Inputs and Outputs

The most satisfying (and addictive) part of owning a small business

In the past few months, I’ve started writing about my learnings from owning a boring cashflow business. For some reason, I tend to reflect on the hard and painful parts.

I think there are 2 reasons why.

• So much of the entrepreneurship content out there is sales-y and romanticized. There’s a lot of money to be made by convincing other people to become entrepreneurs. I want to share the reality on the ground.

• It has been hard so far. I’ve reached a great point, but most of my experience to date has been stressful and trying. I just have more to say about that side of it.

But in this post, I’m going to talk about what’s been the most enjoyable part of self-employment: the tight relationship between inputs (work) and outputs (money).

I spent 8 years working in W2 jobs at great companies, but something was always missing. When I set out on my own, I was chasing three things

1. More money

2. More independence

3. More time

All great, but they haven’t filled the void.

First of all, it’s taken two years to even sniff any of these three things. Between August 2022 and June 2024, I made less money, was more dependent on (at times) undependable people, and worked longer hours than ever before.

But I’ve also realized that money, independence, and time are not things that are felt intensely in any given moment. They come on slowly and quietly influence quality of life. But they don’t necessary feel good. More precisely, they don’t release dopamine.

Something that does feel good: watching your work pay off - tangibly, quickly, and to a high degree. I’ll explain this more below.

Now that the business is humming, I have more income, a lot of independence (great employees), and a lot of free time. But I find myself pining for the thing I enjoyed most about building: the palpable rush of my work converting into money.

I now realize that the void I felt working for companies had a lot to do with this
input → output connection. The “return on effort”, if you will.

Some weeks I’d work super hard, traveling across the country, formatting decks, toiling away in Excel, and participating in those Zoom meetings where everyone comes off mute at the very end to say “thanks all!” even though nothing was accomplished.

And some weeks would be slower. I’d feel a sense of guilt and restlessness, aware that I wasn’t being productive.

In both of these cases, I wasn’t happy. But my paycheck was more or less the same.

Like most* employees, the connection between my work and my income was weak, laggy, and disproportionate (disproportionate in the sense that I was creating value but only capturing some of it).

I talk to a lot of people who want to own a cashflow business. Now that I’ve tuned into my own appetite for a “return on effort,” I see the same pattern in other people. They are unfulfilled by their job because the return on effort is poor. This is agonizing for ambitious people, but working at a company is the default option.

Let me explain what I mean by “weak, laggy, and disproportionate.”

1. Weak connection between inputs → outputs.
   
   As an employee, your work doesn’t usually pay off directly. I mean “pay off” in the most literal sense, i.e. more money into your bank account. As an employee, I was motivated by a feeling that, if I worked hard, then eventually—if my manager noticed—I would get a promotion or a raise at the next cycle, and THEN I would make more money (probably like 10-20% more). At times, I had variable comp plans that attempted to create a connection between inputs and outputs, but they never quite did it for me. Too many confounding factors.
   
   At startups, I felt like my work would somehow make my options (which I barely understood) worth more.
   
   I now realize that this weak connection between value created and value captured was quietly eating away at me.
   

2. Laggy connection between inputs → outputs
   
   On top of a weak, indirect relationship, the payoff for my work—if there was one—would take a long ass time. In terms of salary, I was beholden to my direct manager’s opinion of me, internal politics, job bands, and promotion cycles. I might do something great, but in the best case scenario, my checking account would have no idea about it for at least a few months.
   
   The value of my stock options was an even longer-term matter, and something I’ll write about another day.
   

3. Disproportionate connection between inputs → outputs
   
   This is a fundamental law of the employee/employer relationship. As an employee, you have to create more value than you capture, or else the company wouldn’t employ you. If this wasn’t the case, there would be no such thing as profitability.
   
   Because of the weak and laggy connection between work and money, it can be hard to understand the amount of value you’re capturing relative to the amount you’re creating. But if you’re a good employee, you probably don’t want to understand that anyway.

*Quick caveat: the “weak” and “laggy” part doesn’t really apply to salespeople. In sales, the input → output connection is pretty direct and pretty quick, because you get paid a commission directly for closing a deal, and it’s paid shortly after. But it’s still disproportionate; the salesperson only captures a fraction of the total value created.

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It was August 18, 2022 - the Thursday of my second week owning my Smash My Trash franchise. I had spent the last 2 weeks going door-to-door to my target accounts, which I had pinned using Google Maps (on satellite view, you can zoom in and see dumpsters).

I was fine-tuning my pitch and having some success setting up free trials. I was also trying to get comfortable just blasting into the back of warehouses and asking “who’s in charge of the trash?”

Around 3pm, I walked into this place before starting my 80 minute drive home.

I met a guy named Albert, and he agreed to a free demo on the spot (see before-and-after pics below). I called my driver to come, and by the time he got there, there were 5-6 people—including the decision maker—out there ready to watch the demo smash.

By the next week, I had a signed agreement for $5,400/month and a 12-month work order for $64,800.

This is the first time I can remember feeling the unique rush of input → output conversion that comes with owning a small business.

Door-to-door selling sucks, but I did it anyway, and even though it didn’t take the best salesperson in the world, I secured some serious recurring revenue with about 60 minutes of work.

A direct and almost-immediate payoff of my effort.

But the best part was that 100% of that $64,800 landed in my bank account over the next 12 months. I still have this customer today (though they downsized, so not as much monthly revenue).

Owning a business is very hard, but very worth it. This is why.

Over the last two years, I’ve had many cases where my work pays off like this, and it’s not just with sales.

In March of this year (2024), for example, I hired a Lead Driver who has made my life remarkably easier. Without him, I had 20-30 hours of solid work a week. Now I have about 10. The most important metric for me is cashflow per hour of my time, so this is just as significant a win as growing revenue.

But there’s a problem. I’ve made an effort to hire, delegate, and automate away just about everything I can. My employees are the ones booking demos, getting thank-you’s from customers, and solving problems in the field. My count of “daily wins” are now fewer and fewer. I have the business I set out to build, but somewhere along the way, the input → output cycle has become foggy again.

There’s still a direct relationship between what I do and what I make, and I capture all of the value, but it takes longer; the “laggy” part is worse. I don’t get to rack up a bunch of small wins every day like I did in the beginning, and I miss it.

The stuff I work on now is longer-term and more “strategic”, as some would say. I suspect that my experience isn’t unique, and I wonder if the constant desire for “more” that plagues entrepreneurs has something to do with this input → output connection and the way it shifts over time.