If you have not done so already, please read the first part of this two part article series on business outsourcing here – When Is The Right Time To Begin Outsourcing?.
In the previous article I discussed the importance of understanding your strategy for outsourcing and how it is important that you comprehend the sequence of tasks to complete, starting with the action that serves to eliminate the immediate constraint.
Despite clarity about what and when to outsource, it all means little if you don’t have the cash to do so.
The one major problem that faces new start-up businesses, especially small enterprises launched by solo entrepreneurs, is a lack of cash flow. This problem is broader than just your business as the need for money impacts where you live and how you live as well. How you pay the rent, pay for food and live an enjoyable life is dictated by how much money you have and if your business is intended to be your income source, until it produces cash you’re in trouble.
As a catch-22 situation, many entrepreneurs must take jobs to generate “living” money, which drastically reduces the amount of time available to work on the business. How can you turn your new start-up into an income stream if you are too busy working a job to pay the bills that you can never work on your business?
Unfortunately there is no easy answer to this question and every person faces a unique situation. I don’t have a one-solution-fits-all proposal for you, but what I can do is explain how I made money during the times when my business was not able to support me.
This blog recently hit it’s four year anniversary. That means that most of you reading this are probably not familiar with the early years of my writing here, where I was literally chronicling the growth and changes to my business, which were a lot more dynamic back then.
The reason why the changes were more significant during the early stages of my business was precisely because I didn’t have great cash flow. When you are not making stable money you are more inclined to try new things, jumping from opportunity to opportunity.
My activities from the late nineties right up to about 2005 were all over the place, however there were a few constants because even though I was playing with online business ideas, I needed at least a semi-reliable income stream to live off.
It was my third year of university and although I was still living at home, so my expenses were limited, I wanted a job. I found out my campus library had these amazingly well paying computer help desk jobs ($18 an hour was big time for me back then), and I eventually landed a part time job there.
That part time job at the help desk would become an income stream I relied upon for many years. Although I left the job to travel, I came back to it and used it as the foundation for moving out of my family home and renting for the first time. I also relied on the income from that job to pay for the very first requirements an Internet entrepreneur has – a connection to the Internet and a place to host your website.
I often say with pride that I never had a full time job – and I didn’t – but that’s not because I never had the opportunity. There were plenty of chances within the university to upgrade my casual and part time jobs into full time roles.
Upon graduation I watched most of my friends move on to lucrative, full-time salaried positions in big firms, as I continued to live off my 10 to 25 hours per week of casual work. I didn’t have amazing grades, but I was certainly in a position to go through the graduate recruitment process and seek a job because I had my degree – the piece of paper that opens doors to “real world” occupations.
The reasons I never took a full time job were many, but the key point was that I knew I wanted to run my own business and be my own boss, I just wasn’t sure how that would work out. In order to figure it out you need time, so I was content to keep casual work while I figured what business would be my ticket to independence.
I was prepared, even if I struggled with it emotionally many times because I have a nasty habit of comparing myself to my peers, to only work a job for as many hours as I needed to and say no to any extra work that might hinder my chances of starting a successful business.
You might have a family, or commitments that demand more than 15 hours a week of casual labor income, but I expect you probably can downsize in some shape or form, or find ways to get more work done in less time (working your job from home for a few days for example). Maybe work four days instead of five or start work earlier so you can finish earlier and have the late afternoons and evenings to work on your business.
Whatever is the case, you need to find a balance between making a living from a job that is just enough to keep you going, leaving the rest of the time available to build your business or, as was my case, experiment with business ideas until something worked.
Although it was never enough to live off, I did establish a cash-cow income source online, my very first successful project. I’ve talked about it a lot on this blog before, so I won’t go into too much detail, but the income source was a community website called MTGParadise.com, a site dedicated to the tournament playing scene in Australia of the Magic: The Gathering card game.
This site, started as a hobby that acted very much as my learning tool for how to create websites, after several years emerged as a dominant website in its niche. Eventually, thanks to a thriving forum community who traded cars and a reliable cadre of volunteer writers, the site developed a stable audience. I then tested the waters attracting sponsors and even started an email newsletter – my first “list”.
I made anywhere from $300 to $1,000 a month from the site, but the income fluctuated dramatically. Even after starting a small retail store selling cards from the website, the income never reached a point where I knew each month I would make a certain amount, and after I got hit with credit card fraud wiping out all the money I had made online and all my savings, I realized I would need my part time job for a lot longer (I almost made the decision to take a full time job after the credit card fraud incident, but upped my casual hours instead).
After recovering from the credit card fraud I went on to start more business projects and eventually started BetterEdit.com, the editing and proofreading service that I consider my first real successful business. However long before BetterEdit became a cash flow source stable enough to live off it had to go through a growth stage.
BetterEdit, much like MTGParadise was not a stable income source for a long time. Some months were amazing, netting several thousand dollars, but then during summer when no students required editing services the income could drop to next to nothing. I was still dependent on my part time job, even though the money I had coming from my web projects was increasing.
It was one day while catching a train to the city that I had the idea of selling MTGParadise.com. Although the sale did not occur to many months later, I walked away with $13,500, which was about how much I was earning per year at the time from my part time job. You can read more about this time and selling my first website in part four of my business timeline.
Although I lost my reliable cash cow income source, I did gain enough money to live off for a year, assuming I didn’t change lifestyle habits. This gave me a little security and also taught me what was possible selling website assets, which would become something I did on a regular basis over the next few years.
I did take advantage of a government funded support service for small businesses, which I discovered was available thanks to a tip off from my father’s friend who was on the scheme. This is not something I want to stress as key for success as you may not have something similar in your area and in fact what I received in support in Australia several years ago is dramatically different today – and no doubt much harder to get.
The program I benefited from is called the New Enterprise Incentive Scheme, and after completing an application process that included writing a business plan and attending a panel interview, I qualified for a full 12 month’s worth of income support
This income – about $200 a week when I received it – was certainly helpful and became another dependable income stream, although with the knowledge it would end in 12 months you don’t want to make decisions based on the money coming forever. The idea is to use the breathing room the money provides to grow your business so it can replace that income, and then some, within the 12 months.
I didn’t make any dramatic changes as a result of qualifying for the support, but combined with my part time job and growing online income, my cash flow was good.
At this stage I probably should have begun some outsourcing, at the very least have someone else handle website creation and maintenance for me, but I didn’t. I was, and still am in many ways, addicted to saving money and preferred to work harder and watch my bank balance inch up slowly, rather than work smarter and get leverage from the money I had by using it to hire help.
What did start to happen was a narrowing of my business focus. By this point with my magic community gone and BetterEdit becoming reliable (the income was stabilizing at least an average of $2,000 a month), I didn’t need my part time job anymore. I was also starting to grasp how people made money online and felt I had a future in Internet business.
Eventually I would discontinue many projects, including an offline English school, community websites focused on trading items and social activism, I would frequently start pay per click marketing projects after being lured by new information products, but would shortly after give up and focus back again on BetterEdit.
A long story short, this focus meant my cash flow became more stable, my business grew and I started investing money in assets that didn’t take much time – I purchased new cash-cow income source websites.
Better late than never, I finally recruited help. I was still uncomfortable with the idea after doing the numbers, but I saw that I had the cash flow to pay people and at least cover my basics, even if my business stopped growing, which I did not expect to happen as I had no intentions of stopping to market it.
I hired a customer support person, I began relying on contractors for website design, installation and maintenance, had other people edit and create my sales copy, and hired a manager of my website investment portfolio.
This did not happen all at once of course, but with each contractor I brought on, although I took a hit in my profit margin to pay the fees, my business growth skyrocketed because I was able to get more done of what I was good at.
Cash flow was crucial at every stage of this process as I used the money the business was making to hire people to either take a job away from me or complete a crucial component of a new project. This in turn led to injections of new cash flow sources, and although you are never comfortable with the process due the variables involved (managing people in particular), with practice you start to experience the benefits and become comfortable with spending money to make money.
My story illustrates that it is far from straight forward to grow a business and establish your first income streams so you can begin reinvesting cash into outsourcing. Most of my projects lost money or made no money and took a lot of my time. The small handful that did work, paved the way for the situation I am in today, making several hundred thousand dollars a year online.
I relied upon juggling various small sources of income until something showed it had enough of an upside potential that I could slowly start selling off or quitting other projects to focus on just the one or two enterprises that worked.
During the very early days the fuel to grew my business and sustain my life was a part time job, which eventually became unnecessary as capital injections from selling assets and long term savings meant I could handle the potential exposure to any downturn in business cash flow.
In short, because I was willing to work a lot and save whatever I could thanks to stubborn patience (not recommended), I eventually got there.
This is not the path I recommend you copy exactly, but there are some very powerful lessons to be learned from my story, in particular –
Do you have any websites or assets you could sell?
What you want of course is a real business with real scale and big profits, but not every project is going to get there. If something is making money but it’s not the big dream you want to follow, let the site carry you forward and create some freedoms and use that time to work on the next project (or of course sell it – see the previous point).
As I stated earlier, there is no one size fits all solution to the problem of cash flow. I’ve study and experienced enough in the business world to know that no matter what industry you are in, cash flow is always going to be critical to everything you do – and that’s the case from day one.
Outsourcing becomes an option once cash flow reaches a point where it can cover the cost of outsourcing without creating a critical deficit in your life (e.g. can’t pay rent) or business (e.g. can’t pay for Internet access). The rest of your business life will involve using cash to reinvest in other people in order to create more cash, and so on, until one day you sell your business or you retire and let other people run it for you.
Cashing In On Outsourcing