Allen Walton, 27, lives a life many Americans can only dream of: He is on track for seven-figure revenue in a business that has been a one-man show until very recently, when fast-growth made it necessary to hire someone to answer the phones. Walton manages his year-old online store, SpyGuySecurity.com, from his home in the Dallas area, where he lives with his wife, Karen.
He’s not a graduate of an elite business school. “I was a high school failure,” says Walton. “I had a 2.9 GPA.” Before starting the business, he worked in a security camera store for $11 an hour. But he was a quick study of the spy-camera business and tapped what he learned create a store that sells about 100 products he is confident his customers want.
Walton is part of an exciting trend in the U.S economy: the growth of ultra-lean businesses that are hitting and exceeding $1 million in revenue at a stage when they have no employees other than the owners.
According to new statistics released by the U.S. Census Bureau, there were 30,174 “nonemployer” firms that brought in $1 million to $2,499,999 in 2013. That’s up from 29,494 in 2012 and 26,744 in 2011.
And there are many more nonemployer businesses getting close to the $1 million mark. In 2013, there were 221,815 bringing in $500,000 to $999,999, a number that held steady since 2012.
What’s driving their success? One factor is the growth of the internet, which has enabled individual entrepreneurs to plunge into a vast, global marketplace cheaply and quickly. “It’s provided a whole set of capabilities and tools these entrepreneurs can access,” says Andrew Karpie, a principal analyst at the Research Platform in San Francisco, who studies online platforms used in the labor area.
But it also reflects a shift in attitudes. Rather than adopt Henry Ford-era business models, where scaling up depends on hiring legions of employees, these entrepreneurs travel light. When they need to expand their individual capabilities, they generally rely on contractors such as web designers or firms that handle outsourced functions, like billing. As their businesses grow, so do those of the contractors they hire. Some find that creates a more positive, egalitarian relationship than many managers have with employees.
Ask Dan Mezheritsky, 29, founder and President of Fitness on the Go, an in-home personal training franchise based in Vancouver, Canada. “ I realized how much more contractors and entrepreneurs are willing to do a better job for you,” says Mezheritsky. ”They are trying to help your business–and grow theirs, as opposed to an employee who is just there for a paycheck.”
Some of these million-dollar businesses are inspired by writers such as outsourcing guru Tim Ferriss, author of The 4-Hour Workweek, and MJ DeMarco, author of The Millionaire Fastlane—whose book on entrepreneurship Walton says changed his life. “It trains you to shift the way your brain thinks from a consumer mindset—“I’m going to spend all this money I don’t have” — to a producer mindset, where you provide value to other people and in return become valuable,” he says.
Of course, $1 million in revenue does not translate to $1 million in take-home pay. These folks have overhead and pay taxes, like any business owner. But they are doing something that many solo entrepreneurs can learn from: Maximizing the earning potential of their tiny businesses in creative ways, so they have freedom from the financial pressure many free agents feel.
This is the third year I am reporting on the growth of million-dollar nonemployer businesses. Many readers have been curious about who the entrepreneurs are behind these firms and what kind of work they do. Here are the stories of Walton and three others who hit the million dollar mark or were on track to do so while still operating as solo entrepreneurs. Some of these entrepreneurs eventually grew their businesses to the point that it made sense to try a traditional employer model. Others are still their firm’s only employee. If you want to start your own ultra-lean, million-dollar business, they have some interesting insights to share.
Allen Walton, age 27, founder of SpyGuySecurity.com, Dallas, Texas area
Allen Walton fell into selling spy cameras by accident. After attending community college for a couple of years, he needed a job. His mother noticed a local security-camera store was hiring. “My mom walked into the store,” recalls Walton, then 21. “It had a help wanted sign. She got me an application and told me I had to fill it out.”
He got the job, but eventually got tired of working there and decided to strike out on his own. Toying with the idea of opening an online store, he read books on topics like online marketing, includingUltimate Guide to Google GOOGL -0.29% Adwords by Perry Marshall,Google Adwords for Dummies and Ultimate Guide to Pay-Per-Click Advertising by Richard Stokes. “If you want to be an entrepreneur and succeed, you’re going to have to crack open books about things you never thought you’d read,” he says. Then he took $1,000 he’d saved to build his own spy camera shop on the web, going into business in May 2014.
Fortunately, Walton had learned a lot about picking the right inventory from the years he spent selling cameras and other gadgets at the store. “I know from talking with them face to face and hearing about their situations,” he says. “I know exactly what products they want and what they are using them for.” Walton estimates he sunk $7,000 to $10,000 into inventory when he first started.
Thanks to his Google Adwords campaigns, his store SpyGuySecurity.com picked up customers quickly. He says they range from the U.S. Army to parents who want to make sure children with autism are not being abused by caregivers.
Walton built the business to its current level of revenue on his own and never had a plan to hire employees. But he realized that money was flying out the door when he wasn’t available to answer the phones while eating lunch at an In-N-Out Burger restaurant with his father. He’d forgotten to log out of his customer service chat system—and ended up closing $2,000 sale that came in. “I looked at how many phone calls I was missing,” he says. “I was only answering 30%.” Walton hired a friend who mans the phone and the site’s live chat as a W-2 employee in March. He also contracts with a marketing firm.
His advice to other want-to-be internet retailers? “Be a sponge for the sort of knowledge that will make you wealthy,” he says. Whether that has meant reading a book on writing product descriptions or studying master salesmen in action, he’s willing, because he knows it will help him grow his business.
Dan Mezheritsky, 29, founder and President of Fitness on the Go, an in-home personal training franchise,Vancouver, Canada
As a junior national champion decathlete in Canada, Mezheritsky tore his hamstring at age 20 at the Canadian Olympic trials. “Having to go through a lot of rehab, I learned a lot about the body, but after a tear like that, it wasn’t really possible to compete,” he says. Mezheritsky decided to become a personal trainer but wanted to accomplish more than he could as a solo operator.
In 2005, he started Fitness on the Go in Vancouver where he hired other personal trainers as employees. Within the first three years he sold $1.5 million worth of training, he says.
But working with the employees was frustrating. He didn’t find them to be particularly motivated to help him grow the business. “The personal trainers would build a very good relationship with the customer,” says Mezheritsky. “What that led to was the personal trainer or customer proposing a side deal. If the trainer was being paid $20, and customer was paying $60 they would agree to $40, cut Fitness on the Go of the equation and work on their own.”
Sometimes trainers were unprofessional in other ways. One trainer asked to use the washroom at a customer’s house—and took a shower. “She comes out dressed up to go out for a Friday night,” says Mezheritsky. “The customer calls us and says `What is this?!’”
Mezheritsky got so frustrated that he almost bailed. “After six years in business I was ready to throw the business away,” he says. Then he asked himself a question: Why was he sticking to a business model built on hiring employees? The real estate industry, he noticed, was operating successfully with a different model, where a parent company would license brokerages to independent owners.
He decided to start over, but this time using a franchise model. Starting June 1, 2012, in what might be considered the rebirth of his business, he began licensing the right to use the company’s brand name to individual trainers. “A lot of personal trainers would love to be entrepreneurs,” he says. The trainers pay $400 a month. He, in turn, provides support with aspects of the business such as management, educational assistance and back-end infrastructure. The business has 10 franchise partners in territories with a population of 500,000 or more, who recruit and manage trainers in their area. About 40 of the trainers are managed by headquarters, rather than by the franchisees.
So far, his model has been working. The business has grown to the point that it has 126 personal trainers in Canada and is on track to break $4 million in system-wide revenues this year. At his corporate headquarters, where he is still the only worker, he projects $1.2 million, with about a quarter of that in profit. His secret to growing the business without formal employees is a customized software to automate may functions, in which he has invested more than $250,000 over time. For instance, the software enables clients to log into the company’s computer system and see the homework their trainers have assigned.
In retrospect, Mezheritsky realizes that under the traditional model of hiring employees, turning a profit meant creating a “negative lifestyle” for employees. He couldn’t pay them a salary that would really motivate them or get them invested in the company’s success. “Maybe the top trainer was making $35,000 a year,” he says. As a result, employees were driven to show up mainly to collect a paycheck.
In his new model, his interests and those of his trainers are aligned. Because he makes money from the recurring fees the trainers pay him, he’s highly incentivized to help them succeed and keep them part of his brand. And they are extremely motivated to grow their businesses, because they are the ones who make more money when they do.
“Not only are we attracting people I could never have attracted as an employee, but they’re paying us $400 a month to provide those services for them,” he says. “They are making about $60,000—a very good living.” And the overall vibe of the business is better. “Everyone is here because they want to be,” he says.
Rachel Charlupski, founder, The Babysitting Company, 30, New York City, South Florida and Los Angeles
Studying journalism and mass communication at Arizona State University, Rachel Charlupski began approaching hotels in Phoenix to offer babysitting services to the guests to make extra money. The demand was high, so she soon began recruiting other babysitters who were at least 18 years old—from ballet dancers to college students. To find sitters she could trust, she screened them in an extensive interview process and required them to spend three hours of shadowing a current babysitter.
As the company’s reputation grew, she expanded to babysitting in other settings, from weddings to professional sports events, where her sitters care for the families of team members and coaches.
Since starting the business in 2005, she has built a network of 1,500 babysitters. She projects revenues over $1 million this year at the profitable company. It now has offices in 13 cities. “It just happened organically,” she says. One tool that’s helped her operate the business efficiently is a basic one: the mobile phone. “Just being able to text our babysitters to have someone for an assignment is really great,” she says.
Charlupski hesitates to describe her business as a one-person venture, because she could not have built it without her sitters–and she has a point. But until very recently, she has been the only employee. The sitters are all contractors. In September 2014, she hired her brother Cory as an employee to take care of business matters like contracts and working with her insurance company.
Charlupski’s decision to scale the business by using contractors, rather than employees, reflects her past experiences. “I’ve hired people before and ended up doing their work,” she says. When she has needed help with tasks like social media and marketing, she has turned to outside contractors, some of whom are babysitters in her network, as well. “I’ve realized I can’t do everything,” she says.
Peter Leeds, 41, CEO of PeterLeeds.com, Toronto and Dauphin Island, Ala.
When Peter Leeds first started investing at age 14, he says, “I lost all my money in two weeks.” But he was determined to learn how to do it and through trial and error, figured out how to make money from penny stock investing.
He was so good at it that he started a business that now publishes a newsletter, Peter Leeds Express, focused on his thoughts and theories on investing. Along the way, he wrote two books Penny Stocks for Dummies and Invest in Penny Stocks. “It’s all automated,” he says. “I don’t need to be there 24 hours a day, staring at the screen.”
Today, his business is on track to bring in more than $1 million revenue per year. “Once you get it going, it’s like getting an airplane to cruising altitude,” he says.
Leeds has been a solo entrepreneur in the past but currently has three employees. “I have plenty of room for more people, but I don’t want the company to be dependent on as many as 10 or 15,” he says.
Leeds was diagnosed with multiple sclerosis in 2005. Sometimes, he has trouble walking, but has so far managed to slow the progression of his symptoms by carefully monitoring his diet and using alternative treatments, such as vitamins. He runs a site called PetersPromise, where he shares what he has learned about preserving his health.
“It’s been a blessing in disguise that I was an entrepreneur,” says Leeds. “I could not be a firefighter or police officer or construction worker. If I had been, I would have been unemployed.”
Although it might seem stressful to run a business while managing a serious health condition, Leeds finds that the situation is quite the opposite. “It’s a place where I can feel in control,” says Leeds. “With my health I’m not in control of it.”
Leeds says his experiences have reminded him of what is truly important. He could drive a fancy sports car, but he prefers a beat-up pickup truck. Keeping the business at the size it is now lets the father of three live the life he wants.
“I can try to go on the treadmill and make millions,” he says, “but how much is enough? You need enough for yourself and your family. That’s the beauty of entrepreneurship. You don’t have someone whipping you in the back. You do what’s good for you—and you stop when you want to stop.”
Via: Elaine Pofeldt at Forbes.com