From idea to replacing full-time salary in 4 months • Hacker News Board

Re: From idea to replacing full-time salary in 4 months

#91

Post by tptacek » Mon, Apr 16, 2012, 2:34 PM UTC

patio11 wrote: post #18

dangrossman wrote: post #10

Earlier quoted context omitted.

I haven't read every comment he's made yet, but skimmed many of them... Why can't they be contractors? He said they're providing their own transportation and supplies. So he's just handing them clients and appointments, and a checklist of cleaning tasks to complete and a few limitations on the supplies used. Isn't that analogous to handing a contracted software developer a requirements document and a deadline?

You'd have to squint an awful lot for the evaluation to fall out that way. I'm a contracted software dev. I'm going to run down a list of questions from the IRS. Mentally score which ones sound like a cleaning laborer. I have business cards, a personal website, and a professional reputation. My clients ask for me by name. I do not submit applications. I do not respond to advertisements of employment. I often have dis…

Fun fact: if you go out of your way to staff "new" contractors with experienced "old" contractors, that can be considered "training".

Re: From idea to replacing full-time salary in 4 months

#92

Post by yeureka » Mon, Apr 16, 2012, 2:34 PM UTC

My mom started a cleaning business some time ago. I wanted to try Javascript and promote her business so I wrote a quote calculator that takes into account number of rooms, number of bathrooms, area size, etc...

(shameless plug) If you understand portuguese have a go at:

http://abelhinha.net/calculadora.html

Re: From idea to replacing full-time salary in 4 months

#93

Post by DanielBMarkham » Mon, Apr 16, 2012, 2:37 PM UTC

tptacek wrote: post #87

DanielBMarkham wrote: post #82

Earlier quoted context omitted.

I'm unable to address this, as I'm not sure what you mean. I was simply saying that from his vantage point, hooking up customers and vendors who were already in the market can be a valid business model. I believe you are talking about bringing new people into the market as vendors and then treating them poorly. Hopefully we can agree that folks that are already doing cleaning can continue doing it just using this guy…

Someone is paying FICA taxes. If the maids are 1099 employees, they're paying both halves of it. That's "self-employment tax". It's very expensive; around twice what employees pay. The prevailing rate right now for "qualified" housekeepers in the DC metro area is $9.80/hr. Even if he's "generously" giving them $20/hr (if a 1bdr apartment takes 2 people 1 hour to clean, then according to his price list that means he's…

Someone is paying FICA taxes.

I think you're arguing semantics here. Yes, everybody pays FICA, but for most people who are working their own business at a lower income FICA is offset such that no taxes are owed at the end of the year. So while you "pay it", it's not like that means much (insert long discussion here about complex tax systems)

Even if he's "generously" giving them

He doesn't have to give them anything.

I don't understand how you can separate "being subversive" from a discussion of the underlying business model. It looks to me like you're weaseling out, but that's fine. My point was that you must assume some kind of risk -- many times a bushel barrel of risk -- when you are poor and just getting started. It wasn't about labor laws. And whenever you assume risk, there's going to be a bunch of characters coming out of the woodwork telling you how stupid you are for taking on that risk.

As far as the model discussion, I think we've reached the point of diminishing returns. Although you've re-phrased yourself, it appears to me that you are describing some political argument and I am simply talking about business opportunities. I don't think you're ever going to be able to see this business model as anything but exploitative. I think once we mention the words "cleaner" or "lawn care" it sets off a pre-canned argument, probably involving immigrants and such, so this guy really never had much of a chance for positive feedback. Thanks for the chat! Seems like we always get hung up on self-employment, huh? Maybe one day I'll do a good enough job explaining myself that it will click.

Re: From idea to replacing full-time salary in 4 months

#94

Post by mtrimpe » Mon, Apr 16, 2012, 2:37 PM UTC

edw519 wrote: post #53

This time next year on reddit: "From working my ass off 90 hours per week running a business that wouldn't scale to nice salary/benefits for 40 hours. I'm taking home the same net and I feel like I'm on vacation." I don't want to sound too snarky and I really admire OP's initiative and ability to make things happen, but this just doesn't smell right. It's easy to get excited by nice revenue in the beginning (as he sh…

Isn't the real message here that we shouldn't forget that many of us startup geeks can completely out-design and -SEO virtually any local service provider out there and that there might just be big money in doing so?

It is indeed important for him to realize that he'll be 'just an another agency' though and needs to start acting like one.

That doesn't negate the fact that a properly-SEO'd site which outperforms local agencies can be tremendously valuable and achievable.

Re: From idea to replacing full-time salary in 4 months

#95

Post by achompas » Mon, Apr 16, 2012, 2:43 PM UTC

asmithmd1 wrote: post #71

tbergeron wrote: post #64

Earlier quoted context omitted.

I understand the train of thought you're having. It may not be the best kind of business scaling-wise but if done right he could open some more somewhere else and horizontally scale that way. Everything can be scalable when pushed into the right direction. More branches = more employees = almost automatic administration = more money. Those are only my opinions, therefore not facts.

Another point why this result may not be typical of attempts to duplicate this business in other parts of the country is that he is doing this in Washington DC, the epicenter of where cash is being artificially injected into the economy by defecit spending. Silicon Valley, DC, and NYC exist in a different world from the rest of the US

You're right about DC having a regional effect, but wrong about "cash being artificially injected," especially since deficit spending has very little impact on DC's economy (think lobbying and consulting).

I lived in DC for a few years and there's a strong work + happy hour culture for young professionals. It's pretty standard to hit the bar after work and get home at 9-10pm on any weeknight.

The result: a group of tired young professionals who have zero desire to clean up their apartments.

Re: From idea to replacing full-time salary in 4 months

#96

Post by cdmoyer » Mon, Apr 16, 2012, 2:52 PM UTC

tptacek wrote: post #87

DanielBMarkham wrote: post #82

Earlier quoted context omitted.

I'm unable to address this, as I'm not sure what you mean. I was simply saying that from his vantage point, hooking up customers and vendors who were already in the market can be a valid business model. I believe you are talking about bringing new people into the market as vendors and then treating them poorly. Hopefully we can agree that folks that are already doing cleaning can continue doing it just using this guy…

Someone is paying FICA taxes. If the maids are 1099 employees, they're paying both halves of it. That's "self-employment tax". It's very expensive; around twice what employees pay. The prevailing rate right now for "qualified" housekeepers in the DC metro area is $9.80/hr. Even if he's "generously" giving them $20/hr (if a 1bdr apartment takes 2 people 1 hour to clean, then according to his price list that means he's…

I understand your concerns here, but I'm also wondering about the 8k figure. Isn't it closer to 3k? (1.45% medicare and 6.2% SS?)

I'd be interested in more background on the industry. My experience is that, exempting cleaners hired by large offices, most cleaners are working under the table or for small firms. The small firms seem to be doing 1099s as well, I know a friend in that situation complaining specifically about the taxes.

So, I do wonder whether this guy is just doing business as usual. Well, actually, not as normal since he (claims to be) issuing tax paperwork (1099s).

If he's misclassified them, the onus will be on him to pay the taxes he didn't pay, and they will have a good case to sue for missed benefits.

Where people typically get screwed in the 1099 scenario is when they receive their first 1099. Most people are used to getting a tax return, not a bill. But, and here's where I have no insight, if he's being honest and up front with his workers, I don't see an issue. I've been on the receiving end of the 1099 conversation several times and never felt cheated, "So you understand, you are not an employee, you are responsible to paying all your own taxes, saving for tax time, your own benefits, etc."

Edit: I also want to state, I still think there are probably ethical/moral issues here. I just don't think that FICA is the issue. I think the reality is that most people vastly underestimate the value of benefits. Most people don't save up for the week or month or more that they are sick or injured and can't earn. They don't prioritize health insurance or save for retirement. People tend to associate these things with "having a job" and I don't know that many people are well-versed in the difference between employment and contracting. (At least from my middle class suburban upbringing.)

Re: From idea to replacing full-time salary in 4 months

#97

Post by bhousel » Mon, Apr 16, 2012, 2:53 PM UTC

tptacek wrote: post #76

He's not withholding. Chances are good his workers aren't paying taxes either. According to the manual the IRS uses to train its worker classification auditors, the three most important factors are: Instructions to workers: Your worker is probably an employee if you require him or her to follow instructions on when, where, and how work is to be done. This is a very important factor. However, if you tell your electric…

You are correct that the maids are employees, but since he only just started this business, it seems like a very fixable problem to convert them to employees.

I ran some numbers on a free paycheck calculator site (paycheckcity.com) and assuming the following: Washington DC, wage of $20/hr, 30 hrs/week, married (2 exemptions), the numbers come out to:

  Weekly Gross Pay      $600.00
  Federal Withholding   $29.81
  Social Security       $25.20
  Medicare              $8.70
  Washington DC (ouch)  $28.00
  ---
  Net Pay               $508.29

So, he might need to set aside $100/employee/week.. The taxes aren't necessarily a business-killer.

Re: From idea to replacing full-time salary in 4 months

#98

Post by grimatongueworm » Mon, Apr 16, 2012, 2:54 PM UTC

edw519 wrote: post #53

This time next year on reddit: "From working my ass off 90 hours per week running a business that wouldn't scale to nice salary/benefits for 40 hours. I'm taking home the same net and I feel like I'm on vacation." I don't want to sound too snarky and I really admire OP's initiative and ability to make things happen, but this just doesn't smell right. It's easy to get excited by nice revenue in the beginning (as he sh…

Does it have to scale to national or global size? No. The guy covers a sizeable metropolitan area with an abundant potential client base. Does he have to scale up to 500 employees? No. He can keep his business small and profitable.

Re: From idea to replacing full-time salary in 4 months

#99

Post by ma2rten » Mon, Apr 16, 2012, 2:57 PM UTC

edw519 wrote: post #53

This time next year on reddit: "From working my ass off 90 hours per week running a business that wouldn't scale to nice salary/benefits for 40 hours. I'm taking home the same net and I feel like I'm on vacation." I don't want to sound too snarky and I really admire OP's initiative and ability to make things happen, but this just doesn't smell right. It's easy to get excited by nice revenue in the beginning (as he sh…

I does not scale well compared to what? I might scale poorly compared to your average social network silicon valley mobile app startup, but it scales well compared to any other small business. He does not need a physical space and there are almost no other fixed costs. Also I feel he is using his "computer skills" to gain a competitive advantage by doing SEO and he also has an original brand. If he was able to replace his full time job in 4 month, he should be able to grow enough in a year time to hire someone to do most of the annoying administrative work for him.

Sure building a photo app and selling to Facebook would be cooler. I guess everyone has to figure out for themselves what they want from life.

Re: From idea to replacing full-time salary in 4 months

#100

Post by mdda » Mon, Apr 16, 2012, 3:06 PM UTC

pbhjpbhj wrote: post #52

turkeyman wrote: post #39

Earlier quoted context omitted.

That seems like it would just delay the inevitable, he needs to find competent cleaners that are unwilling to strike out on their own. If he manages to keep the cleaners as contractors, then his future will be absolutedomestics.com.au. They have done incredibly well for themselves and have set themselves up exactly as this guy has. I'm thinking it must be more profitable making a decent profit while losing clients an…

> competent cleaners that are unwilling to strike out on their own // Or get his subcontractors (ie the cleaners themselves) to accept a non-compete, possibly with a specific figure attached should they jump ship.

Or get the people who need their places cleaned to include a non-circumvention clause as part of their initial signing up.