To Change Your Business Simply Change The Way You Pay Yourself

One of the biggest mistakes small business owners make is they think that since now they have their own business, all they have to do is "the work that they love". And because they are usually very good it (not by their own admission, but by all of the people that know of their work), they think their business will grow and thrive like no other.

Oooh, I'm sorry to say, NOTHING could be further from the truth. Running a business is much more than that.

And there are two types of business owners . . .

Those that know this to be true.

And those that will soon find out.

You see, when you own a business, you no longer get paid to do what you love to do . . . Instead you actually get paid for selling your business and your products to your potential customers.

As an Entrepreneur, getting to do the work you love to do
is actually the reward for generating sales.

Not the other way around!

Sounds crazy, I know. But understanding this point could be the difference between success and failure of your business.

You see, we're all human and we will naturally do more of what we get rewarded for (or what we think we are getting rewarded for). So if you think you are being rewarded for delivering your product and not for the sale, then you will always want to do more of the fun work (what you love to do) and less of the difficult labor of sales and marketing (what you dislike the most and usually know the least about as a small business owner).

As an Entrepreneur, your NUMBER ONE job just is actually getting customers to choose you . . . not producing the product. You can only if and only if new customers choose you. And the problem is thinking about your business any other way is actually detrimental to the long term success of your business.

How do you change this mindset?

Believe it or not . . . it's simple. Start paying yourself to produce customers instead of producing product. Don't compensate based on production, compensate based on marketing and sales.

Build systems and a culture into your business that is based upon this model - it will carry over to your employees and serve you well for years to come - as you grow your business bigger and bigger.

Does it change what you get paid? Probably not. But making small changes in attitude and language can make all the difference - knowing (in your heart) that you earned the money from the sale, will drive you to make more sales. And hence grow your business.

Bottom line is that if you want to grow your business, you have to stop thinking like an employees and start thinking like an Entrepreneur. And Entrepreneurs making money selling, not producing. So rather than paying yourself to produce the product you have always produced, start paying yourself for generating new business.

With Employees, Reward The Behavior You Want

Whether your business is large or small, if you have employees, you probably struggle with productivity. A recent blog on Small Business CEO called "Offering New Employees Incentive Pay Instead of Large Salaries" brings up the ever important topic, How do you compensate your employees so that they work for you, are committed to you and are motivated to do the work that is important to the success of your business?

Believe it or not, the answer is simple. But with most simple answers, the implementation is the gotcha. The answer is to reward the behavior and results you want from your employees.

It doesn't matter at what level of your business your employees are, their compensation should be directly tied to the results and / or behavior you want. From the Janitor to the CEO - everyone should be rewarded based on production - not just effort. And definitely not for just showing up every day.

Sure, if you want someone to just occupy a chair (answer phone calls / man a desk) for a certain number of hours per day, and don't care what they do when they are there, then pay them an hourly wage or even a salary. But if you want them to actually do things that are important to the success of your business then reward them for what you want done - not for showing up.

Don't kid yourself though, this is a very scary concept for both you, as the business owner, and your employees. And it requires a lot of work. For you, as the employer / manager, you will need to take the time to figure out what you want and how to measure it, as well as how to compensate it. And for your employees, they most likely have never been held accountable for their work like this before and will be initially resistant to the idea.

Truth is, almost all employees would much rather continue to get paid just for showing up and doing what you tell them to do, than have their pay be dependent on the level or quality of their work. But that's what you are doing now - and if you are like most business owners / managers, it's not working for you.

I know in the current economic and social climate, with words like this, I might be calling for a lynch mob. But to be honest with you - when you build accountability into your compensation system and reward the behaviors that you desire in an employee two things happen:

1. You increase the production of your employees while often decreasing the need for excessive management oversight
2. You share with your employees the fruits of their labor. Literally you build a band of Entrepreneurial-Minded employees.

In order to implement these ideas, there are two things that you must do:

1. Figure out WHAT you want to reward.
2. Decide HOW to reward it.

So first we start with "WHAT" to reward. And that means writing Job Descriptions - Roles, Responsibilities and Goals for every position in your business. And yes, I know nobody wants to do this - as it is one of the most difficult things you will ever do as a manager / business owner. But, in spite of the hard work involved, I've got some good news for you, when you are done writing the job description with the help of your employees (as much as possible), you will literally be amazed at what happens. The work that you say you want to get done, will get done. And most likely they will be happier and more committed than you have ever seen them before.

Truth is, in the absence of a job description or your direction, employees will begin to do what they think they need to do. This isn't a bad thing, but it's rarely exactly what you want done. So don't leave things to chance - figure out what you want done, what you want them to do, and make it happen.

Second, in the process, is HOW you are going to compensate for accomplishing what the job description says for the your employees to do.

Traditional pay is usually built around one of three models: hourly, salary, or commission. None of these pay systems are bad, per se. However, you are getting what you pay for.

- In the case of hourly wages, you get hours. Production requires continuous management.
- In the case of salaried employees, you are paying someone to be there when you need them and to do a job, but whether they do it well or not, they still get paid. Again production requires continuous management - or a very well laid out plan.
- In the case of commission, you get results - but only exactly where you define them. But what you don't get is any form of allegiance to the business - because the employees are pretty much working for themselves.

I believe the answer is the blend of the compensation methods - a compensation system where the employee gets a base salary (I recommend 50% of target average income), including some form of benefits, plus some form of "results-based compensation" that is attached to their goals. And as they begin to produce what is required of them, they earn more and more - often with no limits, except their own ingenuity and hard work.

With this form of compensation, you are doing three things. First, you are demonstrating a level of commitment from the company to the employee by giving them a salary that they can count on (even though they won't be able to live on it). Second you are giving them incentive to do the work that you want done, minimizing the "oversight" of constant management - literally the compensation has built in accountability. And finally if they decide to produce more than is expected of them, they have the ability to take home an even higher salary, as they benefit with you in the profits of their labor.

So, if you are tired of struggling with idea of either being a micro-manager or not getting the productivity that you want and / or need, then think about doing something a bit different - think about rewarding the behavior and results that you want from your employees.