I just read a great blog post on the Law of Comparative Advantage.
According to Wikipedia, the law states the following:
“Two countries (or other kinds of parties, such as individuals or firms) can both gain from trade if, in the absence of trade, they have different relative costs for producing the same goods. Even if one country is more efficient in the production of all goods (absolute advantage), it can still gain by trading with a less-efficient country, as long as they have different relative efficiencies.”
In Bussgang’s blog, he applied this law to start-ups. I’d like to expand the law to all small businesses. To quote Bussgang:
“As such, they [owners] get sucked into spending time doing things that they may be better at than the others in their organization on an absolute basis, but that, comparatively speaking, they are worse at in relation to the handful of things that they are uniquely suited for.”
This is a similar concept that is brought out in “The E-myth” by Michael Berber. In the book, Gerber writes about the “Entrepreneurial Myth”. The main point of the book is that people start companies and end up working “in” their businesses instead on “on” it. Owners end up being employees of their own companies. They become trapped and want to quit.
Let me give you an example. I was speaking with a friend this weekend. He runs a large printing company. His lament was that he was on the hook for all the sales. He wished he had more time to focus on bigger picture items that would propel the business forward. He couldn’t find the right people to sell and ended up doing all the selling himself. He was stuck working “in” his business and not “on” it.
I see this often. Small businesses have trouble growing because the leadership / ownership can’t (or won’t) delegate tasks. Maybe you’re a great salesperson, but you’re stuck doing operational tasks. Wouldn’t it make sense to hire someone and delegate those operational tasks to, so you can focus on sales? How much more could you sell? Furthermore, maybe you’re amazing at sales, but you’re the only one who is. Wouldn’t it make sense to document and detail your sales process then train someone else so you’re not the only one on the hook for sales? I know, this takes time and involves risks. It’s scary, but it must be done if you want to grow.
Make and assessment of your strengths and weaknesses and delegate everything you’re not good at. According to Bussgang (and I agree):
“there are two areas a founder should not delegate: product and people. Product-related activities include developing customer intimacy (studying the “voice of the customer”), designing features, thinking through product strategy and setting priorities. People-related activities include hiring, setting the culture, coaching and mentoring.”
If you truly want your business to grow, obeying the law of comparative advantage is key.