While running a bootstrapped small business there are always two ways to profitability, revenue and expenses.
You can simply increase your revenue or you can simply decrease your expenses.
If your revenue exceeds your expenses, you are profitable — very straightforward.
However, something I’ve been thinking about a lot lately, and encouraging our team to think about is the idea of True Costs of something that is categorized as an expense.
The best way to illustrate is with a real world example from our bootstrapped small business.
When we were first starting out, we had a very loose vacation policy as that was all that was needed. I told our one or two team members they could take two weeks off whenever they wanted and just to let me know. I never tracked it, I never worried about it, it was just fluid and it just worked.
As we grew we realized that we needed a more firm policy as team members started asking more and more questions around vacation time. How much do we start with? When do we get more of it? How do we track it? What if we started our job mid-cycle/year? What if the policy changes? How do we manage team members off at the same time? What about project schedules?
It got to the point where we had our most valuable team member spending at least a few hours a week managing vacation time and re-working our production schedule around vacations. I had many meetings about it, we had to get feedback from the team, there were a ton of moving parts to figure out how to get it right and be fair to everyone.
Then, one day I realized that the True Costs of the vacation time were made up of not just the time the team member was being paid and out of the office, but of all the operational overhead, meetings, tracking, even awkwardness (around those who felt they got the short end of the stick on a policy change etc).
When you start to add all of that up and the time and energy and resources that go into that list, you start to see that the time out of the office might actually be the smallest piece of the pie in terms of True Cost of vacation time.
With that, we decided to move back to where we started – in fact, we moved a bit further even.
A very simple vacation time policy: take what time you need, whenever you need it.
You are still responsible for your project timelines, you are still responsible to your other team members. If you abuse the policy and take a ton of time off and your projects start to slip, it will be very obvious as we have a serious culture around productivity in our office.
If you act like an adult and take a whatever time you need and can handle while still moving things along that you are responsible for then we’re all good, the system should work great.
And with that new policy in place, we have saved at least 20 hours/mo of combined time and energy across our team while also giving the team more ownership, freedom, and responsibility.
These cost savings more than make up for whatever is lost in excess time out of the office by team members, and in fact, I think if you shake everything out we are actually in a much better overall position with this policy, there are just so many benefits across the organization and the True Cost of this policy is certainly much less than the True Cost of the previous bloated policy.
As we continue to grow and work through some growth cycles and solve new problems I’m always encouraging our team to think about True Costs in their decisions. This is a huge mindset asset and profitability tool for the bootstrapped small business owner.