Why a Big Business No Longer Requires a Big Workforce
Utilizing the freelance economy to build your business
For many years, we've preached the CASHFLOW Quadrant at Rich Dad.
The CASHFLOW Quadrant is divided into four types of people.
E is for Employee
S is for Self-Employed or Specialist
B is for Big Business
I is for Investor
On the left side of the quadrant are Es and Ss. They pay the most in taxes and trade their time for money.
On the right side of the quadrant are Bs and Is. They pay the least in taxes and create or invest in assets that produce cash flow for them even when they're sleeping.
The B quadrant is where people go to create big businesses. For many years, in order to create a big business, you needed to create a big workforce as well. It was not uncommon for businesses making millions to have hundreds of people working for them.
This is because a successful big business is a scaled business, where systems and processes are carried out, making money for the owner even when the owner isn't working.
What's the difference between self-employed and big business?
A lot of people are confused initially by the difference between an S (self-employed) person and a B (Big Business) owner. The difference between an S business and a B business is that you work for your S business, but your B business works for you. This means that your B business is automated. Your employees follow your systems and know what to do without you telling them.
Today, however, it no longer takes a large workforce-or even any workforce at all-in order to build a large and profitable business. Employees, while still valuable, are not the only option.
Thanks to technology, most business systems and processes can be automated using systems from your computer and software, allowing your business to run without you. Check out Robert's post on technology tools that can help you become a powerful solopreneur.
The power of the contractor
But technology isn't the only tool in your tool belt. Many successful businesses are now leveraging the power of the contractor economy. As Inc. reports:
Close to 90 percent [of small businesses] said they're optimistic about their companies' prospects into the first quarter of 2016. Seventy-percent said they will make a profit, and only six percent said they will have a loss. All of this is despite the fact that the economy, while growing, is expanding at a tepid rate of around 2.5 percent. (The latest job report from the Department of Labor, out Friday, also shows a sharp slowdown in hiring in September, with gains in previous months revised lower.)
But the surveys fail to take into account a not-so-subtle shift that's taking place around hiring since the last recession. As Uber and Task Rabbit and Instacart bear witness, companies don't need to have full-time employees any more. They can rely on a seemingly endless supply of contract workers, of which there are about 3 million in the U.S.
The article's author, Jeremy Quittner, shares the story of Jacob Wood, an online retailer who sells shirts to men through his store, Woodies.
According to Quittner, Woodies relies solely on contractors to keep this business, which makes hundreds of thousands of dollars, running.
Wood, on the other hand, runs a global enterprise entirely based on contract workers. The company relies on five Web designers and developers in Eastern Europe, a manufacturing facility in Thailand that creates each order, and the logistics company that ships the shirts. The development contractors get close to $70 an hour.
The advantage is clear. By utilizing contractor work, Woods saves significant overhead such as health insurance and payroll taxes, not to mention office space, and is able to invest that money back into his business. He makes great money, is growing, and operates internationally-all without a single employee.
He's built a system that works for him, not the other way around.
What can you build?