Are You a Business Owner or An Employee?

Last night my wife, Laura, was lounging in bed watching the movie, “Water for Elephants.” That gave me the idea for starting a new terrorism consulting business. I could help the CIA eliminate the need for water boarding and replace it with something much more effective. They could force all the Gitmo inmates to watch a Robert Pattinson film festival. If we want to overthrow the government of Iran, we could carpet bomb them with “Twilight” DVD's.

A lot of times when I write about knowing whether you are a business owner or an employee, I come across as anti-employee. That's not the case at all. I am reading a book by Brad Ham called Ownership Thinking. The author makes the case for our living in an entitlement culture, one that encourages people to seek unearned rewards. In particular, he finds fault with employees, who don't associate their employer's success with their continued paychecks.

If you asked a hundred of my clients if they think I agree with Brad Ham, probably all of them would say I agree. However, for the most part I don't agree with Ham. I don't find fault with employees not feeling personally invested in their employers. Ham argues that employers have the right to have engaged employees and the responsibility to create that engagement. I wish I could agree with him but I can't.

People have a right to want what they want. If someone just wants to show up at a job, complete the job adequately, and be paid a fair wage for his output, I don't have a problem with that. Not all of us place a high priority on career achievement. I can't imagine someone taking a job cleaning toilets for the career rewards. However, I do have a problem with employees expecting special rewards and ownership type compensation for bare minimum or average performance. If you don't care much about your job, that's OK as long as you actually do your job. But, don't expect your employer to care much about you either. You can be replaced by another average performing cog in the machine.

Sometimes I have clients, who believe the way to engage employees in the way Brad Ham advocates, is to award employees either actual ownership or something close to it. They believe employees will be instantly motivated the second they become owners. To Ham's credit, he at least believes a lot of education is necessary. I believe that there are two distinct types of people in the world, business owners and employees. Business owners sometimes temporarily masquerade as employees, but they are business owners at heart. Employees are always destined to act like employees and will never take on ownership responsibilities regardless of their equity stakes in businesses.

How do you know if you are a business owner or an employee? Business owners have a number of essential personality traits. First, they are willing to accept financial risk. A business owner gets paid last after everyone else. Hopefully a business owner gets paid best, but that's far from guaranteed. I have clients, who have never been able to take a dime of profit or compensation from their businesses. In fact, some have invested hundreds of thousands of dollars with absolutely zero return. Employees require a steady paycheck. When the paycheck stops, their effort stops. Again, I'm not saying employees are wrong here. They just don't behave like business owners.

Second, business owners accept total responsibility for performance. They have to. The bank really doesn't care that your truck driver called in sick and no deliveries got made this week. The bank still wants paid. Of course, the truck driver wants his paid sick leave as well. We've all heard the maxim that asking the right questions is ninety percent of the job. The problem is that it's only ninety percent. Business is a one hundred percent or nothing endeavor. People, who can ask questions, are a dime a million. Employees have questions. Owners have to find answers. Owners are motivated by accomplishment not mere effort.

Finally, business owners are tinkerers. They seek continuous improvement. My career right out of college is an example of this. At my first job, I worked a lot of Saturdays and Sundays, not because my employer required it, but because Saturdays and Sundays were great days to try new things. I had a boss give me a Lotus 1-2-3 spreadsheet (yes, I'm that old) to use for a particularly difficult type of bank reconciliation. The only training I got from him was how to enter data. I bought a book on Lotus 1-2-3, learned how to unlock the cells, and worked on making the spreadsheet more efficient.

Sometime employees will exhibit one or two of the ownership characteristics, but not all three. Owners have all three of the characteristics, or they don't remain owners for long.

Again, I don't mean to appear anti-employee. People make rational choices to behave as employees or owners. If your biggest priority is making all of your daughter's kindergarten dance recitals, you are probably an employee. If you'd rather rip your ears off your head than sit through a kindergarten dance recital, you are probably a business owner.

People get to choose, and here is where I disagree with Brad Ham. He believes you can create a company of business owners. He has a number of great examples, such as Springfield Remanufacturing. Jack Stack wrote the book, The Great Game of Business, about his experience turning around nearly bankrupt Springfield Remanufacturing.. My thinking about open book management was deeply influenced by the book. Then I got some experience with the reality of open book management.

Ham's examples are convincing unless you have personal experience with the concept. His stories are remarkable in that they represent aberrations, not the reality most business owners experience. Following his path is like planning for retirement by buying lotto tickets. Yes, someone wins the lottery. It just isn't going to be you.

Out of the seven billion people on the planet, there just aren't enough true business owners to staff all the world's companies. Most companies will have to deal with the reality that they will be largely staffed by people who think like employees. They prefer kindergarten dance recitals to profit and loss statements.  People make rational choices to behave as they do.  You can educate them forever, but they will continue to make their own choices, not yours.

I do agree with Ham, however, that there are ways to construct incentives to motivate employees to higher performance. I just don't believe that those incentives, properly constructed, will involve ownership interests. You just can't make employees behave like owners regardless of how much you train them.

Thanks for reading! As always, if you are looking for real tax and accounting advice, please visit the main S&K web site at www.skcpas.com.