Welcome to In the Trenches. It’s great to have thousands of you here. My goal with this newsletter is to be all signal and no noise. To that end, make sure you let me know each week how you liked the content:

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I’ll keep incorporating the feedback into future posts.

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Happy 4th! Since last week we've added another 1,057 readers to the group - thanks for being here!

For all those that are new to the newsletter, on Tuesdays I write a mailbag answering questions from you the reader. If you have a business challenge you're working on or have a career obstacle you're working through, feel free to send it to me. I'll try to incorporate it in the mailbag if it's widely applicable.

Today I'm changing it up a bit - I'm only answering one question. Admittedly, the situation the reader described is a Top 1% problem - but the mindset I recommend applying to breakthrough it is applicable at all levels of the journey. I checked the ~500 questions that have come in from readers so far and this framework is applicable to ~50 of them.

It’s that powerful.

Let’s get into it.

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Question: I have an online business that makes $1.2M a year - I operate it at a 85% margin (~$1m of profit). It’s just me and a team of freelancers. I don’t think I want to invest in the business even though it feels like I could grow it. If I do, it will cost money to get to the next level and I really like stashing away the profits. But I’m burned out. I’m running hard and doing everything in the business. How should I think about what to do next? What would you do if you were in my position?

First of all let’s be clear - this is AWESOME. That’s a big time accomplishment - better yet it really shows what’s possible with digital businesses in 2023. A crafty founder, a small team of freelancers and the scale of the internet can create a really great outcome for an individual.

But it’s clearly come at a cost - you’re burned out and you are probably at ~95% of your earning potential via your current setup. It’s not sustainable to keep doing everything in the business.

I hate to break it to you, but today you don’t really have a business. You have a high paying job. You’re trading all of your time and effort (inputs) for profit (output). The good news is, you can turn this into a business. To do so though, you need leverage. Leverage is the true mark of having a business versus having a job.

There are two types of leverage: (1) capital and (2) time. Neither is “better or worse” but to get a better time-adjusted output, you need one or the other. Let’s define both.

• Capital Leverage: This means you are trying to increase the value you are getting from your business. This can come from actual earnings of the business (e.g. cash flow) and/or enterprise value. If you want to create capital leverage, you need to grow. It takes resources to grow. You need to use the capital the business generates or raise money. Regardless of which route you take, you are going to have to spend to create capital leverage.
• Time Leverage: This means you are trying to decrease the time you are spending in your business. This can come from hiring an operator and/or exiting the business. If you want to create time leverage you need to hire, delegate or exit.

Neither form of leverage is “better or worse.” The answer to which form of leverage you should pursue is a function of what you’re solving for. If I was in your shoes I would first ask: “What does a best case for this business look like?”

• Can the business really accelerate and grow?
• Do the market dynamics allow for accelerated growth?
• Do the market dynamics require growth (e.g. if I don’t grow, will my business die?)
• Is the quality of my business good at scale? Does it get better or worse?

This is an important first step. Don’t start with “What do I want to do?” You are burned out. If you ask yourself this question right now, you will want to quit, sell at a discounted price or worse - convince yourself that there is no other way to operate your business, leading to a justification of your current setup.

If you have a good business that you believe in, you always have options.

Let’s assume you go through this exercise and it is a good business that can grow. You have a few different options. They all incorporate capital and time leverage. I’ve listed the 3 options in ascending order of time leverage. Option 1 gives you the least time leverage and Option 3 gives you the most time leverage. As for which option gives you the most capital leverage, I’ll leave that determination to you - after all you’re the expert on your business.

• Grow the business yourself (most time)
  • You run it, but you run it differently. Take the cash flow from the business and invest to hire a team. Focus on hiring in low risk, incremental ways vs. wholesale disruption. If you haven’t hired before you will make mistakes. To mitigate this risk, focus on the lowest risk areas of the business.
  • An easy exercise to do is to document everything you individually do and put a “dollar per hour” value against each task - you are likely doing $10/hour work and $1,000/hour work. Focus on eliminating all the lower level work off your plate.
• Grow the business with a partner (middle time)
  • You don’t run it. And you hire a full time operator. This operator is the new CEO and they drive the business. Here’s a simple question and math framework you can leverage to see if this option is a good fit for you:
    • Can I make 80%+ of the earnings and spend 20% or less of the time?
    • Let’s say you make $800k instead of $1M (an operator costs you $200k), but now you got 80% of your time back. Would you do it?
    • What a great trade off. Right now 100% of your time creates $1M. If you could have 80% of your time back and create $800K, it’s a great move.
  • Better yet, the trade will be a short term “cost”, but long term accretive. The right hire is going to want to come in and grow the pie. You should be back to breakeven in no time. The real risk here is you need to hire a good operator so you don’t fumble the bag (I’ll detail how to do this in a future post).
• Exit the business and accelerate the earnings (least time)
  • Let’s say 20% mindshare isn’t low enough and/or you have low conviction in the business. Then you may want to try and sell completely. Accelerate the earnings and free up your mindshare for another project.
  • Honestly, M&A is going to be tough at this stage.
  • You’re subscale and your margins don’t include the investment an acquirer would have to put in to fuel growth (e.g. the cost of an operator, team, etc.).
  • At this stage, I’d focus on Option 1 or 2, institutionalize the business a bit more (so it becomes a business versus a job) and then explore M&A if available and attractive.

In every business, when you hit a choice point (like you are at right now), you should always be thinking about how to create leverage: capital or time. The worst thing you can do for yourself is be a stuckholder. If you are not creating time leverage or capital leverage, you’re aimlessly floating. You’re stuck.

Best of luck and let me know how it works out. I'm rooting for you!

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Make sure to send me your questions (if you have any) so I can include them in the hopper for future posts.

Until Friday,

Romeen

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