The 4 Hour Work Week Myth?

by Victor Cheng

Today’s question comes from David:

I saw your email the other day about the people in the Olympics and your clients. Of your clients who are doing super well, are they able to take off lots of time and live the 4 hour work week or anything close to it?

I can tell you, there is no way that I can do this at all. I have to show up daily and lead and inspire. I know if I slack others will slack.

I had some long conversations with very successful business people and they all had to work super hard for years. All said the key is doing something you love so you don’t mind doing it all the time.

I asked them about work life balance and other stuff like that. Everyone laughed.

You were talking about the Olympics. I know for a fact that those that win train super hard. I have friends that dominate in body building, strongman, fitness, and football.

They put in a ton of time and never give up.

I wanted to see what your successful clients were like. I think half the reason so many people fail to make all those millions is because they don’t show up to work enough. They don’t put the time in.

My reply: Of my clients with $1 million or more in sales who grew by 85% or more last year, I would say the majority work pretty hard.

I have one client who owns several businesses and works maybe an hour a month on the business that I work with ($2 million a year). But, he has a business partner that runs the business full time and his role is really as owner/investor/chairman of the board.

So here’s my take on the whole 4 Hour Work Week idea (which is the title of a very good bestselling book by Tim Ferris who I’ve met on a few occasions and is a really nice guy).

Is it possible to have a 4 hour work week?

YES. But realistically limited to a few situations.

1) For a business under a million in sales where competition and customer demand are fairly static, yes I think this is possible.

It is predicated on the customer demand being stable, competitors being stable, and building a heavily systems driven business that is stable as well.

Think: snow cone stand on the boardwalk of the most popular beach in a resort town.

About 5 years, I did something like this myself. I didn’t get down to a 4 hour work week, but I was able to get to a 15 hour work week and I experimented with partial retirement.

Incidentally, I think retirement is over-rated. I would go see a matinee movie and it would be just me and a few people from the local retirement home.

I decided to take up pottery (same deal, me and the little ole ladies from the retirement home). I’d call up friends to go hang out on Tuesday morning… they’re all working!

So it ended up being a very boring experience for me.

2) Licensing – If you own intellectual property (trademark, copyright, patent/invention) or have a huge personal brand, it’s possible to generate cash flow without hours.

The guy who invented the George Forman Grill (before they secured the George Foreman endorsement) made 2% – 3% royalty on $1 billion in sales (read: $20 – $30 million).

George Forman made a 5% royalty on $1 billion in sales ($50 million).

The Beatles make royalties off of their songs – both the lyrics to the song as well as when the song is played).

Richard Branson owns a part of 150 different companies using the Virgin brand. His business is primarily a licensing one. So it Ralph Lauren’s business – very little manufacturing or retail, lots of licensing.

3) Investor – If your role in a business is primarily that of owner/investor, and NOT operator as in the case of one of my clients, then the “ownership” role is not very time consuming.

However, this requires the OPERATOR of the business to be working pretty hard in most cases.

Most small business are “owner operated”. There is no law that that has to be the case. So it is possible to separate the ownership role from the operations role.

It’s typically easier to do this in businesses that are a bit bigger (more than say $1 million in sales) so the business can generate sufficient cash flow to pay the hired operator of the business and pay the owner too.

Here’s where I think the 4 hour work week doesn’t work.

1) Any business that’s growing very rapidly. With growth, comes change especially with internal operations. A hands fee business is predicated on stability.

I don’t know of any business that is highly volatile that is owner-operated, profitable and hands free (baring the exceptions above).

This is especially true if the business is growing quickly and has more than at least a million or two in sales. When businesses surpass the $1 million, $10 million, and $100 million sales mark there is significant step up in complexity.

What gets you to $1 million doesn’t get you to $10 million. And what gets you to $10 million definitely does not get you to $100 million.

Those shifts require someone to work very hard. (Again if you’re the owner and have hired a strong operator, it doesn’t necessarily have to be you that’s working hard… but trust my in business with that kind of growth SOMEBODY is working very hard)

2) Any business where competition and customer demand is fast changing quickly. This is why you see the work ethic you do here in Silicon Valley where I live.

Everything is changing so freakin fast. Customers are changing. Technology and what it enables in changing. Competitors are changing.

And now with the recession impacting every industry in the global economy, the vast majority of businesses are facing significant change right now.

I saw this in my own business in 2009 and YTD 2010. Business has been very good in both years, but the level of difficult and pace of change in 2009 was just exhausting.

I started the year down 50% (ugh), and ended the year just scratching and clawing my way to my highest net income year… but it was absurdly exhausting.  And keep in mind I used to live in NYC did the 75 – 104 hour week thing… and gotta tell you 2009 was harder for mentally that the NYC grind). So last year I had a business that was at first shrinking, then growing really fast, that was also changing absurdly quickly (mainly because I was forcing it to) and so I most definitely did not have a 4 hour work week in 2009… and I know a lot of other business owners did not either.

Comments

{ 3 comments… read them below or add one }

Josh February 26, 2010 at 11:28 PM

Victor,
Nice breakdown of the different types and stages of a business. I like Ferriss’ material and think he’s done wonders for helping us think differently about what’s possible, but leaves some holes that you filled nicely.
My only addition to your outline above is the discussion about what comes from each business type and situation because I think many budding and existing entrepreneurs don’t really understand what the ROI potentials are and just think ‘if we get to $10MM in revenue, I’ll be set for life’ or other similar platitudes.
This is where I err on the side of Ferriss at this stage of my life with 2 very young children and numerous failed high growth attempts as I’m more interested in maximum cashflow for minimum effort. This focus becomes less sexy over time as you’re building a stable business instead of one of constant innovation, but the goal again is lifestyle, not glamour or fame.
Thanks for the front of the lines education!
-Josh

Victor Cheng March 4, 2010 at 1:35 PM

Josh – thanks for your comments. I work with numerous clients at the $10M range and have met literally hundreds of business owners at that revenue range and I can pretty much assure you they’re all working their tails off!

Revenue does not equal profits – they’re not the same thing

Profits does not equal a great lifestyle – they’re also not the same thing

Big businesses are not necessarily profitable. Profitable business are not necessarily lifestyle friendly. If you want a profitable lifestyle friendly business, you have to focus very deliberately on creating that – especially the lifestyle friendly part.

-Victor

Josh March 4, 2010 at 4:53 PM

“If you want a profitable lifestyle friendly business, you have to focus very deliberately on creating that – especially the lifestyle friendly part.” Great point!

That’s part of the puzzle missing for many of Ferriss’ wannabe followers.
-Josh

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