Monday, September 30, 2013

When is a $20 bill worth more than a $50 bill? All Depends How You Stack It...

I wrote a blog entry over the summer about how pricing is one of the most difficult decision that any new enterprise has to make.

Just about EVERY start-up founder is tempted to "grow, grow, grow."  That makes sense -- people that self-select an entrepreneurial route in life tend to be go-getters.  Go-getters tend to want to, well, go and get. People with more wisdom and experience will say, "Why not tap the brakes a bit by playing with your pricing model, even if it means sloughing off a few customers?"

The early-stage founder hearing that is listening to, but still not following, that advice.  There's an important distinction, and the process is necessary (some things need to be personally experienced to be understood, and then they become obvious in retrospect).

Anyway, here's another unsolvable zen koan riddle:  What is an hour of your time worth?  In the context of someone bootstrapping in order to smooth out their personal cash flow, it depends.  Again, it's not simple.

I have a job that pays $50/hr.  Not bad, eh?  Well, it's not so great, actually.  It's a tutoring gig that works on a taxi dispatch model, so there are a few problems.  First, the hours don't stack up, so the transition time/travel time really eats into the dollar total. Second, and equally problematic, it doesn't work like a *money faucet.*  In other words, I can't simply decide I want to work more, and then work more -- someone else controls the throughput.

That considered, a $20/hr job might be worth far, far more.  If it's something where the hours stack up in 4- or 8-hour shifts, and if it's something where the hours are predictable (and therefore the personal cash flows predictable), it's an infinitely better option than the seemingly more lucrative one.

Trying to work multiple "taxi dispatch" type of jobs to make it all somehow add up the right way isn't advisable, either -- way too complicated, and way too much risk.  $20 x 20 hours/wk tells me the pre-tax math works out to $1600/mo.  If THAT is enough to clear the bar (to where start-up income PLUS that exceeds monthly expenses) then that sounds like the no-brainer option for being able to effectively bootstrap.  


C R Krieger said...

I see your point and, yes, the 20 x 20 seems better than the 50 x Unknown.

And then you would have a double sawbuck to give the Caucasian Grifter who accosts you on the street.

Regards  —  Cliff

The New Englander said...

Haha...well hopefully I can avoid giving it to the broken-down car guy, because even though I'd sound like a total ass for saying it, his net worth might be higher than mine even before any such transaction..

But yes, predictable, steady income is a good thing. Yes, starting a business is risky, and yes, a side job to help you bootstrap is a huge distraction...BUT on balance I feel like the overall stress reduction comes from knowing how the mortgage will be paid. Plus, I'd rather be *slightly too busy* than *not busy enough.* I've been both of those things, and I prefer the former, even if I won't always admit it.

C R Krieger said...

Too busy is better.

Re jobs, my Godless Contractor Son called me today, acknowledging he is his brother's keeper and suggesting I contact the Younger Son and suggest he get a more reliable employer (i.e., NOT Uncle Sam).  Too funny.

Regards  —  Cliff

The New Englander said...

I've had it waaaaay easier than my Guard buddies in the last year or so.

Today, I'm being teased (taunted?) because somehow their drills are cancelled.

Meanwhile, a Title 10 puke like me will still be hearing Reveille at 0500 on Saturday and Sunday.

Please send a Kleenex to my Market St. compound in case I start to cry.

C R Krieger said...