Why do we hire people? As an entrepreneur, it should fundamentally be to increase profit. If a job’s output is less than its input, then that job is eating your profits.
This is the fundamental tenet of sustainability. Anything that needs more energy than it puts out will eventually die.
As a business owner, profit should be a critical metric on your dashboard. (Otherwise why are you in business?) It’s obviously a financial measure, but we could also supplement it with other dashboard indicators, like customer retention, quality, social impact etc. But ultimately these all lead to profits.
Whatever your preferred metric, do you know how each person you’ve hired adds value versus deducts from your profits?
It might be easier to answer this in a small businesses. It’s more likely that one or two dozen people will know what everyone is doing and share accountability than in a company of 20,000 people.
That being said, though, I’ve yet to meet a small business owner who can readily answer how each job in the business affects profits.
The inability to model a role’s value to the organisation’s strategic imperatives is, I believe, a fundamental reason why managers make marginal hiring decisions and why businesses ultimately fail.
It’s most noticeable in big organisations. Think government! The bigger the business, the easier it is for mediocrity to shelter in the shadows, sucking value from the system.
Of course, it’s easy to see how a sales job adds to revenue, or how a quality controller saves costs. But think beyond the individual: if teams succeed due to synergy, do you know how to attribute profits to that team’s effectiveness?
On what basis do you make hiring decisions? If you can’t model how a job—or a team or department—increases revenue or reduces costs, how do you know that job adds more value than it takes?
If you’re a small business owner planning on growth, now is the time to get clear on how each job influences profits. Do it before indifference calcifies. Model it. Quantify it. Talk about it. Make it part of the culture and everyday conversation.
If your people can’t clearly describe how their role adds to profits, don’t expect to stay in business for too long.