Personal Development for Smart People^TM

Many books on time management recommend the practice of thinking of each hour of your time as being worth a specific quantity of money. It’s an extension of the “time is money” concept. First you figure out what your hourly rate is, and then you use that as a guide to determine where you should spend your time. If you want to earn more money, then you must first mentally raise your hourly rate, so you can start doing activities that are worth more. For example, if you currently earn $50/hour and want to earn $75/hour, then you have to do less and less $50/hour work as you shift to doing $75/hour work. Brian Tracy advocates this type of thinking in his time management programs, as do many other time management experts. I’ve used this model myself in the past.

I’ve spent a lot of time considering this paradigm, and at present I have only one problem with it.

It’s stupid!

It’s possibly the stupidest paradigm you can use for income generation.

While it seems enticing on the surface, in the long run it will hurt you more than help you. Let’s take a look under the hood…

The Good

On the positive side, if you tell yourself that your time is worth $50/hour, then that can help you focus. It can make you aware of those activities that clearly aren’t worth $50/hour that you might still be doing, especially if you track your time usage with a time log. Once you become aware that you’re wasting time on low payoff activities, then you can begin reducing, eliminating, or outsourcing those low payoff tasks. For example, you could recruit a part-time personal assistant to offload much of the $10/hour and $20/hour work. My wife runs an online vegetarian magazine, and she has a staff of people working for her including an assistant, editors, and writers to offload much of the work that can be done at a lower hourly rate than her own. It works great.

This seems like good common sense if you want to improve your productivity. If you can earn $50/hour, then you should spend as much as your work time as possible doing $50+/hour work, shouldn’t you? Recruit others to do any work that pays less. The benefits of this particular optimization may be hidden in a large corporate environment where personal productivity isn’t strongly linked to pay, but it’s very noticeable if you’re self-employed.

The Bad

The big problem is that when you tell yourself your time is worth $50/hour, you’re simultaneously telling yourself that it isn’t worth $75/hour or $200/hour or $10,000/hour. You’re programming your subconscious mind to limit the range of opportunities you will notice. Because you won’t be on the lookout for $10,000/hour ideas, you’ll overlook them completely. If you tell yourself you earn $50/hour, you’ll think in terms of $50/hour opportunities.

Thinking in terms of an hourly rate may help limit your downside, but it also severely limits your upside. And that’s a really bad trade-off, bad enough that it requires me to dismiss this whole paradigm as utterly stupid. There’s no way the upside of turning some $20 hours into $50 hours can compensate for missing those $10,000 hours. That’s penny-wise, pound-foolish.

One $10,000 hour is worth 200 $50 hours. That’s more than a month of full-time work! You don’t need too many of those huge payoff hours to pick up the slack of some of those less productive $0-20 hours, but if you miss out on even one of those $10,000 hours, it’s a crippling blow that overwhelms all other thoughts about financial productivity.

In the long run, your greatest financial risk isn’t whether you made the mistake of succumbing to doing $20/hour work when you could have done $50/hour work. Your greatest risk is missing those $10,000 hours. And most people miss out on them completely. It’s ironic that people think of being a salaried employee as being low-risk and being an entrepreneur as high-risk. The reality is just the opposite. One of the reasons I chose the entrepreneurial path is that it’s just way too damned risky to be an employee. I’m not kidding. It’s easy to hit a good number of those $10,000 hours as an entrepreneur, but it’s a lot harder to do so as an employee.

How many $10,000 hours did you enjoy this year?

How rare is it for a $50/hour salaried employee to experience even one of those $10,000 hours in the entire course of their career? Pretty rare I would say. Certainly not a normal, expected occurrence. But this isn’t because such opportunities don’t exist — it’s because your limiting beliefs about how much your time is worth prevent you from noticing them. Simply choosing to believe that it is possible will open the door to allowing it to manifest. You don’t need anyone’s permission to believe you can come up with an idea that you can implement in less than an hour that will earn you an extra $10,000. Such ideas are naturally plentiful, but you won’t notice them until you adopt the right mindset. Right now as you’re reading this, such an opportunity is practically staring you in the face, and you’re completely oblivious to it. It’s just like how my colorblindness prevents me from ever seeing the color red as other people can; it’s beyond my ability to perceive.

Once you release the brakes and embrace the idea that a single hour of your time could be worth $10,000 or more, you’ll almost immediately begin to notice such opportunities. I suspect you’ll uncover the first one in less than 48 hours.

The Ugly

What the heck is $50/hour work anyway? Who determines what an hour of your time is worth?

If you’re self-employed, then you set your own hourly rate. And that’s fine if your work requires hourly billing. But don’t fall into the trap of thinking that all of your working time is worth that same hourly rate. If you do that, you’ll begin to tune out much more lucrative opportunities.

If you’re an employee in a corporate environment, then your salary sets your hourly rate, depending on how many hours you typically work each week. And in this high-risk situation you have a double problem. First, you have the previously mentioned challenge of getting yourself to think outside the hourly rate box. But secondly, in corporate environments it’s rare to find fair incentives for employees to have such breakthroughs. If you have one of those $10,000 hours on the job, you probably won’t share in the rewards. You’ll just enjoy your usual $50 pay for that hour, while the company keeps the other $9950 you’ve created. At least entrepreneurs and self-employed people get to keep the whole $10,000.

Whom does the hourly rate mindset benefit? It benefits those who get to keep the extra value above and beyond that rate. But because this paradigm suffers an imbalance between value creation and reward, I think it also cripples the will to generate those $10,000 ideas. If you aren’t going to benefit from the extra value you create, then why bother to create it?

The solution is to think like an entrepreneur, even if you’re an employee. If you can devise and implement an idea in one hour that ends up saving your company $25,000 a year, I’d say you damn well deserve to be paid $10,000 for that hour of your time.

But too often employees don’t bother to negotiate such terms with their employers. They willingly submit themselves to the tyranny of the hourly rate. Having been an employer myself though, I’ll tell you that if an employee came to me and said she had a low-risk idea that would put $25,000 in my pocket and which could be implemented independently by her in an hour, and she asked to be paid $10,000 only if and when the idea proved itself, I’d be pulling out my checkbook. In fact, I’d ask her if she had a twin I could hire too. But if you don’t negotiate such deals in advance, then by default the employer receives all the value above and beyond your normal hourly rate.

If I ever found myself an employee (which I can’t imagine happening), I’d be on the constant lookout for those $10,000 ideas. I’d befriend someone who had the authority to pay bonuses in the manner described above, even if I had to work my way up the chain of command a bit. Then I’d look for simple ways to increase the company’s revenue or cut its costs that would produce tangible, measurable results. And I’d negotiate the ability to either be paid a fixed sum if the value can be determined in advance or to share in a certain percentage of whatever value was created.

If I found that my boss didn’t have the necessary authority or the will to authorize this sort of thing, then I’d keep going up the chain of command until I found someone who did. It’s simply a matter of finding someone who will directly benefit from my extra value creation. It could be a stock-owning VP, the CEO, or even an investor. People who have a direct financial stake in the enterprise will not want to see profit-creating or cost-cutting ideas being squashed unreasonably, but beneath this level, you might run into a lot more closed-mindedness. But fortunately those who share in the profits of your ideas will normally have the authority to overrule those who don’t. So don’t let your boss get in your way. If you develop the habit of implementing $10,000 ideas, you’ll soon be the boss anyway.

If I found myself working for a company or organization where this level of flexibility was impossible, I’d quit and go work in a less draconian environment. There are enough progressive companies around now that it isn’t necessary to work for one of the unenlightened ones.

All Hours Are Not Created Equal

My income isn’t based on how much time I spend working. It’s a function of the value I create. I can work a whole month and produce less monetary value than I do in one breakthrough hour. Every hour is unique.

I stopped thinking in terms of a fixed hourly rate many years ago. In practical terms an hour of my time could be worth $0, or it could be worth $10,000 or more, depending on what I do with that particular hour. Much of the time I pursue activities that don’t generate any income at all, even though I still consider it to be productive work. Answering email doesn’t seem to pay too well, and I don’t get paid an hourly rate for writing blog entries and articles. But sometimes I’ll get an idea which I can implement in just 30-60 minutes that will earn me an extra $10,000 over the course of a year, often continuing for many years thereafter. So the concept of an hourly rate, even an average hourly rate, is meaningless to me.

A recent specific example was adding those Chitika eMiniMalls ads to this site. As I previously reported, this took very little time to implement (less than an hour), but it should ultimately generate thousands of dollars a year in extra revenue. And it takes me virtually no work at all to maintain this income aside from depositing checks.

Edit 6/25/06:  As it turns out, Chitika’s performance declined as they “improved” their system, so I later dropped them and no longer recommend them (along with many other bloggers).  Therefore, that turned out to be closer to a $1000 hour instead of the $10,000 one it initially seemed to be.  However, adding a donations page to the site, which took about an hour as well, has done much better than I expected and is easily a $10,000+ hour.  So the lesson is to keep experimenting.

In the normal course of my work, those $10,000 hours are becoming more common. I normally have several a year, along with some $1000 hours, $5000 hours, and so on. Usually the money doesn’t come right away, but it still blows away the concept of an hourly rate. It wouldn’t even be accurate to say that it’s those other hours that make the $10,000 hour possible. Sometimes the $10,000 is just a random idea from out of the blue, or maybe it’s something that comes to me from a book or another person.

Almost always the $10,000 hour is the result of a great idea. And great ideas can strike at any time. When I get one of those $10,000 candidate ideas, I’ll normally drop everything and implement it right away. If it flops (and usually it does), I’ve lost an hour, but I still learned something. Most of the time it isn’t a total loss. I end up with a lot of $10, $50, and $250 ideas too. But I can afford to endure dozens of those relative flops for the chance to hit just one more $10,000 idea. And when it works, I must say it’s pretty darn nice.

It’s not that $10,000 is a lot of money per se. The idea isn’t to make just $10,000 here and there. It’s to make $10,000 for only one hour’s worth of work. That’s what makes the entrepreneurial game so much fun. You never know when one of those $10,000 ideas will strike. Imagine working each day with the very real possibility that you could earn an extra $10,000 that day, completely out of the blue. If your normal hourly rate for a full-time job was $10,000, you’d be earning $20 million per year, and in that case $10,000/hour would be no big deal. But if you earn something closer to $50/hour, then one of those $10,000 hours is a major breakthrough. And the truth is that those $10,000 hours are a lot more accessible than you might think.

Regardless of whether you’re an employee, self-employed, or otherwise entrepreneurial, don’t cap your income by thinking in terms of an hourly rate. Once you free yourself from this punishing paradigm, you’ll invite the opportunity to enjoy some of those $10,000 hours. It’s really just a matter of giving yourself permission to experience them.

This entry was posted on Wednesday, November 9th, 2005 at 8:06 am and is filed under Business, Career & Work, Entrepreneurship, Productivity, Time Management, Wealth & Money. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.