As an entrepreneur, you have a lot of things competing for your attention, from big-picture strategy to product development to human resources. So how do you decide what's worth your time?
In this post, I’m not writing about how to weigh the merits of one strategic project versus another. Instead, I’ll write about prioritizing the frustrating little battles we’re drawn into that distract us from our strategic projects.
As I struggled with this early on, I realized that I needed a quantitative framework for deciding what is worth my time. So I decided to value my time by the hour—and set my hourly rate at $1,000.
This may seem high; after all, not many people bill themselves out at $1,000 an hour. But if you’re an entrepreneur seeking outsized returns, you should operate as if the net present value of your future earnings is large.
Wrestling Over Principle Is Expensive
To be sure, every entrepreneur needs to have ethics and principles. They are critical when guiding decisions about how you treat clients, employees, business partners and the community in which you operate. But what about when someone else—such as a vendor or client—violates your principles? When do you fight, and when do you walk away?
I experienced this scenario in the first few years of running my business. On several occasions, I dealt with developers, designers and other contractors who either did poor work or just plain flaked out. By failing to deliver a quality product, I thought they failed to live up to their end of the deal. So I chose to fight—and not pay them.
Well, this led to angry emails and threats from the contractors, which led me to contact my attorney— who also has a high hourly rate—to find out what my liability was and how best to respond. Not only was this literally costing me money, I was spending my valuable time on dollar amounts that were small (~$750) compared to what I could be generating if I were focused on growing the business. I would have been better off if I’d simply paid the offending parties to go away.
The Real Cost of Conflict
Financial matters aside, struggles such as these also incur a psychological toll. When you’re in “fighting mode,” you get angry and stressed; every exchange in a principles-based battle escalates these emotions, which build up in your mind over time. And the more they accumulate, the less brain power you have left for clear, creative and strategic thinking. This, in turn, will negatively affect how you deal with your employees, business partners and clients.
Consider this example: You hire a contractor to write you a 750-word article for a rate of $500. You get the first draft, and it’s really poor. You now have a few options. You could tell the contractor you’re not going to pay him because the poorly-written article violates your principle of providing quality work. Inevitably, he will argue with you, saying he has already invested a lot of his time—and besides, your opinion is subjective. Alternatively, you could tell the contractor he doesn’t have to finish the article, and offer him a stop-loss fee of $250.
I say you should typically choose the latter option. Even if you have to pay our hypothetical contractor his full $500 rate, it’s okay. Because as soon as you’ve invested a half-hour fighting over principles, you’ve spent $500 anyway—half of your $1,000 hourly rate—and incurred the cost of stress and anger in the process.
It Just Isn’t Worth It
Here’s another example of when fighting based on principle just isn’t worth it: You’re looking at your bank statement, and notice that the bank has charged you an erroneous $25 fee. Based on your principle of not paying a penalty you don’t deserve, you decide to fight the charge. If it takes an hour and a half on the phone with the bank to reverse the charge, you’ve just spent $1,500 of your time earning $25.
As an entrepreneur, fighting small charges such as bank errors or late payment fees simply isn’t worth your time. If you have a finance or office manager whose hourly rate is less than the amount of the erroneous charge, then it makes financial sense for that person to spend time resolving the issue. If that isn’t the case, it’s better just to let it go.
Now that my company has grown, we have more resources we can devote to problems of principle. We have someone who handles accounts receivable, and collects payments—using a collections firm, if necessary—from people who try to skip out on us. We have more legal resources, and we have employees in various departments who can help out when our company principles are violated. I have a clear figure for their hourly rates that I can use to determine whether or not a battle is worth it (they’re lower than $1,000 an hour).
Regardless, I still pick my battles carefully.
The bottom line? The more you can avoid fighting based on principles, the better: It just isn’t worth it. When your time is worth $1,000 an hour, it’s often best to turn the other cheek.