At a seminar I presented to business owners, a delegate told me that he discovered that one of his employees had cost him at least ten times what he paid her.
- I had been telling my audience to incentivize all earnings…
- and to link every cent earned to five cents generated in profits.
I told them that paying someone a fixed salary was not just stupid, but dangerous to one’s financial health.
Here’s his story, which adequately makes my point:
He had employed a middle-aged man whom he met at his church, and for whom he “felt sorry”, to “give him another chance”, at an above-average salary. Lots of red flags right there, but I digress.
Naturally, this “grateful” fellow promised to be the best employee he had ever had, and he went to work.
The business generated a lot of profit from back-end income, Joint Ventures, investments, and the like, and an important part of the duties of this employee was follow-up.
What the business owner didn’t understand was that he was dealing with an employee whose highest priority was to keep his job, not to create additional profit for the business. And that’s where he had made his mistake.
Why the Employee Mentality is Poison to Your Balance Sheet
The employee went through the motions of calling, closing, following up, and providing information, and completed all the required control and time sheets, but he was simply doing a job -
- he had no passion for profit or understanding of business,
- and he didn’t understand why his employer might want to make so much more money – after all, didn’t he have enough already?
His was a collectivist, altruistic, mystical philosophy, which was why he had never made money himself, and that philosophy is like poison to any balance sheet.
The Results Speak for Themselves
When the employer started getting phone calls and letters from his Joint Venture partners, his downline, his suppliers, and his customers, he started to put two and two together. He found that many of his valued customers had moved to his competition, where they got better services, more information, and more value from people who actually benefited directly from their patronage.
This employee had a lackluster, mediocre attitude when his boss wasn’t around, and we have all been exposed to that.
He realized that his lost opportunities, missed sales, lost customers, and diminished transaction values had conservatively cost him ten times what he had paid the loser that he should never have hired for that job in the first place.
The Moral(s) to the Story
An employee:
- Does the least and expects the most.
- Tells you exactly what you want to hear, and, like a politician, will bend the rules and overlook anything in order to keep his or her job.
- If they don’t receive a significant piece of new business, sales, or profits that they are responsible for generating, why should they bother? Where’s the passion and commitment?
- Their real agenda is far from that of the entrepreneur. They have no vested interest in the success or growth of the business, and they are in fact paid slaves or mercenaries. They are not capitalists.
- They will leave you for $100 per month increase, and you will never be able to pay them enough to secure their loyalty or commitment.
- A disgruntled employee can sabotage your business and reputation, and use the courts to hurt you.
- There’s a thin line between love and hate, and you tend to give your employees lots of information which they can use against you when they feel like it.
Create Overlap
Smart entrepreneurs work on creating a vested interest for people with whom they work, which we call “Overlap”. They remove the risk from their own business and force their employees to take responsibility for their duties and choices through financial incentives and commissions. They fire salaried people and rehire them on a commission only basis – no base salary, no leverage on the company except their ability to perform and produce, and no place for hidden agendas.
If that is a new concept for you, read “Atlas Shrugged” by Ayn Rand and examine the concept of Joint Ventures as presented at www.JVWisdom.com.
My Employee Free Business
After 22 years in this business, I run my business with no employees, cost, risk, overhead, or inventory. I can walk away from anyone at any time, everything I earn is 100% profit, and nobody gets to limit or sabotage me for long. Everyone with whom I work is a Joint Venture partner.
Audit Your Business to See the Truth
Audit what is really going on while the cat is away.
- Take a good, hard look at your employees.
- Shop your own business anonymously.
- Install cameras.
- Record all phone calls “for quality control.”
- Rethink the way you compensate your people, and what you are actually paying them for.
This is especially important for hiring web “masters”, often the most passive-aggressive people around, as well as secretaries, assistants, and office staff. You will find that you are paying far too much for losses, bleeding wounds, theft, and apathy than you should be.
The High Price of Altruism
By the way, when the business owner in this true story fired the loser who cost him so much money, he got sued, and his church excommunicated him for his “sinful and selfish” behavior.
You’re in business to make the maximum after-tax profit, with the least cost, risk, time, and frustration. Remember that.
