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Monday, September 8, 2014

Retirement -- Think of building business systems

This post is inspired by a friend's blog post, which you can find at http://bullythebear.blogspot.sg/2014/09/retirement-thoughts.html#.VAyDrFahgds

I guess it is easy for us to calculate. Let's say we manage to save $4k a month for the next 30 years, that would net us $1.44 mil.

Sounds good.

But that's 30 years later.


Then we read about news like Zopim being acquired for $37mil SGD, leaving their founders as multi-millionaires while below 30 years old.

What's the difference?

I have come to realise that starting our own businesses is among the best way to propel our wealth. But... the caveat is that lots of hard work is needed, much more than being just self-employed. Worst is, the hard work may not even pay off in the end. Of course, such probabilities could be improved with more knowledge and learning. And that is what I have been doing/studying the past 2 months.

The greatest realisation came after I chanced upon this quote which I like to share:

"Organize around business functions, not people. Build systems within each business function. Let systems run the business and people run the systems. People come and go but the systems remain constant" -- Michael Gerber



I have come to realise that the current tuition centre I have been trying to grow and run, has been built mostly about people. Granted, my initial capital was low, and this is something that might be "necessary". But of late, I realised, some of the anchor tutors were getting tired, I myself am getting tired as well, teaching so many students. Worst, we are all pretty irreplaceable at the moment, being super effective as well as popular with students. There is no way I could take a break without the business breaking down. Even for the coming reservist, I have to arrange make up classes with students whose classes clashed with the reservist.

The best way to reach out to help more students, I have come to understand, is to have a systematic way of approaching the tuition business as a whole. By systematic ways, it means, like what Michael Gerber said, having systems for the different business functions.

In other words, build around functions, and have systems run these functions.

I used to keep thinking, I want to hire people, to ask people to join in to help, etc, in this tuition business. At that time, I seriously have no idea what I wanted people to do if they come in. I was unsure what is needed to be done to grow the business further. And it is likely I am facing what most small business owners were facing in their business. In other words, I was working real hard IN the business, and while I know I need to work ON the business, I have no idea how.

The key word is how.

I struggled with the "how" for 2 years. Of course I'm still trying to learn more now, but I have come to understand about functions and systems. I feel pretty lucky to have learned programming during my NUS days, because such understanding is really similar to functions in programming. I will probably leave the content on how to identify and build around functions and systems at a later date when I have experimented more.

But back to the topic of this blog post, the question is to retire, it is not just about how we are able to start a small business, but how we are able to build business supported by functions, systems, and people. A small business, or being self employed, is still limited in three ways

1) It depends very heavily on the founder, who is not able to rest without the business collapsing. 2) It is not sellable, because again, it depends too heavily on the founder. 3) It is unable to grow, because the founder has only 24 hours a day. There's a cap, a limit, to the size of the business.

But hey, is that what we want for retirement? I doubt so.

The benefits of business systems: 1) Saving time Putting systems in place enable others to operate part of your business.

2) Saving money Better systems means more efficient staff, perhaps fewer staff, and the small business owner get to spend more time doing the things that earn money and less time doing things that don't?

3) Supporting your business growth There's no point getting more customers or more business from existing customers if your business can't handle the extra work - a good system is needed to ensure continued great service.

4) Sellable With systems in place that are proven to work, it is possible to franchise or sell the business to another and know that it will still work.

The key to retirement for a small business owner is to be able to get others to run the business efficiently while being away, or sell the business away. Isn't it?

14 comments:

  1. JW,

    I guess you are now trying to transit from a phase what laymen would say: Working Hard to Working Smart ;)

    One thing I find interesting though.

    Most entrepreneurs I met during my business trips are only too eager to share their business expansion plans; few though will say anything about retirement... In fact none!?

    ReplyDelete
    Replies
    1. Must thunk retirement. Else if a business depends solely on me, how to truly retire or rest?

      It is the only way I can scale and help more students.

      Delete
  2. Got System Trading.

    Anyone heard of System Investing?

    ReplyDelete
    Replies
    1. Same mah
      But investing in businesses.... If don't understand businesses, how it is run and how it is able to sustain, how could it truly be investing in businesses?

      It's never just the financial statements.

      Delete
  3. This is the B in the right quadrant of Robert Kiyosaki's EBSI.
    The B can be an automated system or people working for you.

    Yes, marketing is a key skills or components that can bring the business to the next level.
    So finding the right people with the right skillsets can scale and grow the business to the next level.

    You have to assess which comes first, the growth in customers or having the right system in place?

    ReplyDelete
    Replies
    1. The right systems in place will ensure growth in customers.

      Because marketing is a system in itself

      Delete
  4. Hi JW, good retirement plans you have...I have also intention to set up a tuition centre, but looking at the education system right now and the policy changes, not sure if it is still a sustainable arena to venture into. Can you give your views on that?

    ReplyDelete
    Replies
    1. Whether it is a sustainable area for u depends heavily on what you have to offer.

      If it's going to be similar to the 1000 centres out there, it's going to kill. And that's the main area where I'm going to work on and change.

      There are just too many centres doing the same things. I'll be working hard to shake some foundations. Should be done by end of this year.

      Delete
  5. Hi JW, since you are a tuition business owner and also an investor, can you shed some light on why The Learning Lab is worth 300 mil for a partial stake?

    ReplyDelete
    Replies
    1. The reason why a business is able to be sold is because of available systems.

      For Learning Lab, I believe that they have a sustainable business model with effective systems in the following areas:
      1) HR -- Teacher retention and selection
      2) Marketing -- Getting in students, Branding, and making students take selection tests
      3) Content Delivery System -- Their own brand of worksheets
      4) Content Creation System -- They are focussed on delivering content 30% harder than normal syllabus. In a way, this is their USP.

      On top of that, the normal business systems, in Finance, Administration

      Typical tuition centres are not doing that, and for myself, I'm gearing my centre towards systemisation.

      Delete
    2. But why is TLL worth 300 mil? And not 3 mil or 30 mil?

      Is property included in the acquisition?

      Delete
  6. i tot jonathan sold off all or most his stake already.

    imo, looking at the crowd and the expensive tuition rates, i think the buyer would have worked out his sums.

    ReplyDelete
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