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Show Notes

Have you ever been requested to do something and being given a certain amount of time to do it?

Let’s say that timeline you were given was seven days, right? What’s funny is most of the time we’re completing the project in the final day, sometimes hours before it’s due, it takes the full amount of time that we’ve been given to turn it around.

And then you may have the experience where someone asks for the same thing but the deadline is shorter.

They need, it turned around in two days, and what we find is even though we feel a lot of pressure around that, we’ll be able to deliver the thing in the timeframe we’d given.

This little known law explains why this happens with time and how the exact same thing is happening in your business with the running costs and can show you why even though you hope that this month will be different, you never seem to have enough money to pay yourself and make a profit.

Curious to learn more? Tune into the episode to learn this natural human behaviour and how you can stop having it work against you so that you can take more money home from your business.

Resources mentioned in this episode

Episode 004 of the podcast: The 5 bank accounts you need to get started with Profit First, listen here: https://laurajohagan.com/2024/04/15/004-the-5-bank-accounts-you-need-to-get-started-with-profit-first/

Looking for help to transform your business into the thriving, profitable business you know it could be? Book a Discovery Call with Laura here 

Connect with Laura

Website: www.laurajohagan.com

Email: hello@laurajohagan.com

Instagram: www.instagram.com/laurajohagan

 

Episode Transcript

Hey, hey, hey and welcome back to another episode of Prosper and Profit. I am so excited to be with you today and dive into this topic about this little known law and why it means you never have any money. We’re going to dive into that today.

It’s going to be a short episode today. I know last week’s episode or episode four was quite a long one. I wanted to follow up with something nice and short, but really impactful and really creating a lot of awareness for you about the human behaviours that we have and why, why we can’t achieve some of the things we think we should be able to just with willpower alone. So let’s dive in.

Have you ever been requested to do something and being given a certain amount of time to do it?

We all have had that happen in all of our lives, whether it was a school project  if we cast our mind back to school, whether it’s a client project, maybe it’s something in your team, someone in your team has asked for something to be able to put something on social media. Whatever it is, we can all think of a time where we’ve been asked to produce something and given a timeline for it. 

Let’s say that timeline you were given was seven days, right? What’s funny is most of the time, we’re completing the project in the final day, sometimes hours before it’s due. It takes the full amount of time that we have been given to deliver it. So if we had seven days, we find ourselves thinking about it, planning it, potentially just like running it through our mind a bit more, than getting started and there may be redoing some of it and it takes the full seven days. 

It takes the amount of time that we’ve been given to turn it around. Right. And then you may have the experience where someone asks for the same thing. But the deadline is shorter. They need it turned around in two days and what we find is even though we feel a lot of pressure around that, we can usually deliver the thing in the timeframe we’d given. It’s mind blowing… Something that took us seven days to deliver, when we had that amount of time, took that amount of time. And then when we were requested to turn it around in two days, it’s mind boggling to see that when we have less time we can get it done in the amount of time that we have. 

It’s it’s kind of weird. It almost feels like it doesn’t make sense, but when we think about it, we’ve all had examples of this happening where the thing that took us 10 hours to produce someone asks us to produce it in five hours and we still got it done in that. 

Now this phenomenon is a natural law that a philosopher found when he was researching something many moons ago. It’s called Parkinson’s Law. What this philosopher discovered was that the demand for something expands to match its supply. The demand for something expands to match it supply. So, you know, idea of a project taking 10 hours, the supply of 10 hours was available, so the demand to complete the project took 10 hours. But then when we only had five hours of supply available, we were able to match that and this is such an important topic because this is happening with your money. In your personal life. And in your business too. 

We touched in last week’s episode and I’ll link that back episode four, about the five bank accounts you need to get started with profit first. We talked about starting to pre-allocate money into predetermined categories with the idea of almost getting it out of sight, out of mind, with the tax and the profit. Then also separating out our owner’s compensation where we pay ourselves, because what this law tells us is if we have a big pool of money sitting there that comes into our business, the cost of running our business will expand to match the amount of money that is coming in. That’s what this law is effectively telling us.

This is why just thinking we’ll hopefully just spend less and there’ll be some left over is not actually going to work because of Parkinson’s law. There’s always something that comes up. There’s always another choice to make. There’s another thing we could spend money on. And when the money is sitting in front of us and not constrained, the demand for it expands. I hope this is making sense for you. And I hope this has maybe starting to help you see something that your business needs a level of constraint put on it so that it can run on less.

You know, in Profit First, Mike talks about the example of toothpaste and it’s kind of funny. I mean, you could probably Google a video and watch him talk about it, and it’s so true, right? It talks about how, when we open a brand new tube of toothpaste and my kids are wonders it this. We put this huge bead of toothpaste on our toothbrush and even if it drops off into the sink, when we turn the tap on and run the water over it, we’re like, oh, it doesn’t matter and we just put another huge piece of toothpaste on there. Because we’ve just opened a new toothpaste, there’s so much available. We’ve all had [00:07:00] that experience. Like we can all giggle about this when. We’re at the end of the toothpaste we don’t have a backup. You know, tube of toothpaste. And we find all of this ways to like squeeze the last little bit out and you know, like you’re rolling the ends and squeezing it and holding it. And like, you just get a tiny little dab out, but it’s enough to make it work. 

Right. So suddenly when we had the brand new tube of toothpaste, we used so much to clean our teeth, but when we are constrained and when we are forced to, we can clean our teeth with a lot less, less toothpaste. And, you know, I hope you’re laughing at that because I know when I read that in the book, I was like, yes, I’ve been there and I’ve done the thing of squeezing the toothpaste and holding it, cause you know, the toothpaste pops out, but then you let go and it retracts back in and you’re like, you end up in this wrestle with the tube, just to get this last bit out.

There’s two amazing things that, that illustrates to us. One, which I’m not going to talk to you today. I want to come back and talk to this at a later date is innovation. Right. When we have less of something, we get really innovative and we can think about that with the toothpaste. We roll the end, we squeeze it. We put our elbow on it on the bathroom bench and we’re holding it down and we’re applying this pressure. We find all these innovative ways to get toothpaste out. And suddenly we actually realised we can brush our teeth with a lot less toothpaste than what we’re kind of used to using.

The same is true in your business. Right? When you are constrained in your business and we are putting an artificial constraint so that you are more profitable, that’s the whole theory of separating the money out into those separate bank accounts, which we spoke about in the previous episode, when we put a constraint around it and we are forced to run our business off less. Just like the example with the project and time, we realise that we can run our business off less than what we have been doing, because the supply of money is there, the demand just goes up at, to meet it. If we take 5% of that out to either pay yourself more or set aside as profit. It’s amazing how quickly you can find better more innovative ways of running your business and reduce the cost of things that aren’t necessarily needed.

You know, I know when I first started my business, I ran it off the cost of an oily rag. What’s that saying? The smell of an oily rag, whatever. I was able to run it really lean because there just wasn’t as much money coming into the business. So I did more things myself. I found smart ways to do things, right. I bootstrapped certain things and I’m not saying we have to do that forever, but what can happen is, it just all expands out and you know, my business costs more to run now then it did then. And yes, some of that is necessary. But when I did a really detailed review, I realised some of it wasn’t necessary and was actual wastage and was my kind of being a bit sloppy and lazy. And I know they’re like pretty harsh words, but it was just bloat, right. It was bloat in my business because I’d gotten in the habit of not doing things and, you know, taking the easy option, like pay to fix a problem. Because I had the money there instead of come up with a smart solution.

I’ve worked with a number of clients on this because we do an expense review, it’s one of the things we do once we’ve done the initial analysis of the business, we go through and look at the expenses. Most businesses can run off 10% less than what it is currently costing them to run, overnight. If you had 10% less to run your business on overnight, you would find a way to make it work. You’d be like, oh, well actually that subscription we’re not using, that membership I’m in, we’re not using that either. And, you know, we are kind of using this thing over here, but not as well as we could be and I could probably do that myself and it only takes an hour a week. So, I’m just kind of spitballing and giving examples there but this is what Parkinson’s law teaches us.

So what we can see is when we allow all of the funds of our business to sit in one account and be pooled together. We have to fight and work against this inherent human thing that we all have, and we have to work really hard at it. It’s kind of like that idea in dieting and health they always speak about not relying on willpower, right, as the thing to keep you in the gym or on your protocol, your eating plan, whatever. If you rely on willpower, it’s like a muscle over time. It just weakens. And it’s the same with this. If we just keep hoping, I’ll just be stronger. I just will say no to some things. We haven’t set ourselves up for the best success.

So just like in the gym or with training, if you have a health goal, you work more around having a system or a process in place. So, things like setting an appointment with a personal trainer, having a meal plan and prepping ahead of time, all of those things create a system and a process so that you have to rely less on willpower. And this translates across into our business, right? 

We need to have systems and processes put in place that force us to have some level of constraint. And so we don’t have to fight against this natural thing that we all have, which is Parkinson’s Law and time expanding and money expanding, the demand for it matching the supply. So what we want to do is we artificially reduce the supply by taking that out of, our main operating expenditure account and setting that aside in accounts that we can’t see that we don’t think about and running our business off less, we have them put a system in place that means we don’t have to fight our inherent natural human way of doing things.

So I hope that today has illustrated something new, perhaps something you haven’t thought about, but something that is probably mind-blowingly obvious when you hear it spoken out like this, we’ve all had the experience with time and suddenly turning around and doing something on less. We’ve all had the experience with the toothpaste. I know you feel me on that. And we’ve probably all had times too where our income shrunk, and suddenly we can find ways to live off less. Maybe you can think back to, you know, another time in your life where you were earning more and you had to adjust to making a bit less and you found a way to make that work. So we can all see these really clear examples where we have adapted to using less, even though we felt like it took more and this applies to the running of your business. 

So I hope that’s clear. I hope you can see that parallel and how, what you think it is currently costing to run your business is most likely the demands of the business are expanding to match the supply. I’m going to challenge you, that you could probably run your business off 10% less overnight. And the beautiful benefit of that is you’re going to be more profitable. And you’re going to be more innovative. 

You might just come up with something really innovative that changes the whole landscape of your business, of your industry. So have a think today about Parkinson’s Law and how that might be showing up in your business. And why it might be the reason as to why there’s never any money leftover after you pay all the bills and pay the expenses of running your business, no matter how much money seems to come in. So I’ll leave you with that to think about. 

Please come share your thoughts with me. Tell me what you thought of this episode. You can hit me up on Instagram. I’m loving hearing from you. Let me know if you have questions, let me know what landed. Let me know if you take the challenge to see if you can reduce the running cost of your business by 10%, maybe even 5%, it would be a huge step forward. Now, if you are loving the podcast and loving the conversations we are having here, I’m going to ask you to please leave me a five-star review. That helps this podcast get out into the world, into the ears of more people. And just help spread the word so that more business owners, entrepreneurs are getting more financial reward from their business. 

So I will thank you and events please take a second to review this episode and I’ll be back in your ears very soon. Bye.