Management guru Peter Drucker referred to time as “the one truly universal condition,” and American businesses over the past century have turned time management into an obsession. Books and academic studies abound. But they’re mostly aimed at the corporate world. What about time management for entrepreneurs?
UCLA Anderson’s Charles J. Corbett, whose business-operations studies initially focused on large organizations, regularly fields questions from students about startup management practices. “I realized there wasn’t much out there,” Corbett said in an interview. “A lot of the issues that entrepreneurs face don’t come up in our core management studies.”
Yet time management is arguably more crucial for startups. Unlike executives at huge corporations, the entrepreneur often has no backup. Moreover, the entrepreneur has no excuse, as there is no boss telling her what to do.
Two recent papers by Corbett, UCLA Anderson’s Guillaume Roels and Onesun Steve Yoo at University College London seek to adapt time-management advice to the startup environment:
How to judge the value of your time
Most business people, including entrepreneurs, understand net present value (NPV)—roughly, the value of a sum of money now, as compared to a future value it will have when taking into account compounded investment returns. Online calculators allow one to fiddle with variables and thus think in NPV. But, according to Corbett, Roels, and Yoo, people, including entrepreneurs, aren’t very good at thinking about their time in the same way. When people think about the value of their time, they tend to think about its current value, today, and not the future ramifications of having that time today. Correctly anticipating those dynamics, “NPV thinking” is particularly important for entrepreneurs with the ambition to grow their business.
Let’s say a startup founder’s time is worth $100 an hour today because she’d pay $100 to have an extra hour of time today. What will her time be worth in a year, say, if the company’s sales are planned to grow by 50%? How does that change the value of her time today? The authors believe many entrepreneurs undervalue future time.
Underestimating the value of time in the future could mean an entrepreneur will avoid decisions today that could free up more precious hours down the line. Rather than muscle through a daily in-box of mostly low-value tasks, for example, an entrepreneur might be smarter to hire someone and delegate that work. If the founder realizes that time worth $100 an hour today could be worth $150 one year out, and $225 out a second year, planning to make the most of those hours quickly becomes more critical.
Corbett, Roels and Yoo created a “time-money exchange rate” model that compels entrepreneurs to think about the value of both work hours and money over time.
Taking time to improve the basics of the business
In a paper published in Manufacturing & Service Operations Management, Yoo, Corbett, and Roels took on the question of how entrepreneurs can best divide their time among four major management activities. They came up with an unglamorous suggestion: pay more attention to the boring details.
Three of the functions tend to bring entrepreneurs instant satisfaction: firefighting, the often daily duty of snuffing out smallish but urgent problems, such as dealing with a single customer’s complaint; revenue harvesting, or time spent immediately generating income, such as filling the day’s orders; and revenue enhancement, which sets the scene for longer-term growth—the design of new products, for instance.
Often overlooked is process improvement, hours worked making the business run more efficiently. That might entail clarifying written specifications for suppliers or training an employee to take on duties that free up the entrepreneur’s time. In general, these are “not a lot of fun,” and therefore easy to ignore, Corbett said in an interview.
But the authors channel Drucker’s 1967 research that emphasized the need for managers to take time eliminating recurrent crises to avoid being constantly distracted by them. The paper devises a model to guide entrepreneurs’ time-allocation decisions. “We show that they should invest more time in process improvement early on — that is, when the opportunity cost of doing so is relatively low,” the paper says.
When to Hire the First Employee
Yoo, Roels, and Corbett tackled the question of hiring by devising a startup growth model based on two principal inputs: the entrepreneur’s time and money. “We show that without hiring, the entrepreneur’s time eventually becomes more valuable than money in contributing to the firm’s growth,” they say in a paper. “In that context, the value of the employee is driven by how much relief he provides to the entrepreneur.”
In an interview, Corbett again noted the need for entrepreneurs to be realistic about the future value of their time. Otherwise, “The cost of not hiring may not be visible, so it’s easier to put off.”
To identify the best time to make a first hire, the paper dives deep into the math an entrepreneur will face. Time and money must be spent “to create a structure for the organization, such as codifying the work processes and assigning roles to accommodate this and subsequent employees,” the paper says. “Thus, hiring may require the entrepreneur to divert resources away from revenue-generating activities, which may involve a temporary slowdown in revenue generation.”
That means the firm’s current cash levels are key, because they must amount to enough to cover the employee’s wages until revenue rebounds.
Yoo, Roels, and Corbett warn that, because of the financial and time commitments entailed in hiring a first employee, “Mistiming hiring can be very costly.” The paper suggests that entrepreneurs might reduce hiring set-up expenses by thinking early on about the hiring question—by “being on the lookout for that first employee from the moment they start the firm.”
Despite the daunting challenges that hiring presents, the authors stress one elegantly simple takeaway from their analysis: “Entrepreneurs should not necessarily wait to hire until they feel they have to, but they should consider hiring as soon as they can afford to.”
This article originally appeared on UCLA Anderson Review.