Last month, the CLM Blog was basically an essay on culture, and specifically on identifying and nurturing those things that make your business special, inspirational, or even unique.
Today, we offer some further thoughts on how your business culture impacts your financial results. In the media, in politics, and even among business people, you may observe the idea that business culture and business profits are at odds with each other. But is that really the case? Certainly not – and plenty of examples surround us. Many companies, large and small, have successfully integrated a positive, rewarding, service-oriented culture with a strong commitment to creating value for shareholders.
Remember, business owners: in terms of your business, nothing has changed.This is still a free market economy (Yes! It’s true…well, mostly true). Your number-one priority remains delivering value to your shareholders. Those shareholders might be just you and/or your family. They might include partners or external investors. But they are shareholders, and your primary responsibility is to them.
Jack Ma, the famous founder/CEO of the Chinese conglomerate, Alibaba, once said in an interview that unlike the American capitalist model, at his company they prioritize the “Customer first, Employee second, and Shareholder third.” Now, Jack Ma is a billionaire. He does a lot of things right. Your humble writer, as you might guess, is not a billionaire, and not close to being one. But still. On this, Jack Ma is wrong.
Why is he wrong? Because you cannot go with Customer-Employee-Shareholder forever, in that order. At some point, the business must deliver results. It must have a purpose for existence other than being a provider of things and an employer of people. If there is not enough return on investment, why would anyone take risk? You need profits. The model, in a free economy, must look like this:
You are a good, responsible person – of course, you want to do right by your customers and take care of your employees. Let’s talk about those employees for a minute. What do your employees want? More money? Yes, within reason. Flexible hours? Probably, if possible. But those are not the most important things. The most important thing that employees want – if you are fortunate enough to have really good employees – is to be valued. Value means two equal things: 1) how they are treated and 2) how they are paid. A business that is not profitable cannot, for very long, treat its employees well or pay them well.
Look, one of the reasons that we at CLM push so hard for business owners to develop and maintain robust business forecasts is because those forecasts help us value our employees. By aligning and compartmentalizing our revenues and expenses, a business owner can focus clearly on what segments, locations, and people are profitable in their role, and which ones are not. If you know us, you also know we are huge advocates of performance-based pay. Why? Don’t employees just want to be paid a wage, do their work, and go home, instead of having their time and productivity tracked? In a clerical or purely administrative position, yes. But for anyone in a production-type position (whether you are a service business, a contractor-builder, a manufacturer – anything), developing clear performance metrics for each position is a much fairer way to evaluate an employee and to help that employee control his/her earnings potential. And along with that, if the employee understands how his/her performance is specifically tied to the target profit model of the business, that creates a sense of value.
Your culture impacts how you treat people. So does your financial business model, because defining performance expectations and paying accordingly is fair, transparent, and market-based. Make sure you have a great culture. But don’t stop there. Augment that culture with a great financial model and forecast that ensures value communication throughout your organization.
If you want to talk about it, let us know.