Entrepreneurs, Do You Know Your “Highest and Best Use”? (Part 1)

By Tom Ryan

Maintaining work/life balance and peak performance is one of the biggest challenges for most entrepreneurs, myself included. But after years of fumbling and bumbling with various systems and tools, I developed a solution that actually works and is inspired by, of all things, a real estate investment concept.  

Crazy, right?

In the real estate world, there’s a concept called “highest and best use”. It’s a principle appraisers use to determine the optimal value of a piece of property. The basic idea is that a property’s use and its value are strongly connected. When a property is being used in the best way possible — taking advantage of its location, utilizing available parking, in good shape with modern upgrades, and complementing other nearby properties — then it should also have its optimal value. When a property is being used poorly, on the other hand, its value suffers.

Metaphorically speaking, we entrepreneurs are the subject properties, and how we invest our time are the uses. Similar to real property, our value is highest when our uses are optimal.

This simple but powerful concept has become one of my secret weapons, and I always use it when coaching fellow entrepreneurs.

For instance, not long ago, I worked with a high-growth tech startup with a lot of potential. The co-founder and CTO of that startup had built a truly innovative and powerful platform from scratch. But, like many entrepreneurs in early-stage companies, he was also being pulled in a lot of directions at once.

The High Cost of Doing Everything
As any entrepreneur will tell you, this is an extremely common problem. Leading a company means wearing a lot of hats, from the highest-level strategic planning to taking out the garbage. In this co-founder’s case, in addition to his CTO workload, he was also responsible for doing the bookkeeping. This might not seem like a problem until we understand that while he was a great programmer, he was a terrible bookkeeper.

I decided to look at the startup’s financials, and, very quickly, I determined that their books were in rough shape. They lacked the organization and details needed to determine the underlying costs of running the business.

It was no surprise then to learn that the co-founder hated doing the books. He was only doing it because there was no one else to do it.

An Easy Fix
The solution seemed obvious: Hire a bookkeeper.

After some research, we determined that it would cost between $20 and $40 an hour to bring a skilled bookkeeper in to work part-time. For most early stage companies, that’s not a small expense. At first, the co-founder wasn’t convinced that the benefits outweighed the costs.

This is when it got interesting.

Time is Money
We looked at what it was already costing the company for him to do the books. In addition to his work as CTO and de facto bookkeeper at his startup, he was also doing side work to help make ends meet. I asked him what he charged as a consultant, and he told me that he billed $150 per hour.

It boiled down to this: Every hour he spent working on the books himself was effectively costing the company $110 more than if they hired out the same work to a top-quality, professionally trained bookkeeper. His highest and best use was working as a programmer. Every hour he spent working a side job could easily pay for three hours of help keeping the books in order — and with enough left over to buy them both lunch.

The co-founder was convinced. The startup hired a great bookkeeper, and now they have excellent financials to show their investors. More importantly, the CTO now has far more time to invest in the programming they need to develop their IP, allowing the startup to build value. It’s a win-win, and a great example of highest and best use in action.

Your Turn!
Brutally examine how you’re currently spending your time and to what extent it’s generating value. Then, after reflecting for a day, read Part 2.

 

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