How much are you paying for your free lunch?

"There's no such thing as a free lunch."  Anyone who has taken even the most basic economics course has heard it.  But what does it mean, exactly?

The "free lunch" idiom is frequently used to simplify the concept of opportunity cost, in that, even as you accept a free lunch, you miss out on other opportunities during that period of time.  Investopedia defines opportunity cost as, "The cost of an alternative that must be forgone in order to pursue a certain action.  Put another way, the benefits you could have received by taking an alternative action."

It's a fairly basic definition and it's one that most business owners understand...in theory.  However, for many entrepreneurs, the desire to keep costs low can cycle into a "do-everything-yourself" mentality, which, in turn, lends to missed opportunities.

To better illustrate this issue, consider Janice, professional photographer (and fictional entrepreneur we created for this example).

After experiencing a great deal of amateur success, Janice has decided to become a professional photographer full-time, and open her own studio.  She determines that her new business needs the following things:

  • A photographer
  • Photo editing
  • Someone to answer the phone and schedule appointments
  • A website
  • Bookkeeping

None of this looks too hard to start with, and Janice figures she can handle most of it.  She's got the photography and photo editing skills already and, until she can afford to hire a receptionist, she can just take business calls on her cell.  There are plenty of places online where anyone can build a free website, and she can keep track of her own business financials throughout the year and figure it all out with TurboTax in April.  For a great photographer and hard worker, this shouldn't be any problem.

Of course, things don't go as simply as Janice has predicted.  Her phone rings with appointment requests while she's in the middle of sessions and, by the time she calls the prospective customer back, they have already booked with someone else.  Her shoots run long because she has to change backdrops, arrange props, etc. by herself.  Her days are so busy she has to stay up late working on photo editing.  The website she built is...okay, but comes across as generic and slightly amateurish.  She's not entirely sure how her bookkeeping as going because, with everything else going on, it's been the last thing on her mind.

On top of all that, she's started to notice that her business needs some things she hadn't planned for, including:

  • Photographer's assistant
  • Studio cleaning
  • Basic legal documents

For the sake of comparison, let's assume Janice continues to do all of this herself.  Let's look at how much money she is saving.

Receptionist                             -     $9/hour

Website                                      -     $500

Bookkeeping                            -     $500/month

Photographer's Assistant   -     $12/hour

Cleaning                                    -      $8/hour

Basic legal documents         -     $300

It looks like Janice has saved her business a lot of money through her strenuous efforts and "can-do" attitude.  However, we have to factor in the opportunity costs.

Let's take a look at what each of these things Janice is doing herself, each "free lunch", cost:

Receptionist                             -     Missed income from lost appointments; positive word-of-mouth; professional image

Website                                     -     Lack of professional image; loss of referrals; missed income

Bookkeeping                           -     Missed deductions; increased risk of audit

Photographer's Assistant   -     Shoots take longer so fewer of them can be scheduled, leading to missed income

Cleaning                                    -      Time and energy diverted away from more profitable activities, such as photo editing and networking

Basic legal documents         -     Increased legal vulnerability; loss of time

So, when you weigh all the opportunities to genuinely build her business which Janice has lost while she was busy doing everything else, how much money did she really save?

Now, this isn't to say that you should farm out every task you dislike (particularly early on, when small businesses are susceptible to cash flow woes).  However, it is key that, before committing yourself to something outside of your wheelhouse, you measure the benefits of DIY versus outsourcing.  In many cases, the opportunity costs will be greater than you think.


How the Service Industry Prepares You for Entrepreneurship

Per the Department of Labor's Bureau of Labor Statistics, service industry jobs in America outnumber manufacturing jobs almost 10-to-1.  In 2012, retail and hospitality employees numbered 28.6 million, with that number projected to grow to 31 million (a 10.7% increase) by 2022.  Currently, almost 1-in-10 Americans work a service-based job.

With so many Americans in the service industry, it stands to reason that many of the entrepreneurs of the future are the retail and hospitality workers of today.  All of us at The Bookkeeper have at one point in our lives bussed tables or ran a cash register.  That's how we know there are several professional skills you develop in the service industry that better prepare you for life as an entrepreneur.

Service industry employees work with a sense of urgency.  Few businesses are more fast-paced than a restaurant.  Everyone, from the front-of-house to the kitchen, knows that tasks have to be completed immediately.  The slightest delay in taking orders or prepping an entree can result in backlogs, unhappy customers, and decreased revenues.  If you get anything resembling "down-time", you hustle to complete side work and other prep that can help you when you get busy again.

How can you make it work in entrepreneurship?  Former service industry employees know how to keep busy.  You do jobs as they come in, without putting off the more difficult or frustrating tasks.  You are great at maximizing your free time, answering emails or promoting your business on social media in between meetings and assignments.  Clients are often impressed at how quickly you complete projects and respond to their needs.

Working with urgency makes you better at prioritization.  Three days before Christmas, the store is packed, the registers are backed up, three customers are waiting for help finding items, another customer is on phone line 1 while your district manager is waiting on line 2.  What do you do first?

For someone who has never worked retail, this is the sort of nightmare scenario which makes the service industry seem all the more undesirable.  For those of us who have been in this sort of situation, this hypothetical has an easy answer:  Help the customers in the store first, then the customer on the phone, get back to the DM when you can.  There's no way to please everyone right then, so deal with the immediate areas of need first.

How can you make it work in entrepreneurship?  You learn what fires need to be put out immediately and which ones can smoke a little while longer.  You have an innate knack for putting your to-do list in the perfect order so you can do all you need to while keeping everyone as happy as possible.

You develop customer service skills and a thick skin simultaneously.  It is no secret that employees in the service industry are often treated terribly by customers.  Service industry workers are frequently (sometimes daily) required to withstand being verbally berated, not only without retaliating, but smiling throughout and heartily apologizing afterward (regardless of whether they personally have done anything wrong).  Over time, you get better at both anticipating customers' needs and moods (thus avoiding such tirades) and letting verbal abuse roll off your back.

How can you make it work in entrepreneurship?  Many small business owners have an incident or two where they face unwarranted criticism, whether it be an unfair Yelp review or bad word-of-mouth from a client fired for non-payment.  Though the initial desire may be to fire back at whoever is spreading lies and gossip about you, this rarely works out well.  (See the Amy's Baking Company fiasco.)

The better (though less initially satisfying) option is to prove your disparagers wrong with your continued professionalism and exceptional customer service.  By refusing to let others drag you down into the muck, you keep your company's reputation so sterling that no mud slung can stick to it.

You become prepared for anything. Anyone who has worked in the service industry for even a few months has at least one crazy story, something virtually unbelievable.  I have several, but my favorite remains the customer who became disgruntled when she spilled her alcoholic beverage.

This was not in a restaurant.  It was in a dog grooming salon.

She spilled her drink because she was carrying it in a regular, open-topped glass.  Loose in her purse.

Again, this was an adult woman, and not a toddler.  Concepts like "liquid" and "gravity" should not have been a mystery to her, yet she was shocked and infuriated (at me) that her mojito had tipped over and was soaking through the bottom of her very expensive shoulder bag.

How can you make it work in entrepreneurship?  Once you have had the experience of fetching towels to help a woman clean rum out of the bottom of a Dolce & Gabbana bag, and have apologized because she didn't believe the towels looked clean enough, few things can throw you off your game anymore.  Deadlines being moved up or employee sick days just become minor hiccups, instead of major obstacles, and you develop an air of unflappability that instills confidence in clients.  Remaining composed in the face of extraordinary circumstances is a hallmark of a great entrepreneur, and surviving the service industry lets you enter the game with that skill already equipped.


The "First-Date Effect": Are you treating new clients like a long-term relationship, or a one-night stand?

Business partnerships, like any other relationship, can be very exciting in the beginning. You meet someone new, and the two of you click. You're on the same page, you have the same vision...You just get one another. Contracts are signed, meetings are arranged and, for a while, the two of you work happily in sync.

Then, something happens. Maybe they're your financial planner, and they stop answering your emails in a timely manner. Or your IT services provider shows up to your office dressed a bit more casually than you're comfortable with. You ask your marketing representative whether you should re-design your logo or leave it as is and they respond with, "Oh, whatever you think is probably fine."

When you first met, you fell in love with their customer service. But now? The thrill is gone, baby.

You don't like being treated like a sure thing, so you know your customers don't either. Here are some ways you can keep the spark alive with your clients so you know they'll stay loyal to your business.

Stay in communication.

Let's say you go out to dinner on a romantic date. You have a nice time, and think the other person did, too. You call them the next day and leave a voicemail thanking them and asking if they'd like to go out again sometime.

Then you wait. And wait. Three days later, you just get a text reading, "sure sounds good".

You probably wouldn't be too impressed. You definitely would feel like they were not as invested in the relationship as you. It's the same way customers feel if you don't respond to communications from them in a timely and appropriate manner. Some general rules:

1.) Respond via an appropriate medium. In other words, unless specifically indicated in the voicemail, don't respond to a phone call with a text or email. If they consider an issue important enough to warrant a phone call, and you shoot back with a casual text or email, it implies that the problem isn't as important to you as it is to them.

2.) Be timely. Don't leave someone hanging, waiting for your response. Many business etiquette guides advise responding within 24 hours to all communications. Faster is even better. If you are trading emails with a client as the two of you collaborate on a project, don't just log off at 5:00 and drop them until the next afternoon. If you have to attend to other business (even if that "business" is really just "having a personal life"), let them know that you have to run for a bit, and then resume communication with them as soon as you can the next morning.

3.) Be professional. This shouldn't have to be said but, sadly, it still does. No matter how friendly your client is, no matter how much you like each other, your communication still has to be professional. Every email doesn't have to include an attached notarized PDF copy in triplicate, but it does need to be free of spelling and grammatical errors. Taking the time to make sure your communications are professional is a sign of respect for your client.

While we are on the subject of professionalism...

Stay attractive.

One of the cliches of romantic comedies is a couple experiencing tension because of complacency in the relationship. At the beginning of the movie, when they fall in love, they go out to five-star restaurants in formal wear. The second act features them eating take-out on the couch in sweats.

When your customer service starts slipping, it is the metaphorical equivalent of you showing up to the client site, wearing sweat pants and eating pizza. (Also, please don't literally show up wearing sweat pants and eating pizza, either.) If you don't provide the same quality of service you did at the beginning, it makes your customer feel taken-for-granted, and like you misled them with false advertising.

Your business should always strive to grow and improve, and your customer service along with that. If you want to really shock your customers, surprise them by providing exceptional service, even above-and-beyond the high level they've come to expect from you.

Stay interested.

Nothing makes people like you more than when you make them feel attractive. Just like you try to remember your significant other's birthday or favorite dessert, your clients will be flattered if you can remember the intimate details of their business. You do not want your client to have to remind you of items discussed at prior meetings, or current issues being faced. No matter the size of the company or how much income they bring you, you want each client to feel like they are at the forefront of your mind.

There are small things you can do to make your client feel significant. This could be something as small as tweeting them a relevant news article, or as large as arranging a referral meeting to help them earn new business. By going above-and-beyond the minimum which is required of you, you can help ensure a lasting client relationship to profit you both for the long-term.