Don't Be Halfway IN or Halfway OUT of Your Business - SOP for Managed Services
Hi, this is Karl with another SOP video for managed service providers. Today I want to talk about the transition to and from managed services. And in particular, I want to give you this piece of advice. Don't jump in halfway and don't jump out halfway.
I recently did a video and I'll link down below about some advice for people who want to quit their jobs and get into owning a business. But, you know, one of the side pieces of advice that I always have to give people is don't get halfway in. It is nearly impossible to start a job on the side and work your way very slowly into being a full time technology consultant. Now, I'm one of the exceptions to the rule because way back in the early days of my career, I had a client that I was working with full time.
And I used to be the kind of consultant that takes on one client at a time. So I worked for HP full time, and then I worked for this other client full time. And I would go job to job being a full time consultant, but outsourced. And I had one client one time that I just said, look, you don't have enough work for me to do, and you pay me too much money for me to do menial labor. So let's do this.
Put me at four days a week and I will go try to get some clients and then take me to three days a week and two days a week and one day a week. That way you can gradually use less and less of my time and I can gradually get new clients. Now, I say that's the exception to the rule because most organizations are not going to let you do that. So what happens is that people very frequently start a job in the evening.
And the problem there is it's hard to do sales when all your clients are closed. So you end up having a very difficult time signing on new clients because you're not working when they're working. So you can't have those lunches, those business meetings, those zoom meetings during the day. Now, the good news is, if you can snag a client, that's great, because assuming that you are able to do all the work or most of the work remotely, you can do it at night when they're not sitting at their computers.
You can remote into their systems and not kick them off and not interrupt their labor. So that's all good. That's really actually a good thing.
But it's really hard to get those clients and it's hard to grow your business. The other thing that happens is that once you start stepping out of your current job, you begin to lose focus. So now you're not doing as good a job on your regular job. You're working evenings in order to try to make some money.
And in the middle you have lost contact with your family. So assuming you've got a family, you have pushed them to the side. And over at relaxed, Focused, Succeed, I like to remind people everything that you think is temporary ends up lasting longer than you thought it was going to be. And so what happens is people say, well, this is a temporary situation and they get in the habit of working until midnight or 10:00 at night. And so they've got a day job, they've got a night job, and their family is pushed to the side until further notice.
And that is a bad habit to get into because it's really hard to get out of that habit. You end up building a job and as a work life around this just ridiculous long routine that lasts 8 hours for one job and then another six or 7 hours for the other job. And ultimately, if you recall from Michael Gerber and The Emiss revisited, you do the one thing you should avoid, and that is you have built a job that you hate.
You haven't built a business, you've built a job, except now your boss is a real jerk and never gives you a day off, never gives you an evening off, and doesn't even let you spend time with your family. Many people argue with me about this very point because they say, Karl doesn't understand. Well, I assure you, I have built several businesses. I do understand. I understand the working late, I understand the family balance.
I understand after many, many years that you don't have to do it that way. You do not have to pick up every nickel you find. You don't have to pick up every client that comes along. And ultimately the problem with growing a business this parttime way and in the evenings, because you are only gathering about you clients who cannot and will not sustain an ongoing, successful, managed service business.
Why do I say that? Well, these are people who are willing to put up with your sort of out of hours, odd behavior. These are people who you are not asking them for enough money to build a sustainable relationship. And that's okay, or at least you think it's okay, because you don't need that much money to get started.
You just need any money you can possibly find. Well, that any money you can possibly find never creates a sustainable relationship. Skip ahead in your mind to when you're established and you've got whatever, 15 clients and they're each paying you a certain amount of money they need to pay you in the neighborhood of 1000 or more every month for you to keep them as clients. Otherwise your businesses are going to have a great deal of difficulty being profitable. Well, the people who will hire you to work at night and come in for a few hours here and a few hours there probably will never convert to people who will pay you 1001, $502,000 a month for regular preventive maintenance. There's different kinds of people in the world and the people who do one don't do the other.
Now, there's some weird exceptions to the rule, but for the most part that is true. So I don't want to spend a lot of time on this. But the obvious question comes up, well, what do you do then? I have to be honest. The answer is also obvious. There are people who buy houses at all ages. Twenty s, thirty s, forty s, even fifty s, sixty s, seventy s.
And the way you buy your first house is you work really hard and you set aside enough money so that you've got a down payment for a house. When it comes to launching your business. You either need to save enough money so that you've got the resources to be able to launch your business and live off of your savings, or you need to somehow find one big, giant client that can fund your lifestyle until you can get more clients, which is highly unlikely, or you need to borrow the money.
Now, one way to do this that is the most obvious to some people is the most dangerous, and that is putting everything on your credit cards until you've got 50 or $60,000 worth of debt on your credit cards because you tried to launch your business that way. Do everything you can to avoid funding a startup business on your credit cards because chances are, depending on your income and credit rating and so forth, that you're going to be paying 15% to 25% interest on those cards. It is much better to go to a bank, get your paperwork straightened out, get a tax ID, go to a bank and say, I'm going to start a business. I expect to have quarter million dollars in revenue the first year. I'm going to work really hard. Most banks don't actually ask you for a business plan, but if you've got like a three page business plan, just enough to say, I'm going after these clients, I'm going to charge these rates, I'm going to put together this bundle, and I expect to get one new client a quarter until I'm profitable.
And from then on I'll be profitable. So I need enough money to be able to run my business and my life for the first year so that I can make it go. You will pay a significantly lower interest rate, probably under 10%.
You might even get a line of credit, especially if you have a house. You get a line of credit, make sure that your spouse is good with that or your partner is good with that. But funding that way at least gives you some flexibility. Now, some people say never ever, ever go into debt.
That's cool. That leaves you on the savings side in order to be able to save up the money. But if you're willing to go into debt and take a chance on yourself, then you can get a business loan.
That's a whole different discussion on how you fund your launch. But I just want to make sure that you don't go in halfway. Don't try to work only weekends and build a business. Don't try to work only evenings and start a business. Ultimately, the reason you don't want to be halfway into a business at the start is that you will build many, many bad habits. You will build habits around a part time business, habits around spending the wrong way, habits around billing the wrong way, on and on and on.
You need to jump in with 2ft and commit to it. And you know the old story, you've got to burn the boat so you can't leave the island, right? And you got to take a chance. Ultimately, entrepreneurship is all about taking that chance and believing in yourself. Now, you can put this off as long as you need to.
I've got a friend who he's been telling me for ten years, twelve years actually, that he's going to quit his job any minute and go off and do his own thing. And he hasn't yet. But he's educated himself.
He's got a business plan, he's got a tax ID. He's moving in the right direction. So you can plan as long as you need to and you can educate yourself as long as you need to and you can put all the framework in place as early as you want to.
But when you jump, jump. Now, if you have the kind of boss who's good to get along with and nice personality and so forth, you might be able to swing a deal where you can say, look, I'll go to half time or I'll go to three quarter time or something and split your time between one business and the other. That way you've got the income that can fund your business. You just need to be super, super frugal. And you have to spend as much energy as possible on sales, which most people hate, but you just got to do it.
Let me know if you have any questions about any of that. I'm going to move on to the other end of it, which is getting out of the business. Don't get halfway out. Now, what do I mean by half way out? Many people sort of end their consulting careers by just not replacing clients.
And so they have 15 clients and then they go to 14. They somehow manage to survive on the money, especially if they've been doing it for 15 or 20 years. And then they go to 13 and then they go to twelve and ten and work their way down again.
One of the things that happens is you lose focus as soon as you've got 1ft out of the business. It's really hard to stay focused on the business and on serving people well, serving people the way that they deserve again, in terms of habits, one of the things that happens is that you end up not serving them as well as they are paying you to. So it used to be when you were going fullbore, you were all in the business, then you were all in and you gave everything, and people got at least what they paid for and maybe more. But as you step halfway out, what happens is that you develop sloppy habits.
And what happens is eventually clients realize, oh yeah, he doesn't care anymore, he's not interested anymore, and they'll go find somebody else. And then instead of your gradual decline, it becomes very steep, very fast, which is particularly bad if you have employees, because money disappears really fast when things go downhill, money disappears very, very quickly. And suddenly you've got employees who need to be paid, and their wages are up here.
Their wages don't go downhill because you've irritated clients and you've lost focus. Their wages stay at the same level until they disappear. And so unless you're willing to fire them, you need to stay in it until you are ready to get out of it. Side note, this is also why mergers and acquisitions always result, always result in a company that has lost its focus. Two companies decide to merge. Guess what?
There's no such thing as a merger. A merger is a nice term used by the people who are being gobbled up so that they feel like they're on some kind of an even par with the people who are gobbling up their company. If you sell your company, do not, do not, do not agree to stick with that company for two or three years and work your way out. I promise you, everyone will hate that. You will hate it. The person who bought your company will hate it.
All of the employees on both sides are going to hate it, and all the people in your family are going to hate it even more. You're going to regret that decision. I've never met anybody who sticked with a company they sold for three years and enjoyed it and liked it and would do it again. I've never met a single person in 30 years who liked that arrangement. You will lose your focus so fast, and we'll go into a whole bunch of other discussions related to that in other videos. But the bottom line is, once you start to leave, you need to stick with it for a few months, three months, six months, maybe a year.
But do not let your exit strategy be in any way tied to the sale of your business. Because what happens is people base the sale in part on your performance. After you've lost focus, after you've already got one big payout and you're waiting for the remainder of the payout, you've lost focus. Sales begin to go downhill because you no longer run the company the way you used to.
Somebody else is running the company and they're making different decisions. And if they make really bad decisions, your payout is directly affected. So don't fall into that trap. To be honest, I don't think it's a good arrangement for anybody. I don't know why people push this, except that they are super greedy, because ultimately they want to underpay you for your business. So don't let it happen.
If somebody wants to buy your business, they should give you a bunch of money and you should walk away as soon as possible. And you have to stay a little bit of time. You have to stay three months, or six months basically long enough to introduce them to your clients and your clients off. Let your clients know that this is a happy thing and it's all good and you're going to go retire or whatever you're going to do, and you want them to continue to do business.
But you cannot let your payout be tied to the performance of a company you no longer control. Super important. Finally, I want to talk about another way that companies sometimes go downhill, and that is if you get sick.
For some reason, at any stage of life, with any illness, it doesn't matter if you are halfway in your company. You either need to turn it over as the owner, turn it over to a manager who can run it for you, and you just raise to the level of owner, which means you're not involved in day to day operations and you simply take home checks. You take home the profit, but that probably means you're not taking home your salary anymore. If your business is that mature and that well developed and that's successful, that is the road to go. If it is not, you need to find somebody who will give you as much money as possible in the short term for your business.
I know that's not good news and a lot of people don't want to hear that, but having a longterm illness or something that affects your ability to focus on your business will affect profitability, it will affect customer service, so forth and so on. So that whole thing of losing focus, you can't be halfway in at the beginning and you can't be halfway in at the end. You need to either be in your business or be out of your business. In a perfect world, you will work your way up to the point where you are simply an owner taking home the profit and you're off doing sales or you're off doing something else, maybe taking vacations. And you work your way out of the business by simply having the business designed to run without you making all the decisions every day. Work your way up, but don't work your way slowly out.
Please send me your questions. Put your comments down below. Whether you agree with me or disagree with me or have questions about the details, let me know.
If you got a whole bunch of money, I'll be happy to do coaching with you. But you've got to have a lot of money. Like it? If you like it, subscribe to the channel. Send me any questions you have for Small Biz Thoughts. This is Karl Palachuk, wishing you the best of luck in your managed service business.
2022-11-30 22:34
