Do you remember when cell phone plans weren’t unlimited? You may have had unlimited nights and weekends but only a few hundred minutes for the rest of the month. If you were like me, you kept a constant eye on minutes because going over your limit cost a ton of money! It also meant staying up late to make phone calls. That limit on cell phone minutes is Parkinson’s Law.
What is Parkinson’s Law?
Here’s the gist of Parkinson’s Law – the more resources we have available to do something (time and money), the more complex we make it (it takes more time and costs more money). On the flipside, when we have less time and less money, we get more focused and creative on how to make it work. Think of Parkinson’s Law as a gas and a balloon – the gas (task) fills whatever container (your resources) you put it in.
In his book The 4-Hour Workweek, Tim Ferriss talks about Parkinson’s Law as a way to get more work done faster. By giving yourself tight deadlines you must focus on the essentials while eliminating the non-essentials. It causes you to hyper-focus on what’s needed while helping you eliminate what’s not.
The principle can be applied to profit. When you work within a budget, you immediately impose limits that require you to make decisions about what you will and won’t spend money on. You will most likely have to cut some expenses from their current levels which leads to searching for creative solutions to stretch your budget. As the saying goes, “necessity is the mother of invention.”
Setting budgets and boundaries spurs us to greater creativity, innovation, and profit.
How does Parkinson’s Law apply to profit?
Setting a budget immediately puts Parkinson’s Law into play. Imagine you are starting a business and you only have $5,000 to start it. What are you going to invest that money in? I bet you’ll find a lot of creative ways to stretch that budget as far as possible. The limited resource causes you to think very creatively and may lead to innovation that wouldn’t have been discovered otherwise.
For businesses that are already up and running, Profit First uses percentages based on revenue to create targets for owner’s pay, operating expenses, profit, and taxes. In doing so, profit becomes an immediate priority (hence, putting it first) and you are immediately faced with making some hard decisions on what expenses can be justified and which ones need to be cut.
How do I leverage Parkinson’s Law?
You can immediately apply Parkinson’s Law by setting a budget for your expenses. Doing so will help you prioritize what you’re spending your money on. You can also take a look at the Profit First system and consider implementing it for your company.
We love working with small business owners and especially love helping business owners make more money so you have more freedom to do the things you love. Please reach out to our team if you have any questions about Profit First and how it works.