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How much you should pay yourself, how to make the most of empty space, and what to do when under legal attack

When my co-author, Bo Burlingham, and I launched Street Smarts in December 1995, people would often ask us if we were worried that we might run out of subjects to write about. We just shrugged and said, “We’ll see.” But we soon realized we had no concerns on that score. We had only to read the mail that readers began sending us. Each letter described a unique situation that demanded its own response.

One of my few regrets about the column has been my inability to answer more of those letters and, later, e-mails. While I was running my businesses, I simply didn’t have the time. I’m still a pretty busy guy, but developments over the past few years (see the series of columns called “The Offer,” beginning in November 2006) have given me some breathing room, and I’ve used it to step up significantly my pro bono work advising entrepreneurs. The time also feels right to extend that effort to the Street Smarts column.

In the past, we’ve devoted one or two columns a year to answering your questions. Now, we’ll be doing that in every column — unless, of course, something dramatic happens in my business (or elsewhere), in which case I’ll break away to bring you an update. We also encourage you to post queries and comments online or write to me directly at asknorm@inc.com. In addition, we’re going to hold another contest like the one we ran last year. The three winners will get an all-expenses-paid trip to New York City to spend a day with me at my offices in Brooklyn and to visit Inc. You can find the details online.

In the meantime, let’s get the ball rolling:

Dear Norm,
I have a booming business connecting people with people. For example, I helped the Today show find a woman to propose to her boyfriend on Sadie Hawkins Day, and I worked with the Boston Symphony Orchestra recruiting young people to introduce to classical music at Tanglewood. I also organize business networking events and host several speed-dating sessions a month. I’m working more than 100 hours a week, and I charge $50 per hour for my services. I should be in great shape, but I can barely make ends meet. Can you help me?

— Ilana Eberson, The NYC Business Networking Group, New York City

I needed more information, and so I invited Ilana to come see me. When she showed up, I had her sit down and estimate the amount of money she’d made in the past year and the number of hours she’d worked. We then divided the first by the second. Sure enough, Ilana wasn’t earning anywhere near $50 per hour. The real number was closer to $7 per hour. She was shocked, but I wasn’t surprised. Like most first-time entrepreneurs, she’d had one overriding fear starting out, namely, that she wouldn’t make enough money to support herself and would be forced to get a job. The natural tendency in those circumstances is to undervalue what you’re selling, because you’re so desperate to generate cash. What Ilana undervalued was her time, her talent, and her connections.

For example, a cosmetics company might hire her to put together a list of women from the ages of 26 to 35, along with their contact information. She’d charge her normal hourly rate, neglecting to take into account all the time she’d spent creating her extensive list of contacts, without which she couldn’t have provided the service. Or she’d spend an hour doing an e-mail blast for somebody and charge $50, overlooking her travel time to and from the customer’s location. In fact, the total time for the job, including travel, was more like half a day. She’d then sweeten the pot by throwing in a second e-mail blast at no extra charge. That added up to a whole day of work for $50, or about $6.25 an hour.

I gave Ilana a homework assignment. I asked her to write down what she really wanted to do in the next year and how much money she needed to live on during that time. Up until then, Ilana had been too busy to look beyond the next month. The question was always, How am I going to fit in all the things I have to do? I figured that, in planning a whole year, she’d be able to put aside the things she felt obligated to do at the moment and think instead about her long-term goals. And that’s what happened. She suddenly became aware of what she was missing as a result of her frenetic schedule. And, eventually, she was able to cut back on money-losing activities, focus on her best opportunities, charge prices in line with the true value of her services, and say no to people who weren’t willing to pay her what she was worth. Above all, she realized that, in filling her schedule with so many small things, she’d stopped dreaming of the big things she wanted to do, and that gave her all the incentive she needed to change.

Dear Norm,
I have a transportation and logistics company that I’ve owned for nearly 15 years. Our headquarters is in a warehouse, and we have about 7,000 square feet we’re not using. I want to explore ways of getting some benefit out of this space. I’ve considered getting into records storage, but I don’t know where to start. Can you point me in the right direction?

— Jim Wood, Maverick Express, Battle Creek, Michigan

Whenever you see a potential opportunity, the first step is to check out your assumptions. In records storage, for example, what counts is not square footage but cubic footage. I called Jim and asked him the height of his warehouse’s ceilings. He said they were about 18 feet high. So he had 126,000 cubic feet of space. Allowing 3 cubic feet per box, including open space and aisles, he had room for about 42,000 boxes. If he could fill the space at a monthly rate of, say, 20 cents per box, he could collect as much as $8,400 per month in rent. Of course, he’d have expenses. He’d need to buy or lease racks, as well as equipment to move the boxes around. He also had to consider what would happen after he filled the space. Where would he put the additional boxes his customers were bound to send him? And I cautioned him to remember that the business required a long-term commitment. He had to be prepared to keep the boxes more or less permanently. With all that in mind, does it still make sense to use the space for records storage? Only Jim can make that call.

Before making a big decision like that, however, it’s always best to explore all the options. I suggested that Jim ask his customers if they have any warehouse needs. He might well find a source of revenue he hadn’t thought of. Then again, he might decide that the smartest course is to use the extra space to create a stronger bond with customers by providing an additional service, such as storing skids for them or providing space for special projects. In a tough economy, there’s always pressure to reduce prices. I believe it’s far better to maintain prices and provide additional services instead, even if you don’t charge for them. You’ll protect your gross margins and make it tougher for competitors to lure customers away.

Dear Norm,
My company makes rollable, foldable ballet flats that save women from aching high-heel feet. I recently got a threatening phone call from a competitor whose company has a name similar to mine. I prefer to focus on sales and marketing, but I can’t take threats like this lying down. It looks like there may be a trademark/patent battle. Any advice?

— Andrea Padilla, Spare Soles, San Diego

Try to work out a settlement, even if it’s not perfect. People shouldn’t waste time and money on litigation if they can avoid it. (See “Don’t Worry, Be a Little Unhappy,” April 1998.)

Norm Brodsky (brodsky13@aol.com) is a veteran entrepreneur. His co-author is editor-at-large Bo Burlingham. A paperback edition of their book, The Knack, was published in February under a new title, Street Smarts: An All-Purpose Tool Kit for Entrepreneurs.