Recently my wife and I had dinner with friends. The husband – let's call him Paul – was late returning home from a sailing trip designed to reward his top managers.
As we waited for Paul, his wife told us the story of how he'd come to be managing more than 500 people by the time he turned 40. Paul had started his own IT services business and had grown it to 50 people when it was acquired by a large competitor. Paul agreed to stay on and is now running the division that acquired his company, which employs some 500 consultants and support staff.
Paul finally arrived from a day on the water looking relaxed in his Ray-Ban sunglasses and sailing garb.
Over dinner, I asked Paul if he missed having his own company.
"I don't miss the social pressure," he replied.
Not sure exactly what he meant by "social pressure," I asked him to elaborate, and he went on to describe the heavy feeling of having 50 people relying on him for a paycheck. Paul was so paranoid about failing his employees that he had stockpiled his cash, never declaring a dividend. He would count the number of months he could pay his staff without selling a project – at one point before being acquired, he had accumulated a two-year cushion.
He admitted his cash-hoarding was a little bit irrational since he had never gone an entire month without selling a project, but he couldn't help himself – it was the only thing that allowed him to sleep.
I pointed out that he now has 10 times the number of employees and asked him if he felt 10 times the pressure.
"Not at all. When it's someone else's company, it's just not that personal anymore," he said.
I can identify with Paul. I found the pressure of generating enough revenue to cover our monthly expenses stressful. I got a little bit squeamish when we grew our monthly recurring obligations (payroll, rent, etc.) to more than $100,000. The idea that each month we would have to sell six figures of revenue just to cover our immediate obligations felt like a monthly climb up a steep mountain.
I can remember the sick feeling of coming into a new month with nothing on the books, a weak funnel of prospective sales. The problem with expenses like payroll and rent is that once they leave the station, they are like a train running down the track: very hard to stop. Sure, you can lay off staff, but severance will have you paying employees months or years after you start to bleed.
Unless you sell your company, I'm not sure you can ever fully eliminate the stress of covering your expenses each month. However, one thing that did help me was establishing a stream of recurring revenue. We went from doing project work, where we started from scratch with each new project, to offering a subscription, where people bought a year's worth of our services in advance.
With a long-term agreement like a one-year subscription, you allocate the revenue in equal monthly installments. Eventually, we got to the point that we were going into a new month with our expenses already covered.
If you'd like to reduce the stress of covering your nut each month, there are lots of recurring revenue business models to emulate:
• Alarm companies will often install your security system free to get you hooked on paying a monthly "monitoring" fee. The company that installs enough alarms can look forward to a mountain of recurring revenue.
• Insurance providers work hard to win a client and then watch the annuity stream roll in for decades.
• Wine clubs use a membership model whereby customers typically pay a year's worth of dues up front.
• Software like Salesforce.com or eFax are sold on a subscription model, so customers pay monthly until they leave.
• Smart swimming pool, carpet cleaning, lawn care and snow removal companies use annual service contracts so they know where they stand before the beginning of each month.
The burden of having people's livelihood in your hands never fully goes away, but knowing where your revenue to cover your expenses will be coming from does reduce the heavy feeling of being the boss.