Do or Delegate? A Method to Calculate Exactly Whether You Should Do a Task or Delegate It.
As you probably know by now, one of my big issues with entrepreneurs is working in the business rather than working on the business.
The typical entrepreneurial cycle begins with a startup where the entrepreneur is jack of all trades – doing the bookkeeping, fixing the computers, answer customer questions and anything else that needs to get done to make the business viable.
Unfortunately, many entrepreneurs never make it out of that cycle even when the business is past the start-up stage.
I recently read an article on the Small Business Trends website entitled “Do You Know Your Time-is-Money Rate?” (http://smallbiztrends.com/2010/05/do-you-know-your-time-is-money-rate.html) that provides a great method for quickly assessing whether the entrepreneur should be doing a particular task.
While the author of the article describes it as a rule-of-thumb method of determining costs and making business decisions, I think the real value is getting the entrepreneur to focus on high value tasks.
The basic premise of the article is that you should take your annual compensation (or target) and divide it by 1,000 to arrive at a minimum hourly rate for your services.
While the method is great, it should actually be annual compensation divided by 500 to account for increased expenses and a lower productivity rate – most people can’t produce for 40 hours per week.
But, the most important use of the method is for a business owner to determine exactly which tasks are appropriate for her attention and expertise, and which tasks must be delegated.
Take information technology services. Say you can buy IT services at $150.00 per hour. If the entrepreneur’s target salary is at or above $75,000 per year, then she shouldn’t be fixing the company’s computers ($75,000 divided by 500 equals $150.00).
Of course, that doesn’t take into account the experience and expertise issues. Because of her lack of expertise and experience, it might take the business owner six or eight hours to complete the same task an IT professional can do in four.
This method also shows why the owner has to be focused on high value tasks. If the owner’s target annual salary is $100,000, then nothing the owner does (at work) should be valued at less than $200.00 per hour. Otherwise, she’s effectively reducing her salary.
This is why no owner of a viable business should do any accounting, bookkeeping, legal or IT work, or answer telephones, make copies or any other tasks that can be bought at a lower effective hourly rate.