That makes dealing with change very difficult.

My History

I've been in business since 1995. We got crazy busy in 1999 around the impending end of the universe. And we rocked through the dot com boom and bust. I found myself hiring people and not finding a good way to consistently make money off other people's labor. Around 2003 I decided to reformulate the company so that I could successfully hand off work and not have it come back to me. In this case, success meant 1) Good quality work and 2) profitable.

It wasn't easy, so please don't think it was just because I can look back and talk about it.

Eventually I transitioned to a model where all I did was to create a process, test it, train someone, and then let them do it. In the last five years I have gotten pretty good at this. I literally create a mini-business within my business and hand off a successful process to someone. I don't execute. I manage people who execute. I manage processes that execute.

With this kind of Structural Success, I can create an unlimited number of businesses that just require tiny bits of my time. In fact, they can be left alone for long periods of time with no direction at all. As you might imagine, that means some pieces of these jobs are intensely boring to an entrepreneur. But they're not boring to people with different personality types.

Not every project is successful. Some could be with a different management model. Some are just stupid. But I can put them in place, make them work, and then evaluate in short order. We keep what makes money and throw away the rest. You've heard me say that I fail fast. I'm not going to "fix" a process that requires me to take time away from other things or results in a Personal Success model for that mini-business.

There's a famous saying from Ray Kroc, the founder of McDonalds: "We can invent faster than they can copy." That's a very powerful perspective.

Lots of people make lots of money copying the original. Look on the shelf of any store. For example, you don't see iPod and one or two other MP3 players. You see iPod and 30-40 different competing devices. Same with shampoo, shoes, and computer manufacturers.

But there's MORE money to be made leading the pack. In many markets, the leader takes 75-95% of the market share and leaves a small percentage for the competition. So even if you don't get there first, there's a lot to be said for being #1! Consider this: Apple iPhone owns 72% of the Smart phone market in Japan. HTC is second with 11%. Third place . . . who cares? (Figures as of last Friday. See Cult of Mac.)

One of the greatest advantages of a Structural Success model is that you can try lots of new things, try them fast, and drop them as soon as you know they don't work. If they work you can fine tune. If they work really well you can expand.

This means you can jump into new technologies in a reasonably safe manner without exposing your entire company.

The downside to a Structural Success model is that you have to have staff. You have to have people who can execute. That means you have H.R., employment taxes, probably a physical office, and all the lovely details that go along with managing people and processes. If you don't want to get big, then this model makes no sense.

My Future

I have loved my personal evolution from Sole Prop to owning multiple companies and doing a variety of things. But personal changes in my life now allow me to re-evaluate where I am with my businesses - and my involvement in those businesses.

Over the next few months I am going to be making some dramatic changes in what I do and how I do it. I can't tell you any more because I know very little more than that. All I really know is that I am walking chin up into a complete re-evaluation of everything I do in my personal and professional life. I expect the transformation to last through the end of this year.

It is exciting and challenging.

And it means that I may be stepping into a few adventures where I revisit the Personal Model of success. That means committing chunks of my time to high-value adventures. So perhaps I'll have a hybrid of the Personal and Structural Models of success. I've done both.

On a totally personal level, I found that I made more money as an individual through the Personal Model of success. Payroll is a huge piece of any larger organization, so it is sometimes hard to make money even with a good model. Especially in the State of California.

I also found that I had more fun and loved my job much more with the Structural Model of success. I had more freedom, more options, and I could play in the sandbox of business whenever I wanted to.

Comments welcome.


1 comment:

  1. Excellent article Karl. ok, so I *bought* e-Myth revisited last time you talked about it. Now I've got to open it. making a reading goal for this weekend.


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