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Guns v Butter: Understanding the Present Value of Business Development

“Many people have a hard time understanding the present value of business development because they see it as a nebulous concept that may or may not help them in the future.”

If you read our recently published series Mastering the Art of Business Development, then you know how important it is to prioritize business development in your career. And yet, despite this knowledge, many people still don’t spend enough (or any) time on business development. One of the reasons for this is that while people know that business development is important, they don’t understand the present value of doing it. This is a challenge even for those who enjoy doing business development because at the end of the day, we all still need to get our actual work done. This article will teach you how to find the “sweet spot” where you not only get your work done, but you enhance your career and income through an optimal amount of business development.

Many people have a hard time understanding the present value of business development because they see it as a nebulous concept that may or may not help them in the future. Therefore, they choose to focus their time on things that appear more concrete (like billing hours) despite evidence to the contrary. For example, the beneficial effects of meditation are now well-known and studied. Meditating even just five minutes a day can improve productivity and reduce stress, illness and fatigue. I know a few people who take this seriously and incorporate a meditation ritual into their daily routine, but for most (myself included), we make excuses like “I don’t have time today” or “I’ll get to it later.” There’s an old Buddhist saying: “You should meditate one hour a day, but if you don’t have an hour to meditate, you should meditate two hours a day!”

In contrast, there are many other choices that produce delayed and uncertain results that we as a society routinely accept as normal. For instance, most Americans will give up working at a full-time job for four years in order to attend college because they believe that the long-term payout is worth it. Many people will also give up income in order to start their own business because they believe that in the long run the benefit will be worthwhile. Hundreds of thousands of Americans visit a gym multiple times a week to achieve both long-term health and aesthetic results despite the opportunity cost and hard work involved.

So, what is the difference between someone who is willing to go to the gym five times a week for an hour, but who won’t spend five minutes meditating even though it’s proven to make him or her more effective and healthier? Why would someone give up four years of income and work experience to attend an expensive University when that same person years later won’t give up one billable hour a week to attend a networking event or grab drinks with a business contact? The answer is that the risk of not taking those five minutes to meditate, or not going to that networking event or grabbing a drink is not immediate and there is no guarantee that it will occur. In contrast, societal standards and the long-standing cultural norms associated with going to college and the gym give us more certainty that we will make more money in the future with a college degree and that we will reduce our risk of heart attack and look more attractive if we regularly exercise.

It’s that certainty or lack thereof that this article aims to address, because it is, in fact, certain that you will gain a whole host of benefits from spending some amount of time doing business development. By attempting to calculate the present value of doing business development, you can be more certain that you are spending your time in an optimal way.

One way you might contemplate this issue is by calculating your marginal utility. In classic economics, marginal utility, or the idea of opportunity cost, is demonstrated through a model of guns vs. butter. In a theoretical economy with only two goods, a choice must be made between how much of each good to produce. As an economy produces more guns (military spending) it must reduce its production of butter (food), and vice versa.[1]

In other words, there is a “sweet spot” where you will benefit the most from working x number of hours and doing business development for y number of hours. Doing more or less business development than this sweet spot will decrease your utility.  For example, the first hour(s) of business development may help you a lot, but at some point the utility of business development starts to drastically fall and you need to switch to work mode.

Using this model as a frame of reference, take a look at your investments and returns and make some estimates. Note: the following examples are oversimplified and in reality, there are likely many other factors to consider, but they illustrate the concept. Let’s say you are an attorney at a firm. The opportunity cost for doing business development is lost billable hours. But the opportunity cost for not doing business development is that you may not be able to make partner or eventually run your own business. Let’s say that you make about $200 an hour if you outsource and do work for other lawyers. If you were billing your own clients, you’d be able to charge $400 an hour. The question then becomes, how much time will you need to spend doing business development in order to get (and keep) a client?

In one scenario, the lawyer who bills 40 hours a week at $200 an hour makes $8,000 a week. If you were able to secure clients by doing 10 hours of business development a week and billing 30 hours at a rate of $400 an hour, that would be worth it because you would end up with $12,000 a week. If, on the other hand, you are just starting out and have no experience and no network, it might take you 30 hours a week to get enough clients just to bill 10 hours a week, which means you’d only be making $4,000 a month. Perhaps in that scenario, it would be better to build your experience and network working for other people before going out on your own.

Remember, more business development doesn’t necessarily equal more new clients! I, for example, have cut down on the number of networking conferences I go to per year because I found that I did not have enough time to follow up with each contact. Without follow up, the time spent on the conference is meaningless. This is a situation in which more networking decreases utility. You may also want to consider that not all clients are equal. Some clients may pay lower rates, but take up a lot more of your business development time to acquire and keep. In that situation you’d want to focus your business development efforts on fewer clients but those that are less of a headache and pay higher rates.

Some additional questions you might want to ask yourself in order to make this calculation might be:

  • What have you invested? (Ex:  tuition)
  • What has been your opportunity cost (Ex: not having a job while in grad school)
  • How much do you currently make? For what amount of work?
  • What is your current quality of life?
  • How much does someone in a comparable position to what you see yourself in in the future make? How many hours do they work?  What is their quality of life like?

Hopefully this helps you identify your own personal sweet spot so that you can optimize your utility. Stay tuned for more business development tips from myself and other experts in the Opus Connect community.

[1] https://www.investopedia.com/terms/g/gunsandbutter.asp

Author:
Lou Sokolovskiy
Founder/CEO, Opus Connect
lou@opusconnect.com

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