When Hard Work Really Does Pay Off: How to Embrace (and Leverage) the Return-on-Hassle Factor

 

When Hard Work Really Does Pay Off: How to Embrace (and Leverage) the Return-on-Hassle Factor

Return on investment is important, but counter to conventional wisdom, return on hassle can be the best path to success.

Illustration: Getty Images

Many aspiring entrepreneurs love the idea of passive income. Who doesn’t want to make money while they sleep?

Plus, sometimes income can, over time, become passive. The book I wrote six years ago — in a non-passive phase — long earned back its sizable advance. Since it continues to sell, I get royalty checks every six months. (Granted, I could probably earn even more by actively continuing to promote it, but hey: Other fish to fry.)

In more general terms, stock investing (hopefully) generates relatively passive income. If you take Warren Buffett’s advice and leave your money in a broad-market index fund, the investment is basically passive. Sure, you had to work to generate the funds to invest, but otherwise you can (again, hopefully) generate further income with little effort. The same goes for a buy-and-hold-and-forget investment in a specific stock: Once you’ve bought the stock, earnings are essentially passive.

Every way you try to make money falls somewhere on the return-on-hassle spectrum, a measure of the difficulty/hassle/effort involved in a specific investment or activity against its anticipated or actual return.

Investing in Treasury bills, for example, generates a small return with a commensurate near-zero hassle. Buying and selling individual stocks through ongoing research and analysis hopefully generates a greater return but with a higher degree of hassle/effort, making the income generated less passive. Starting a business will hopefully generate a considerable return, but at an extremely high hassle/effort factor.

Generally speaking, that’s how it works. The lower the hassle, the lower the return; the greater the hassle, the greater the expected return.  And, usually, the greater the actual return.

Starting a business is hard. Building a thriving business is even harder. Find success, though, and the returns can be considerable — especially when compared with more passive sources of income.

Which leads to the counterintuitive point. Instead of searching for passive sources of income — instead of searching for ways to reduce or even eliminate hassle — look for opportunities where the hassle and effort are, or can be, greater.

Why? Everyone wants passive income. Few people want to work harder, longer, and smarter than nearly everyone else. If you’re the entrepreneur who truly goes the extra mile, you’ll stand out — and your returns are more likely to be substantial. If you’re the entrepreneur who will do what other entrepreneurs won’t in order to build your business, and serve and satisfy your customers, you’ll stand out — and your returns are more likely to be substantial.

Take real estate investing, a business with a hassle factor that plenty of people feel is too great. My wife and I own a number of residential rental properties; while we could pay a property management firm and reduce our level of hassle, that would significantly reduce our net return. Showing properties to potential tenants, checking credit and references … those things are fairly easy. Plus, showing properties ourselves is much like job interviews in that it helps form a positive landlord/tenant relationship.

As for maintenance and repairs? Sure, it would be less of a hassle to have a property manager take those calls, but ultimately we still pay for the work done, and we, unlike the property manager, have a vested interest in doing so as efficiently and effectively as possible.

Nor would the skilled craftspeople have a relationship with us; their relationship would be with the property manager. And then there’s this: More often than not, since I have a reasonable range of skills, the cheapest method is for me to do the work. (I’m happy to spend 10 minutes replacing an HVAC condenser capacitor to save the $200 technician fee.) Granted, the hassle involved is much higher — but so is the return on that hassle.

And in a way, some of the wealth we build is passive. Over time, appreciation increases our equity, as does paying the mortgages with rental income.

Does the average real estate investor buy, rehab, maintain, and manage 15-odd rental properties while also working full time? Probably not. But since we’re willing to do what plenty of people are not — and because my wife is an extremely savvy real estate investor — our return on hassle factor is high.

The effort is definitely worth it, at least to us.

The next time you consider an opportunity, take a little time to consider relatively passive sources of revenue that may result. Referrals, for example, are relatively passive. Follow-on sales are at least relatively passive, although maintaining long-term customer relationships does require some amount of effort.

Definitely consider ways you could streamline, and optimize, and decrease effort while increasing return.

But then take more time to see if adding a little hassle and effort will result in outsize returns.

Granted, there are hassles you may not want to take on, and that’s OK. (I don’t want to continue promoting my book; again, other fish to fry.)

But there will surely be at least a few hassles you can find that you are willing to embrace — and that will be more than worth the extra effort.

The hassle opportunities can create raving fans

In most cases, a hassle situation for us as business people is actually a problem solving opportunity for the customer. When a customer, or potential customer, inquires about a service outside your wheelhouse, take the time to listen. If you can’t creatively come up with a solution internally then be an advocate for the customer and help them find a solution through your business contacts. That type customer service creates a raving fan for you and your business. There’s no great marketing tool then word of mouth.

Are your associates creating raving fans? Give us a call, we’re here to help.

Services

JEFF HADEN AND CARL PHILLIPS

 
 

Business Evaluation Services, PO Box 507, Arroyo Grande, CA 93421, 888-300-8292

Our mailing address is:
Carl@mysteryshopperservices

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