I’ve founded, managed, and consulted to small businesses in all shapes and sizes over the years. One common item that entrepreneurs struggle with is how to maintain the same drive and sense of urgency that the entrepreneur and business owner has. After all, we poured blood, sweat and tears into our businesses and risked it all to pursue that dream, so surely our employees will share our same sense of focus and discipline as our business becomes more successful, right?
Unfortunately, that’s usually not the case. To add insult to injury, most small business training courses and Small Business Administration workshops won’t cover this important topic. Here are a few reasons why it’s not common to see 100% alignment between you as the entrepreneur and your employees:
- They weren’t there from the start. Most employees aren’t with you from day one and came on board after the business achieved a certain level of success, so they didn’t necessarily see you struggle through the leanest times.
- Running a small business can look easy. The best entrepreneurs make running a business look easy, even though it’s not. When employees join a successful small business that is operating well, they tend to assume that being a small business owner is in fact an easy job.
- Most have never owned a small business. It’s impossible to understand how hard it is to start and grow a business unless you have done it in the past. A majority of employees you hire will have never started or owned a business of their own.
- Unfortunately, the sad reality is that many employees – no matter how great they may be otherwise – have a sense of entitlement. They are used to receiving a guaranteed salary and will never be as willing to risk their income or savings as you are.
- Economic misalignment. Unless you are willing to make each employee an equal partner in the business – which most of us aren’t – they will never be 100% aligned with your economic success, simply because it’s not “their money” at stake.
The last point may be the biggest challenge to overcome. As outlined in the excellent book Freakonomics by Stephen Dubner and Steven Levitt, a study of realtors showed that they were much more likely to command higher prices for their own homes than they were for their clients. The reason? They only receive approximately 5% of your sales prices, whereas you receive an overwhelming majority of it, so they are more incentivized to sell fast than to sell more profitably. It’s simply not worth the extra $10,000 sales price (only $500 less commission) on a $300,000 house ($15,000 total commission). In other words, why hold out for the extra $500 when you can have $15,000 by closing the deal right now?
This same dynamic is inherent in many employee relationships as well. The good news is that there are a number of things that we can do as small business owners to ensure our employees are “staying hungry” along the way:
Cut them in on the action. Although individual employees will never have the same potential upside or take on the risk that goes along with it, sharing profits with them can be a very powerful first step. A powerful second step, if you’re so inclined, is to share equity in your company. You by no means have to give up a majority of profit or equity, but something as small as 10% or 20% to share among employees will most likely return more dividends that outweigh the costs. The more people that are sharing in the risk and success of the company, the more momentum you will create for them to help achieve your vision.
Set and adhere to budgets. It may sound like corporate, big business red tape, but setting a budget based on your forecasted revenue is a good way to contain spending and set internal expectations. Specific budgetary rules, such as “we will spend no more than 3% of our revenue on marketing, has the added effect of depersonalizing the need for everyone in the company to keep an eye on costs. It becomes less about you saying “no” to some expenditures and more about the business rules that lead to those conclusions.
Share stories about the past. We as entrepreneurs are typically more focused on the future. After all, it’s a lot more exciting to create a vision for where we are headed and how we will get there than to relive the ups and downs of how we got to where we are. However, I have found that storytelling can have a very powerful impact on people’s understanding of what it means to be part of a small business. If you ever had to max out your credit cards, almost lost your house in the early years, had your first employee defect to a competitor along with your intellectual property, and had other battle wounds along the way, why not share those stories with your team? It may feel a bit embarrassing in hindsight, but it will help most employees appreciate and understand where you came from.
Stay hungry on a personal level – at least on the surface. There’s nothing wrong with living whatever lifestyle you want as you become more successful. You take on all the risk of your company, so you might as well enjoy the upside. However, talking too much your two-week trip to France or your sweet new 10,000 square foot house will typically alienate employees and further fuel some of the issues described above. It may seem like a minor thing, but downplaying your financial success when you achieve it – while at the same time emphasizing the financial successes of your employee base – can help mitigate this risk.
You want your business and employees to be successful, but in order to get there, you need your employees to be nimble, disciplined, and hungry when appropriate. The above recommendations are just a few ways to get there.