UCL School of Management

27 April 2016

The time-money trade off for growth-focused entrepreneurs

To grow their businesses, entrepreneurs must continually invest both their time and money to generate sales and re-invest the earnings. Despite the popular notion “time is money,” the two resources have different natural properties which leads to several important insights for entrepreneurs, according to Assistant Professor Onesun Steve Yoo from the UCL School of Management.

First on the list is that an entrepreneur’s time will inevitably become more valuable than money during the firm’s growth. That is, if you prefer to have £100 over 1 hours of time today, there will come a time when you will prefer the additional hour. This is largely because money can accumulate but time is always fixed (e.g. there is 24 hours in a day). Thus to fuel growth, entrepreneurs must trade away less valuable money to gain more valuable time; hiring and delegating (routine) tasks to an employee achieves just that.

Dr. Yoo conducts a formal shadow-value analysis to quantify the time-money bottleneck, which can be used as a basis for understanding when to hire an employee. Interestingly, as the firm grows, an employee’s value will increase even when the employee performs the same set of tasks. This is because of the growing severity of the entrepreneur’s time constraint.

Furthermore, the recruiting process could require significant diversion of time and money for entrepreneurs, particularly for hiring the first employee. In such cases, correct timing of hiring can mark the transition to a phase of rapid growth, while wrong timing can be detrimental to the firm’s growth. To get the timing right, entrepreneurs need to understand the impact of the setup time from cost. Analysis reveals that while entrepreneurs should always delay hiring when greater monetary cost is required upfront, it is not necessarily so for greater time cost. This is because the value of time increases during growth, so it may be desirable to incur a large time outlay earlier rather than later.

“In sum, growth-focused entrepreneurs should be conscious of the value of their time relative to money, and also should account for the two resources separately.” says Dr. Yoo.

These findings come from an article that is recently accepted in the journal Manufacturing & Service Operations Management.

Last updated Thursday, 28 April 2016