Over 23 million individuals claimed nonfarm sole proprietorship income in the U.S. in 2011, according to the IRS, with profits for these individuals rising 5.6 percent from 2010 to $282.6 billion. Many are professionals, like lawyers, IT pros, or chiropractors; others are savvy entrepreneurs or even inventors, with their own product or service to sell.
Sole proprietorship can be incredibly rewarding and allow for a fantastic lifestyle, but how do you move beyond a one-man show when it's time to build your business?
I founded WordStream in 2007. The company has since grown to over 80 employees, with another 40 hires expected next year. It seems a ridiculously fast pace--we're planning to take on a new employee pretty much every other week--given that it took almost two years to transition from all-by-my-lonesome to recruiting our first employee. Looking back, though, I often question why on earth it took me so long to bring that first person on board.
Admittedly, I had a few hang-ups that got in the way of any earlier expansion. If you're thinking of expanding from sole proprietorship to building your business with employees, here are a few lessons that may help you kickstart the process:
1. Stop treating your company like a piggy bank.
The transition from employee to entrepreneur can be lucrative, yet dangerous, especially if you experience early success. Don't let an increase in pay (by way of sales) cloud your good judgment.
Your new business needs to eat in order to grow. Very early on in my business, I fell in love with sole proprietorship; I could deduct legitimate business expenses, command higher rates as a contractor, and take on multiple clients. I paid myself handsomely, bought a brand new car, and was basically irresponsible with my newfound "wealth." In short, I treated my company like my own personal piggy bank.
What I should have been doing is what I eventually ended up having to do, in order to grow. I needed to pay myself a lower salary and invest profits back into the business. It's hard to adjust to the mindset that requires that you spend substantial amounts of "your own money" on payroll and marketing, yet it's necessary in order to bootstrap the business and avoid taking on a lot of seed-level financing.
2. Stop making excuses and procrastinating.
Another huge obstacle in the first two years was procrastination. When you decide to become your own boss and are self-employed, no one is going to hang over your shoulder and make you accountable to your goals. You may suddenly find yourself with more freedom, no dress code, no set office hours, etc. This is a recipe for disaster for a procrastinator like me.
It took me a while to figure out a productive routine and to force myself to adhere to it, but growing my company would not have been possible if I hadn't started treating my business like a business. In order to expand beyond yourself and bring on additional staff and clients, you need to be operating at a much higher level, in terms of organizational and operational excellence.
3. Don't stress over talent.
A third thing that held me back from expanding and growing early on was just feeling so discouraged about the lack of talent I was finding. Let me rephrase, the lack of talent who were interested in leaving their stable jobs to join my start-up.
I pitched dozens of friends and colleagues to quit their jobs and join my one-man show, yet no one wanted to join me. It began to feel like my company wasn't meant for growth; how could we expand if no one wanted to come work with me? It seemed I had tapped my entire network and couldn't find a soul willing to take the chance.
And that's the key: I had to understand, I was asking people to take a huge leap of faith, in those early days. As I worked on my own business skills and goal setting and pumped money back into the business, I was able to start showing some real wins. You have to get to a point where you're not asking people to take a chance on you and once I hit that tipping point, life became a lot easier.
Just two months after finding my first partner, we found another person (a referral from the first guy). Just a month after that, I found the right fit for a third employee; he was a friend of a friend who was intrigued that we had a team and had built something interesting.
Get ready for it...
In the past few years we hit our momentum. Customers and employees started to multiply. Building a business is never easy and usually feels like pushing a big rock up a hill, but over time, that hill becomes less and less steep.
I don't want you to feel like you have to rush out and expand; sole proprietorship can be a rewarding life over the long term. If you are ready to grow, though, I hope these tips will help you over a few of the hurdles. Once you sense that opportunity to build, work to determine how you might be standing in your own way. Don't let your hang-ups keep you from growing your business!