I read that a Walt Disney family member is upset because the CEO of Disney made too much money.  His compensation, like many CEO’s of public companies, was many times the wages paid to the average worker.

I think she is incredibly misguided.

The Disney CEO, like most of his peers, is paid most of his compensation in the form of bonuses for achieving certain results.  In other words, he is paid for performance.  On the other hand, my observation is that most employees in small businesses are paid in large measure on completely different bases.

Recently, we had an employee who requested a salary increase because she “needed” more money.  As business people we’ve all seen this before.  In some businesses that would yield a raise whether it was warranted or not.   Every business person has had the experience of having an employee ask for an increase in compensation because of their time in service.  In fact, most businesses base salary increases on this as a primary decision point. Basing compensation on either of these two things is a mistake.

What if you could pay all employees the same way as the CEO of the Disney company?

You can.  It’s a system called, “pay for performance.”  Paying for performance requires a careful understanding and communication that employees all have a market value.  This is easy to understand in the abstract.  A cashier in a grocery store isn’t “worth” a million dollars a year, for example.  What is a cashier worth?  Only what that individual could receive working somewhere else.  So, supply and demand and accompanying market forces should set compensation rates, and they do in the abstract.

I once had an apartment manager who managed a 40-unit apartment complex in a small town.  When I took over the management of the complex I couldn’t believe his salary!  He was making more than the average manager of complexes six times that size!  That happened because of annual raises that were really based on his having worked there another year.  This is what happens in most small businesses.

If you decide to pay people based on their market value, they only get a raise when the market drives up their value, which it inevitably will over time.  In this kind of system, the employer has to stay on top of market salaries or he’ll turnover as employees leave for more money.  The great benefit though of a rational, market-based compensation plan, is that everyone is paid fairly.

If you then add a performance-based bonus to the salary you create, the same incentive the Disney CEO has exists for all employees.  This is, in my experience, the fairest, most rational, and most motivational way to compensate.  After all, isn’t that how you get paid?

Dan Sullivan of The Strategic Coach program points out that one of the biggest things that stop entrepreneurs from continually growing is what he calls, “the ceiling of complexity.”  This is his description of the phenomenon that every business faces at critical points in growth where what used to work, doesn’t anymore. Or at least, it doesn’t work nearly as well.

This applies to systems, facilities, processes, and people.

The business person who wants to sustain growth over time must always be vigilant to things that slow growth or no longer work as well as they once did to keep moving continuously forward.  Often the thing that holds you isn’t a thing at all, but a human being.

The wise business person is constantly focused on progress and equipping her people to grow their capabilities, but sometimes the people are satisfied.  Sometimes they aren’t capable of growth beyond where they are.  What then?

There are three choices in this situation:

  1. Accept the performance as it is and learn to live with it.
  2. Move the employee to a backwater, or different position if available, and communicate as necessary that they have been moved permanently.
  3. Replace them.

Number two can work, but it’s rare because most people have a very unrealistic idea of their capabilities. The frustration this creates for them, leads to disengagement and increased problems.

Number one is what most businesses do and it’s a growth killer.

Number three is the hardest choice to make because it means disruption of relationships as well as temporary disruption of smooth operations.  However, for a business that wants to keep growing, it is an essential choice.

Think about a professional sports team.  Teams that continually win, and especially those that win championships, are always striving to get better.  An essential part of that effort is replacing good players with better players when they become available.  This is easy to see when looking at a sports team.  After all, that is what a huge part of the programming on sports talk stations and ESPN is focused on.  While it’s easy to see in this situation, it is more difficult in our businesses.

Focusing on the key area of team building is critically important to maintain strong growth over time.

During this year’s annual success celebration, one of our long-time partners told me, with some degree of frustration, that he had just fired an employee that worked for him for 15 years.  He had taken the action regretfully and after making many attempts to salvage the working relationship.  I was empathetic having been in the same situation many times during my career.

In any business, many of the frustrations and challenges that the owner(s) face come from employees.  In times of economic expansion, like we are currently in, they are hard to find at all, and when we do, they tend to be expensive on a relative basis because of the basic law of supply and demand.  In the insurance agency business all of this is aggravated by a rapidly aging workforce and the tremendous training expense to bring a new hire to productivity.

When an employee is underperforming, in this kind of environment, it is very difficult to force yourself to take disciplinary action because like our parents used to say, “this hurts me more than it hurts you!”  I find it useful in cases like this to step back and ask myself what I expect and what is being delivered.  If there is a disconnect, I find that “progressive” discipline or long periods of time for rehabilitation never works.  This sort of approach never seems to do anything except prolong frustration.

In Susan Scott’s book, “Fierce Conversations: Achieving Success at Work & in Life, One Conversation at a Time” she points out how failure to bring a problem directly to an employee with unequivocal consequences for continuing creates all sorts of problems beyond those created directly by the employee.  She also mentions that the squishy way many employers deal with these issues tend to exacerbate them.

Jim Clifton, Chairman of the Gallup Organization, also points out in his book, “The Coming Jobs War” that his research shows disengaged employees are a quantifiable cancer in any organization.  What is a problem employee if not disengaged?

The only answer, and it’s a hard one, is radical surgery.  I find that a fierce conversation, followed by a choice: fix the problem immediately or go, while painful, is ultimately the one that works best.  My colleague’s frustration with letting his long-time employee go was in part the fact that he had tried so hard for so long to avoid the ultimate reality.

On the other hand, especially in the insurance agency business, employees are our greatest asset.  And the development, care, training and encouragement of great employees is our biggest opportunity for growth.  As Clifton also points out, actively engaged employees are three times as productive as those who are not.

Building a successful people business requires confronting the aggravation head on with aggressive pruning and endless nurturing of the keepers!

Recently I described my experience trying to fly a simulated aircraft during training.  As I described it wasn’t pretty and I hoped that the instructor would be merciful and put an end to the sim session.  Instead he calmly said, “fly the plane,” and I was left with no choice but to continue.

When we hit crisis points in our lives, especially in our business, not giving up is the first key to surviving and thriving.

This is a lot easier said than done!  Often when we are pushed to our limit everything inside screams at us to just give up.  And sometimes we do, unfortunately.

Even amid crisis we have a powerful aid that can help us through.

In my sim session, in addition to skill and determination, I had the assistance of a professional pilot sitting next to me.  Did he do anything overt to help me?  Did he encourage me?  Did he give me suggestions of any kind?  No, he didn’t do any of those things.  What he did was sit there and watch.  I think that was among the reasons I made it through.

See, I didn’t want to screw up in front of him.  I didn’t want him to think less of me as a pilot for giving up even though it was just a practice session.  The social pressure of his sitting there watching me was a huge motivator, and I needed that.

All of us have people constantly watching our performance.  We have employees, family, business partners, clients and others who are paying attention.  When we become aware of that, then of course we want to be seen at our best.  That in turn, helps us to be our best!

Most of the time we aren’t consciously aware of the watching, but it’s happening.  When we become aware we can feel pressured, uncomfortable or even resentful.  Or we can turn it to our advantage, embrace it, use it and grow.  It’s a bit like coaching.  No athlete ever performs their very best without help and coaching.  It’s hard for entrepreneurs who are at the head of an organization to receive coaching, but this social pressure, that is very real, can serve that purpose for us if we recognize and embrace it.

I’ve trained in a simulator by myself and with another pilot.  It’s much easier by myself, but I perform much better when there is someone else sitting there.  I encourage you to see the watchers, embrace them and let that drive you to be better!

We all know what integrity is.  I define it as doing what you say you’re going to do.  Personally, I think it is one of the highest virtues.  It is something to aspire to and to try my very best to embody.

Last week I was meeting and catching up with an agency entrepreneur who I hadn’t seen in about ten years.  He’s been quite successful and grown since we last talked and I was impressed with what he had accomplished, but I was impressed far more with the story of struggle he told.

The economic recession of 2008 didn’t impact the insurance industry the way it did many others.  I almost think of it as a nonevent for us, but my friend Terry had a different experience.  His business, which is unique in our industry, suffered terrible setbacks.  They were so bad that the obvious solution was to file bankruptcy.

Terry didn’t do that.  Instead, he got a job at Walmart on the weekends, working 40 hours a week for an hourly wage. His wife got another job as well.  They did this in addition to unending hours of work in their business; and they survived!

As he told me the story I tried to put myself in his position.  Terry lives in a smaller community where everyone knows each other.  Friends, and customers of his agency, saw him working there.  I thought “Wow, that must have been humiliating!  Here is a successful businessman, a community leader, reduced to working for minimum wage at Walmart!”  Could I do that?  Would I do that?  Would you?

I hope I would.  Because I was flooded with respect for Terry and his wife!  They exemplify integrity!  They didn’t expect anyone else to carry their burdens.  They weren’t going to take the easy road of letting their creditors suffer because they refused to.

Would you do business with someone like that?  Would you loan them money?  Would you trust them with your future?  I would!

Every good business person has a plan.  Failures wander but successful people plan.  However, plans almost never work the way you think they will.

I sit on the board of directors of a community bank.  Our bank is small, but it has big plans for the future.  The most important plans are for the current year because those are the ones we must accomplish first.  For us, growing revenue, which means loaning more money, is the most critical thing.

During our most recent board meeting we were reviewing February results and we are behind on our plan.  Since it was toward the end of the month I asked if the 1st quarter results, available in a few days, would still show us behind.  The answer was yes.  My next question was, “will we be back on track by the end of the second quarter?”  I was stunned by the response:

“We don’t know.”

That is completely unacceptable.

Again, plans almost never work out the way you think they will.  But if you want to achieve your goals you have to continually evaluate where you are and make plans to correct your course when you aren’t on track.  If you are a couple of degrees off course when flying an airplane, and discover it early, it makes no real difference in the time to fly to your destination, but if you ignore it for very long, you’ll be hundreds of miles off course and it may be impossible to ever get there.

So, the key to achieving your goals is to correct your course early when you get off!  In this way you recover quickly, and you accomplish what you set out to do.

We’ve reached the first milestone of the business year.  The end of the first quarter.  Are you on track?

The airplane was veering side to side while climbing, then diving crazily.  Clouds and sky were replaced by visions of the ground rushing up violently from second to second.  As alarm bells went off, while buzzers were ringing and lights flashing, I felt the overwhelming urge to panic and give up.

It seemed that no matter what I did the problems were only getting worse and the situation was increasingly out of control!  My body was flooded with adrenaline, my heart rate and blood pressure through the roof, and my brain was absolutely overwhelmed.  Finally, in desperation, I yelled “stop the sim!”  To which my aircraft simulator instructor calmly answered, “fly the plane.”

Crying for Mama wasn’t going to work!  I had to fix my own problems.

From the recesses of my memory I recalled my primary training instructor telling me long ago, “fix one thing at a time and make small corrections.”  Carefully, I put the artificial nose of the airplane on the horizon line on my instruments and held it there.  Then with great effort, and using both hands, I steadied the wings and held them level.  Breathing deeply and exhaling slowly as I tried to control my physical panic, I slowly brought the plane back to altitude, switched off the flashing lights and faced the failures.  Using my checklist, I carefully and methodically dealt with each problem in turn and finally landed the plane safely.

When we have serious problems arise in our business (and every business does eventually) the first tendency is often an overreaction.  If one negative thing doesn’t get compounded by another automatically, it often does from those overreactions.  Now we have a mess, but this isn’t simulated reality and we can’t “stop the sim.”  Our choice is fixing the problems or perhaps die (lose money, opportunity, progress or even bankruptcy.)

To negotiate a crisis successfully, we first must make the commitment to running the business regardless of the problems (fly the plane!)  This is often not as easy to do as it is to say, but without that firm and conscious (and communicated to others when necessary) resolve, we won’t recover.

Then, we must identify the most critical issue and fix it carefully (“fix one thing at a time and make small corrections.”)  Panic only makes things worse.  Calm, deliberate and consistent actions are required.

Every business owner will face crises during their career.  Storms, failures, mistakes and things beyond your control guarantee it.  How you react in those moments determines the outcome in advance.  Knowing this, it’s worth the trouble to “simulate” problems and your reactions in advance so muscle memory can help in the moment of a real crisis.  My time flying a simulator has made me a better pilot and your forethought will make you a better business owner.

When the crisis comes, remember. “fly the plane!”

The futurist Ray Kurzweil, author of “The Singularity is Near” describes his idea of escape velocity as that point in time when for every year you live, science will make another year of life possible for you.  The essential idea is that at some point humans will reach the theoretical and practical ability to live forever.  While this sounds good on the surface there are all sorts of practical problems that will have to be solved along the way.  One of those is how do you pay for never ending existence?  (For others please watch the 1970’s movie “Logan’s Run” but I digress).

A similar idea occurs to me in the financial realm.   Is it possible to reach a point where you continually attract more resources than ever before, regardless of what you do?

I think it is not only very possible but happens with some regularity.  How it happens, and why, aren’t necessarily obvious, but they are no big mystery either.  The secret to financial escape velocity begins with mindset.

Almost everyone believes that virtually everything is scarce.  Water and food are scarce according to Malthus.  Peace is scarce according to the politicians.  Life itself is scarce to most, other than Kurzweil.  And money is scarce according to the gold bugs.  As Peter Diamandis points out in “Abundance: The Future is Better than You Think” none of these things is true, and they are increasingly false unless you believe them to be true, act on that belief and make them real.

The truth about money is that it is essentially limitless. History proves this, without question, as the wealth of the world continues to expand exponentially.  But history also proves that money doesn’t end up in the hands of everyone equally.  No, it has always, and always will, end up in the hands of entrepreneurs.  When you think about history in this way you will see that princes were just enterprising business people!

Increasingly in the modern world it isn’t princes (government) who determine who makes money, it is the entrepreneur.  The entrepreneur is classically defined as “one who takes assets to a higher level of production”.  In other words, one who constantly creates value.  If an entrepreneur never ceases this activity, it is possible to come to the point where his own consumption needs, even though always increasing, are no longer limiting and more and more financial resources are continually being created.  In other words, it becomes a virtual motion machine.

We can see this in people like Jeff Bezos quite easily.  But there are millions of others like this in the world.  What each has in common is the willingness to continually invest, take risk and create value.  At some point they reach escape velocity where their progress is no longer a function of work effort but return on investment.  Escape velocity is possible for anyone.  How about you?

I’ve written before about the business wisdom of my father who taught me, as fathers are, wont to do a great deal; but he wasn’t infallible.

Dad used to say that “if you can avoid increasing your standard of living as you make more money compound, interest will make you rich.”  The essential idea is that money is scarce.  There is a limited amount of it, and the more of it you save, the more of it you will have.

On the surface this makes a lot of sense, but in actual practice for the entrepreneur, it is very limiting.

In the first place, acting in this way tends to make one more focused on the idea that money is scarce.  When you give in to this way of thinking it becomes something to be safeguarded, which leads to hoarding.

In the second, it leads to personal denial.  It reinforces the idea, already prevalent in our society, that you shouldn’t long to enjoy things that money brings.  It reinforces the idea that money is scarce.

What I have learned through observation is that this leads to a love of money.  By this I mean, that it causes one to place a higher value on it, than on other things.  My further observation is that those who love money never seem to have much of it, or enough of it.

In turn, this leads to fear of risk because one increasingly doesn’t want to lose what one has gained.  This turns the mind inward and backward as one seeks to hold on to what one has rather than what one hopes to get.  Think of a fist closed around a wad of dollar bills.  Yes, it’s unlikely anything can remove it from your hand, but it is also very unlikely any new dollar bills will be able to get inside your fist.

Fear of, and unwillingness to take risk kills entrepreneurial progress.

What if instead, one thinks of money as unlimited?  What if one increasingly seeks to satisfy what he wants?  I think this approach leads to the willingness to continually reinvest and redeploy what one has already made which leads to never ending progress.  This isn’t to say that loss never happens but on balance that more progress, than loss, continually occurs.

This attitude leads to increasing abundance and continually removes scarcity.

Justin Wilson the departed Cajun chef, humorist and philosopher observed that, “the coon ass thinks of money as something to spend just before you get it because he has never seen an armored car in a funeral procession.”  The entrepreneur takes this philosophy and builds, always increasing success and prosperity from it.

I was once asked by a floundering insurance agency owner how he could grow his agency from where it was to something bigger.  I gave him the advice to do more of what had gotten him where he was.

This was not good advice.

In the first place, as we grow our businesses, complexity increases.  Doing more of the same thing often results in diminishing returns.  This happens because the owner gets increasingly “busy” and therefore less effective.  Also, this busyness (oddly I keep spelling that “business” which is sort of ironic if you think about it) spreads organizationally to the ultimate result that one is working harder and harder to stay in the same place.

The actual key to continual progress is to increasingly stop doing what you have been doing. 

This sounds nonsensical on the surface, i.e. “why would I stop doing the things that have brought me success thus far?”  However, what gets us where we are is a combination of using our giftedness (what Dan Sullivan calls, “Unique Ability”) and doing a lot of other things that are just necessary.  We do this until we run out of time and then progress stalls.

I am fond of saying that your time has no real value until you run out of it.  You can test this for yourself with a thought experiment.  There are 168 hours in a week.  No one has more than that – time is a finite resource, but as long as you can expand the number of hours within that 168 that you devote to work, you can still add to the number of dollars you generate.  When you run out of time you are forced to reckon what your hourly rate is and then the only way you can improve your income is to increasingly focus on raising your hourly rate.  This requires that you “stop doing” some things to do more of others.

This requires a different way of thinking.  To make progress from here, you must increasingly think about what you can stop doing to have more time to focus on those things you are best at.  Of course, this forces you to confront whether you are basically oriented toward a philosophy of scarcity or abundance.  In other words, do you believe that giving up some activities in exchange for paying others some of the money you have made “costs” you or “makes” you money?

The answer isn’t as obvious as you might think.

In my experience, most small business owners reliably make the wrong choice.