Time is our scarcest resource. Other resources like money and people can fluctuate up and down, but time only moves in one direction.
When I share this quote with others, they appear to get it — but then their actions prove otherwise. Most people still value money more than time and make decisions based on the present value of money vs. the future value of their money investment (ROI).
This is, not limited to, but quite prevalent with early-stage entrepreneurs who mistakenly equate bootstrapping to being cheap. And pride themselves in spending nothing, but sweat equity on everything. They forgo buying books, paying for training, or hiring experts.
The rationale: I’m pre-revenue and so cash poor and time rich. I’ll do it myself.
This is a huge fallacy.
First, bootstrapping has nothing to do with being cheap. Bootstrapping is about being efficient with your resources. A bootstrapper’s primary objective is getting to customer revenues as quickly as possible. Speed of learning, not frugality, is their true unfair advantage. In other words, if the ROI is baked in, trade money for speed.
Next, sweat equity is the most expensive type of equity and should be reserved for your unique contribution — something that cannot be easily replicated by others. This is your super-power or personal unique value proposition (UVP). Everything else can and should be delegated — provided the ROI is there.
So how do you determine ROI? Let’s walk through the steps.
How to value your time
First, you need to value your time correctly. Sweat equity isn’t $0. Far from it.
One way to value sweat equity is by using the opportunity cost of working on your startup at your going hourly rate. Let’s assume you could make $75/hour ($150K/yr) working a job. When you instead choose to spend that time on your startup project, you should value your time at that going hourly rate, right? That’s a start, but it’s still not the right way to value your time. The startup math needs to also adjust for risk and payback time.
The opportunity cost math assumes a high certainty of getting paid. When that isn’t the case, such as when working on a startup, you need to adjust for that. Using the commonly used 10% success rate of startups, your sweat equity value goes from $75/hr to $75/hr ÷ 0.10 = $750/hr.
Then, there’s the payback time. In a typical, job you get paid bi-weekly or monthly. In your startup, you might forgo a full salary for a year or two or longer…Adjusting for that raises your sweat equity closer to $1,000/hr and probably even higher.
When working on a startup, your time is worth $1,000/hr.
- You are investor #1 in your business.
- You can’t just look for a 1x or 2x salary return. You have to think 10x.
- You can only sell so many hours in a day and hourly rates also have a ceiling. What can you sell while you sleep?
How to determine ROI
Determining your ROI now becomes straightforward: If you can hire someone or something to get a job done for less than $1,000/hr, you should.
Well, not quite. You still have the real problem of cash availability. Unless you’ve got a personal war chest of gold stashed somewhere, you can’t simply pay your way for all the jobs you need done.
This is where the real essence of bootstrapping shines through: Right action, right time.
At any given point in time, there are only a few key actions that matter. You need to put all your energy towards those actions and ignore the rest.
Within these key actions, you’ll often find a mix of core jobs and non-core jobs.
Non-core jobs, like accounting, appointment scheduling can and should be delegated to less expensive services or tools. There is zero ROI in you doing these yourself.
Within core jobs, you’ll find jobs you’re good at, i.e. they fall within your personal UVP, and jobs you’re not yet good at. Trying to learn these skills on your own seems smart, but it isn’t. A better approach is hiring a learning accelerant, like a book, or a workshop, or an expert — often in that order.
Remember: Speed of learning is typically your only unfair advantage in the beginning.
Buying books is a no-brainer. For $20/book, if you get to apply even one new idea in your startup, the return could be 10–1000X. The problem, of course, is that millions of books get published every year. The real cost isn’t the cost of the book, but your time.
You need a deliberate strategy.
- Start with what you need to learn that aligns with your right action/right time goal.
- If you’re new to a skill, prefer timeless classics vs. books that were just published. Books that have stood the test of time have been vetted by others and if they are still popular/recommended, it’s because they teach evergreen principles vs. short-term tactics. Start there. Tactics come later.
- Don’t wait to finish a book to start applying it. When I buy a book, I first scan the table of contents and only commit to reading the Intro chapter. This is usually where the author lays out their thesis. If I don’t find anything new or actionable there, I flip through the rest of the book looking for something that grabs my attention. If still a no-go, I put the book down. My time’s too valuable to read a bad book.
Hiring training or experts typically require a bigger investment, both in money and time, than a book. So it’s prudent to test the ROI of these learning accelerants through smaller sampling first. Before attending a workshop or hiring an expert, sample their work first. They may have books, articles, videos, etc. online. Again, if this is something you need to learn now, sample what’s available, and attempt to apply what you can before hiring them. This will make your face time with them ten times more productive.
Sidenote: I’m always amazed to see people who attend my workshops without first reading my books.
Don’t forget to value “free time”
The ROI calculation breaks down for certain intangibles that are way more valuable than money. We have solely been focusing on how to value time for work. But there are 3 more buckets that are just as critical to living a meaningful life:
If you work harder than is healthy, your health eventually suffers and you may not be able to reap your eventual rewards at your fullest.
If you work at the expense of your relationships, you may not have anyone with whom to enjoy your eventual rewards.
You are investor #1 in your idea and need to be even more ruthless with its viability than your investors. They invest money. You invest time. Time is more valuable than money.
But despite your best efforts, startups are inherently uncertain and you may still not have an eventual payoff. You need a plan B.
Consider this, putting aside just $300/month in the S&P 500 index fund would grow to ~$1M in 40 years. The ROI of automating something like this in your twenties (or thirties or forties) is crazy.
And finally, doing good/original work comes from creativity. And recent studies show that creativity happens in the empty spaces between stretches of hard, focused work. In other words, you need to bake in free time for “doing nothing” in order to create something meaningful.
The way I balance these quadrants is with a calendar. Like most entrepreneurs, I am naturally driven to allocate most of my time to work. So I first block off non-negotiable time on my calendar for the other 3 quadrants. Then prioritize my remaining time for work activities.
We are taught to value money over time. Hopefully, this article has at least made you question how you spend your time.
What separates us is what we do with the 24 hours we are given every day. Don’t waste it.