November 13, 2013
If you’re not familiar with the concept, opportunity cost is the difference in gains between one chosen path and another untaken path. For example, when you decide to go into business full-time for yourself, your opportunity cost is the income you would have earned working for someone else. Every decision you make has an opportunity cost, for example, if you decided to continue working for someone else then your opportunity cost would be what you could have made starting up your own business. But there’s another form of opportunity cost that most start-up entrepreneurs don’t take into account.
When you’re starting a small food business, chances are you have limited resources at your disposal and you’re trying to make the most of every penny. It’s natural and it’s the mindset of a consciousness entrepreneur. But when you decide to do it all yourself in order to try and save money, what you may not realize is that it’s actually costing you money.
Let’s say that Entrepreneur Alice has a great creative brain and is excited about her new cupcake venture, but in order to save money she decides to handle all of the production, accounting, marketing, delivery, and sales herself. How effectively is she actually doing any of them? If she’s running around frantic all the time, is she really spending the time she needs to generate more sales? Perhaps her time would be better spent focusing in on her areas of strength and relying on other experts to handle the tasks she’s less fond of. For example, she might be a wiz at sales and love marketing so she could hire a bookkeeper to do her accounting and some kitchen staff to handle her production. By doing that she frees up her time to be put to its highest and best use which should translate into a better company overall.
I’m not saying you should go out and hire a bunch of staff or contractors to work with you if you don’t have the funds. But as you look towards 2014 and determine what your budget for next year will be, ask yourself whether there are tasks or responsibilities that are better entrusted to others even if you do have to pay them to do that. Because make no mistake, by trying to save money you might actually be costing your company in the long run.