A scientific look at how allocating time can help grow a company

According to some, entrepreneurs should improve their processes to grow successfully. Edward Hess argued that firms must “improve or die,” while John Shea and David Gobeli reported that small firms should implement Total Quality Management to promote growth and free CEOs from day-to-day activities. 

But it is the latter’s focus on time that has been of great interest to Yoo. In his latest report, “Optimal Time Allocation for Process Improvement,” Yoo claimed that as entrepreneurs strive to grow their firms, numerous activities such as exploring new market opportunities make their time one of the more salient resource constraints.

“These activities rely on the entrepreneur’s innovative capacity and tacit knowledge, and cannot easily be delegated to others,” the report said. “In particular in the short term, extra time can not be easily bought via hiring, so how entrepreneurs allocate their time has a tangible impact on the firm’s growth.”

Further tightening their time constraint is that entrepreneurs spend lots of time “fire fighting” – a concept introduced by small business coach Michael Gerber to depict urgent activities which, if not dealt with immediately, would become too costly.

As such, Yoo tried to conceptually quantify how much time is created by investing time.

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“Opportunity to create time is everywhere, and is also true in everyday life,” Yoo said. “For example, beginning a new exercise routine when you are busy may appear to be poor investment of your time. However, if you account for the reduction of number of sick (or less productive) days in the future, the return on time investment can be significantly positive. Essentially, you have created time.”

He gave some further advice, suggesting the optimal policy prescribes that entrepreneurs should make process improvement their top priority, and should maintain the process quality at an appropriate level before engaging in other activities. Entrepreneurs should also over-invest in process quality relative to their long-term process quality target, he said. They should thus create a buffer of excess process quality upfront while their opportunity cost of time is low, especially when they foresee many revenue enhancement opportunities. 

“We find that although revenue-enhancing activities may take priority over process improvement activities, they do so only when cash is low and the cost of borrowing is large, so as to reduce the need to borrow money,” Yoo explained. “As the firm’s cash reserves grow, priorities change, and the entrepreneur should then focus on making her/his process reliable. So the entrepreneur’s priorities may shift over time from securing funds to growing the company

“Finally, our model introduces a framework for evaluating the opportunity cost of time. In particular, the opportunity cost of time should not be equated with the prevailing revenue rate, but instead should account for the long-term return on time invested in process improvement efforts.”

In a report published in February by the Centre for Enterprise and Economic Development Research, SMEs that manage time well were found to be a fifth more likely to achieve higher growth margins than those that don’t. Could this focus the minds of many SME owners to make the most of their time in the office?

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