The following backdrop and questions apply to this part of the series of musings and open discussion on entrepreneurs and decision-making (Part 1 was here):
In many corporate environments, employees are very aware that time is money. For example, consultants become very accustomed to thinking about an hour of their time having a very specific dollar value, and that becomes a salient opportunity cost when they decide whether to spend time working on a task. Do you think entrepreneurs are as aware of the dollar value of time? Is this a good thing or a bad thing? Do you think it could explain some of your observed differences in decisiveness?
My thinking on these questions are that consultants tend to be more aware of their opportunity cost of labor than others, if only because bill rates are usually widely known in terms of $/hr internally within the firm and often with the client. From this perspective, however, I don't really see much of distinction between entrepreneurs and those salaried within a traditional company. I think it is atypical for entrepreneurs and those working within a traditional, non-consulting company to think in terms of either hourly opportunity cost or activity-based cost. In my experience, these latter groups are more focused on goals. I think employing the hourly opportunity cost concept to entrepreneurs and those working in companies could potentially be beneficial, but I have not seen a lot of this outside a manufacturing context.
What are your thoughts and experiences?
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I don’t believe entrepreneurs put a number on it, but I think they are very aware of the scarce resource of time. However, I think there are a couple differences. First, often cash is scarce, and so entrepreneurs won’t just spend money because it will save them x number of hours. And second, entrepreneurs view time as a less limited resource. Yes, there truly are only 24 hours in the day. But many can squeeze out one more hour of the day or one more day of the week. That’s not saving time, that’s investing time, but entrepreneurs understand the value of investing that incremental hour.
I do believe that entrepreneurs have a notion of the scarcity of time, but I wonder if there are two factors at work:
1) If each day a problem is framed as a person will burning through $500 each day (more of the consultant frame) versus burning through $10,000 each month (more of the entrepreneur frame who watches monthly reports) then there is a tendency greater perceived micro-level pressure on the consultant even though the amount is equivalent in economic terms (assuming 20 working/bill days per month). This would be based on K&T prospect theory within the decision-making field.
2) I think there is a greater tendency for entrepreneurs to work around the clock, through the weekend, and the like. Hence, the notion of a per hour concept gets weakened a bit – some may think that they can just spend 4-8 more hours on something on the weekend (instead of hiring someone or delegating), and there is no incremental cost. While this may be true in a cash sense “since cash is king”, there may be other downsides.
Steve,
Another point to consider that even though entrepreneurs are aware of the dollar value of their time, we often are driven by things other than ROI.
Some of us wake up in the morning eager to get back to projects we are passionate about.
Some of us have so much of our personalities tied up in our businesses that working on our projects is more comfortable than “leisure”.
And some of us would prefer (with a nod to Milton) “to reign in Hell than serve in Heaven.”
Great point. Being an entrepreneur can be very self-motivating (for any number of reasons). I suppose there are some aspects of entrepreneurship that can make personal and business incentives very aligned. In turn, the alignment can make decision-making “optimal” (but for the moment I leave optimal undefined because I think the definition can vary).
Steve:
People tend to measure what they sell. So, manufacturers measure units sold, and hoteliers measure occupancy rates. Banks measure loans in force. And consultants measure utilization rates. This, notwithstanding, you make a good point.
Ford Harding
Great point. If people tend to measure what they sell, then yes, time is very salient for consultants. (Although I didn’t really want to pursue consultants, I wonder if that could bias consultants in being “rushed” decision-makers.)
But this also raises an interesting point for entrepreneurs in a different way. If entrepreneurs tend to be “discoverers”, lots of time they may be early on the sales learning curve and in their infancy in terms of knowing how to get a new product to market. An in order to sell something better, one needs to break down the processes of both consumers and the firm. How do entrepreneurs know they are measuring the right things in a “discovery” environment? Setting efficacy aside, not all entrepreneurs use boards to steer themselves, so again perhaps we are back to the COO-concept and finding complementary people to the entrepreneur. Do entrepreneurs tend not to find complementary people soon enough? Do notions of “cash is king” (which is a higly entrepreneurial motto to me) – do these create undesirable biases in cases? If so, in which cases might these be more prevalent? What other entrepreneurial mottos are out there? What undesirable biases might these create in terms of decision-making?
As a follow on to these comments, I wonder which mottos are more ingrained into entrepreneurs, “Cash is king”, “time is money”, “entrepreneurship is life” …
Seems like with the notion of “bootstrapping” (another term I associate highly with entrepreneurs) could create a bias of “cash” over “time”.
Steve:
“Make it (money) while you can,” is another.
Ford Harding
Good one Ford.
FWIW – I just ran into this 40 Chinese proverbs for entrepreneurship http://www.juniorbiz.com/general-business/63-40-chinese-proverbs-for-entrepreneurship
Seth Godin has a post “Pay for stuff” which highlights some of his biases as a bootstrapping entrepreneur http://sethgodin.typepad.com/seths_blog/2009/09/pay-for-stuff.html
He gives some examples of spending where it makes sense (e.g., things that pay for themselves) and where being “frugal” is good but being a “miser” is not.