One of the things that Erik has noticed when running a business is that he made a lot more money in the early days. Years ago, Erik was working on DoD contracts with one other partner. They were working 40 hours a week and charging big bucks for their work. It was a fun time financially. Erik and his partner were putting all the extra money aside for the business in hopes of one day growing it. But, it became apparent they had different visions for the business and frankly Erik hated the work.
Over the course of the next 6 to 12 months they slowly started draining the money from the business and taking it for themselves. There wasn’t a foreseeable future for their business together.
After that, Erik started working on his own in the commercial world. It was just him and his laptop at the dining room table. He was making even more money than he did with his previous partner. It was a lot! About six months into it he hired his first employee. That ate away at some profit. Next he moved into a small co-working space. Overhead was still low but slowly expenses started chipping away at profit. As more work came in Erik had to hire more employees. He started to add benefits for his employees and profits really began to shrink.
This isn’t said to scare you…
There are two trains of thought on business: One train of thought (which is Erik’s train of thought) is that you sacrifice some revenue now in hopes of growing an organization that will become very profitable in the future. The other train of thought is to stay small and enjoy larger profits.
Erik and Kevin have a strategic motivation of deferring larger profits now and growing the business by reinvesting in it. They do that by hiring more employees. They believe that at some point the payback will be great.
It can be really tempting to stay small and enjoy those large profit margins, but there are downsides to being a one-man show and having to do all of the work yourself.
If you’re just getting started in business or thinking about hiring your first employees you have to ask yourself what your ultimate goal is: Are you in this to grow a business or are you in this for the paycheck?