Run Your Life as a Business - Strategy
In life there are things you control, things you can influence, and then the morass of everything else beyond your control that just happens. When unbridled chaos inevitably tumbles into the forefront of your life, it's tempting to surrender to it – to let it "just happen." Perhaps you are overwhelmed with everything else that's going on, or perhaps you're inexperienced and cast so far adrift you don't have a clue what to do.
No matter the reason for freezing, the end result is the same. You are leaving your life up to chance. Fortune is a famously fickle mistress, unfit for governing your life.
Instead you should take control with what little influence you have to shape favourable outcomes. I prefer the metaphor of running my life like a business. So what does that look like?
High Level Strategy and Values
You should start with core values. You cannot accomplish everything in one lifetime, so instead you must decide what you want most from life. In my case, I aim for the two-fold Financial Independence goal: to be wealthy enough to never worry about money for daily life again, and to be powerful enough to help others. Other more traditional values could include retiring into a country cottage whilst minimising environmental impact, raising kids full time, or travelling the world.
Not everyone knows what they want from life immediately. It's worth spending time learning about what is out there, and there's no rush to decide. It's enough to start by earning enough wealth to allow you to pivot into the dream you'll discover later. Getting started is more important than knowing where you'll end up.
Getting started requires some strategy to guide it. In the business world there are Porter's generic strategies: cost leadership (cutting expenses), differentiation (using unique advantages), and focus/segmentation (increasing income in one area).
Cost leadership is the simplest to understand. Focus strategies are likewise easy, as oftentimes it is the traditional "focus on your career" strategy of increasing income over time. Differentiation is the interesting strategy, as it is where creativity comes into play. Any unique advantage you can turn your way counts – such as entrepreneurship, living with family, side hustles, and so on.
At this point I invite you to read my post on FIRE strategies to develop your own strategy:
Form Your Goals
Once you understand what you value enough to spend your life on, you can set goals to help you execute on strategy. However, simply saying "I want to be rich" isn't a helpful goal – it doesn't fit the SMART criteria. A better goal would be specific, measurable, achievable, relevant, and time-bound.
For instance, I would restate the goal as "gather $500,000 in stock investments within the next five years." It is specific as to how much (500k) and what (stocks) are needed. It's measurable as the value of your stock portfolio will show your progress towards the goal. It's a realistic and achievable amount, averaging gains of 100k a year – not easy, but within doable ranges. It is relevant to the core value of becoming wealthy enough to not worry. Most importantly, it has a time limit of five years that helps you track when your pace is too slow.
Goals are not always so substantial and long-term. It's especially important to have short-term goals that align in relevance to your bigger goals. To support that aforementioned $500k goal in investments, I might set a smaller goal getting a renter within two months, which entails the immediate goal of creating a rental listing within the next week.
Business Tools for Creating Plans
Coming up with plans is a creative endeavour, open to the whole world of possibilities. Perhaps there is a viable opportunity for book flipping in your area that you want to start. Or perhaps you don't know what will happen for the next couple years of your life, and you want to make plans to cope with that uncertainty. This is where businesses already have handy tools for coping with big picture problems.
One such tool is the Strengths, Weaknesses, Opportunities, Threats (SWOT) Chart. It is a staple tool useful for breaking down factors into internal/external and beneficial/harmful. When trying to decide what to do, I find it helpful to look at the weaknesses and threats to see how I can minimise them, and to the opportunities to see what I can take advantage of.
As an example, let's consider the following:
Strengths: Debt free. No kids or pets, multiple incomes. Educated (Bachelor's degree). Working from home, so no commuting costs.
Weaknesses: Moderate overhead in costs (mortgage, HOA fees) putting cashflow at risk during downturns. Living in high-cost California. Job salary maxed out, with no room for income growth.
Opportunities: Side hustles for extra income, such as book flipping or freelance consulting work. Moving to low cost of living area. Trading up or downsizing house. Planning for taxes.
Threats: Job loss. HOA fee increases. Planned bills such as home remodelling. Economic upsets. Limited ability to get further education/training.
Simply describing your circumstances is only a first step to using the SWOT analysis. For it to actually help, you also need to follow up with many of the items. For example, when considering the ubiquitous threat of job loss do you already have plans and safety nets in place? If not, what can you do to lessen its impact? Likewise if you have a new opportunity to make money, how can you take advantage of it?
One of my favourite strategic exercises is scenario planning. This involves identifying areas of uncertainty relevant to you (the axes of uncertainty), creating a handful of scenarios which describe the quadrants, and then examining your plans through the filter of which scenarios they work best in. Successful plans will usually be those that work in all the scenarios.
Scenario planning will be the topic of a future post, so check back for that in-depth exploration.
The Blue Ocean strategy introduces the four actions framework, which are concretely Eliminate, Reduce, Raise, Create. This tool is most exciting for driving innovation. It uses the twofold approach of clearing out cruft that is no longer valuable, and using that newly-freed capacity on new projects or expanding ventures.
I find this tool to be similar to the SWOT matrix, albeit more useful because of its action-oriented nature. It also promotes a feedback loop: evaluate whether what you are doing is still worthwhile, and either grow it or cut it depending on its worth.
Having large goals is great, but when they take months or years to complete it is altogether too easy to get lost along the way. Thankfully there are tools for keeping on track.
The first and most important is to actively manage your finances. There is no getting around the drudge work of bookkeeping and financial reports. What you do not measure, you cannot track effectively.
I recommend tracking several key-performance indicators, including: your savings rate, FI ratio, net worth, and discretionary spending rate.
To effectively use KPIs, I recommend having a trailing graph of the past year, as in the image above. This allows you to quickly answer questions such as "Is there a general trend up or down?" and "Are there any weird bits?"
In the example graph above, there is an obvious "weird bit" as the last month dips into a negative savings rate – a sign that spending was too high that month, perhaps due to a large bill.
You also may find it strange that I disparage net worth as a metric, yet suggest tracking it. I recommend it purely as a feel-good measure, not as an actionable metric. It's exciting to watch your net worth go from negative to positive, and to see it grow thereafter. That said, it doesn't provide any useful commentary for when you're trying to understand your finances.
When you have business ventures and side gigs, there are other KPIs that are important to track: your leverage ratio, operating margin, and possibly asset turnover.
Problems Will Arise, How Will You Cope?
Invariably things go wrong. Your first task is to recognise when they have, and the sooner the better. To this end I recommend setting aside time in your schedule to periodically check in on your goals. This could mean talking with your partner(s), or simply fifteen minutes at the computer reviewing what's happened lately.
The goal is to catch problems soon enough to act to fix them. Sometimes these fixes will be rote – deal with bills, send in paperwork, etc. However, sometimes they will be iterative, where you have to improve something piece by piece until it is good. This is usually more relevant to marketing and sales, as you try to find your niche. Other times you may catch problems and realise that you need to pivot away entirely from your project to do something different to solve your problem.
Finding your values and goals can be difficult, given that it involves strategic thinking that is uncommon in most day to day life. Once you have them, however, they are not immutable stone scripts that you must obey; your values can and will change with experience. Periodic reevaluation will help you align your values and direction, as well as identify problems that arise.
I hope this high-level introduction to how I run my life like a business has been helpful, and there are more posts to come.