At the end of Part I, I explained how it’s difficult to leverage on your employees, but how in an ideal business structure, where the mail room clerk has an equal chance to earn as much as the CEO, you would acquire TRUE leverage from your employees. Let’s briefly recap:
Leverage: An increased means by which to obtain something; e.g., investing $1 million at 10% interest would earn you roughly $10,000 a month whether you’re on the golf course, on vacation or spending time with your family, so you’re leveraging off your money. However, very few people achieve monetary leverage because they simply don’t have the capital, the means to generate it or the knowledge to invest it.
I went on to explain how in theory you can leverage on your employees’ labor, but such leverage is minimal and difficult because, since your employees don’t own the business, they lack your work ethic and pride of ownership and therefore, will never work as hard as you will. In fact, since your employees have so little stake in the game, they don’t mind “goofing off,” padding their time and being lazy when you’re not on the work floor. Not only do employees steal time from you, but also office supplies and inventory. The #1 source of business losses is employee theft, including time!
So, the rule of thumb for reaching TRUE leverage is:
You Must Create A Work Environment With A Level Playing Field Where Everyone Has The Same Opportunity To Gain The Same Amount Of Compensation – Only Then Do You Acquire TRUE Leverage… An Ingenious Reward!
Now, let’s look at an example of a nearly perfect business structure where you can potentially acquire the TRUE leverage I’m talking about. Let’s say you’re a real estate broker and you hire Ashley as an agent. Ashley sells a house and earns a 2.5% of the selling price and so do you. So, why do you earn a portion of the sale if Ashley did all the selling?
- You gave her an office, supplies, desk, phone and secretary usage,
- You extended your business name, reputation and goodwill to her,
- You trained her in real estate law, contracts, marketing, sales and all your tricks-of-the-trade
- You gave her free consultation and access to consultation from your top agents
- You covered some of her advertising costs
- You obtained the necessary education to get your broker’s license that you extended to Ashley, which, by the way, she can’t earn a commission without
- For the most part, you absorbed her risk and liability for any negligence incurred during the sale
It’s worth mentioning at this point that although you hired Ashley, she doesn’t work for you as an employee, but as an independent contractor who merely hangs her license on the wall under your broker’s license. My point is you and Ashley have the exact same amount to gain from the sale of real estate, 2.5%. Therefore, since Ashley is independent and strictly earning money based on her own personal effort and productivity, it’s in her best interest to work harder to earn more money which is a form of leverage for the broker. Every time Ashley makes money, you make money too!
Wait a Second! There’s a flaw in the system above that can cripple the broker’s business. Did you see it? The broker can leverage on the agent’s selling, but the agent can’t leverage on the broker until the agent does what all broker’s dread… open up her own company!
You see, being an excellent broker, you trained Ashley very, very well, hence, her great success at your company. But now Ashley is so well trained and ambitious that she goes out and gets her own broker’s license and leaves your company. You lose her as a source of income, but even worse, she now becomes your competitor that you trained! Ashley knows all of your “tricks of the trade” and now is going to share this info with other agents that she will hire.
This actually happens in almost every industry from construction and pool cleaning, to architecture and even new orthopedic surgeons who eventually open up their own private practice in a few years’ time. Have you ever heard a friend say, “I’m just going to work there for experience?” This means they’re going to strip the owner of her knowledge and then open up shop on their own.
If you’re currently a business owner, how many employees have you trained who are no longer working for you? In other words, how many people have you trained to be your competitors? But it gets worse! Ashley, your former agent, and now new broker, recruits her own agents and teaches them all of your good sales techniques. Next, some of Ashley’s agents eventually get their broker’s license and go into competition with you too; that you indirectly trained via Ashley! This is a never ending cycle where you inadvertently create a chain of competitors that you train, directly and indirectly. Needless to say, this growing competition chain can have devastating effects to your business and income.
In consideration of the business structure above, what if you the broker could empower Ashley to become a broker as well under your license, retain her as a subcontractor and extend to her the same privileges that you have. In other words, what if Ashley, while at your firm, is free to go out and recruit her own agents and leverage on their home sales like you leverage on Ashley’s home sales? Ashley would have less incentive to leave your company and start her own, right? And to decrease the chance of Ashley’s agents leaving to start their own firms, her agents would be free to go out and hire their own agents too, and so on down the line; forming a happy family that plays well together as opposed to creating cut-throat competitors.
You see, the only guaranteed way for you to retain a top producing employee or an exceptional leader is to provide them with the same opportunity for growth and monetary reward as you have. In other words…
A Work Environment With A Level Playing Field Where Everyone Has The Same Opportunity To Gain The Same Amount Of Compensation!
I can hear you holler, “Hey! Wait a second! Isn’t that a pyramid?!?” I really believe that the only true pyramid where the people at the top make all the money and the people at the bottom don’t is the traditional corporate structure. Isn’t it true that in a corporation the president will never earn as much as the CEO, and the general manager will never earn as much as the president, and the mail room clerk or secretary will never earn as much as the GM? Absolutely! If they did, there would be total chaos and anarchy, and a complete breakdown of the corporate structure because that business structure is based on delegation of work duties, which is proportional to salary; the person paid more delegates to the person paid less.
However, in my scenario above, the mail room clerk can earn as much as the CEO with hard work and dedication in only a years’ time. Now, that’s an ingenious reward system! Yes. The president at a corporation can perhaps one day become the CEO, but only after years and years of dedicated corporate service and only after the CEO quits, gets fired, retires or dies. But NEVER EVER the custodian, the mail room clerk or the secretary, and very rarely middle management!
The true pyramid is within a corporate structure where the people at the top ALWAYS make more money than the people at the bottom. In fact, the CEO of any corporation earns off of or leverages on every single employee whether that CEO personally hired and trained the employee or someone else did. So, the CEO, and only the CEO, earns on multiple levels of his or her company.
Now, isn’t that exactly what I described in the Ideal Economic Business Model above, where you, the individual is given the same opportunity as the CEO to earn off of multiple levels of coworker productivity within your business. But it’s even better than that!
This is not a pyramid like a corporation, but Network or Relationship Marketing, where you are given the opportunity to leverage on and earn off the productivity of everyone in your company whether you hired and trained them or not, just like a corporate CEO. That’s why I think this economic model is the single-most FAIR reward system, and win-win business structure for everyone!
You can reach true leverage with this business model because everyone has the same opportunity to earn the same amount and more! In fact, in this scenario, the mail room clerk can not only earn as much as the CEO, but more than the CEO based on productivity and personal effort. Isn’t that fair, that the most productive, hard-working person earns the most money? There is no more level playing field than Relationship Marketing and nothing more akin to the good old-fashion American dream, where a worker gets paid strictly based on hard work and personal effort. There are no free-rides, no seniority, no experience or resumes needed, no educational requirements and you’re not going to get passed over for that promotion due to the VP’s nephew with less work experience getting it before you. As I said in Part I, you get out what you put in!
Now you understand the 4 principles for evaluating a business (A Big Expanding Market, A Unique & Consumable Product, Trends & Timing, The Ability To Create Leverage) and know how to place value to a business and believe it or not, you have a better conceptual understanding of business and leveraging money than most people do this day and age.
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(This article content was conceived from a concept by Tim Sales)
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