Stepping over dollars to pick up nickels

Lately, I’ve been running into a lot of people who are doing exactly this: stepping over dollars to pick up nickels. Let us never forget the maxim that you have to spend money to make money. The important thing to consider when faced with a decision on what may seem like a big expenditure is not the face value of the price of your options, but instead the true value of what each choice will potentially bring to your business. Nowhere is it more important to do a deep analysis of  value than in the hiring of personnel- especially in management positions.

Now, determining the VALUE of something is as much an art as it is a science. Yes, there are straight up financial calculations that can help put a Return on Investment (ROI) to a cash outlay, but there are also a number of much more intangible factors that can affect the true worth of an investment. Some such alternative factors to consider are Time, Efficiency, Security, Longevity, and many others. Now, I could put a bunch of these together and make a nifty acronym out of them and charge you a bunch of money to buy the book, but in reality every major expenditure will have its own collection of factors that will play a part in what will be the VALUE received from the cash spent. The important thing to do is to make sure that you include an assessment an analysis of these factors before you make your decision.

How to value a thing is easy; how to determine the potential value of a person to your business is perhaps one of the most difficult things to do- just ask any baseball scout (or Michael Jordan’ high school basketball coach that cut him from the team). Let’s examine some of the example factors I gave above and see how they might affect the decision on hiring a management position for your business.

1) How will this candidate affect your Time? Are they fully independent and self-sufficient with great problem solving skills, or are you going to be getting daily phone calls with a need for help on how to proceed? What then is your time worth? Also, will the changes you need to be made be done quickly, or will you be waiting until next season to make them? How much money (or customer satisfaction, or good will or whatever) will be lost between now and then. There is a lot to be said for “Fast”.

2) That brings up the concept of Efficiency. This may be what I consider to be the most crucial element in a business. If your business isn’t efficient, then most likely it won’t be around very long. So, ask yourself if this candidate is Efficient? Do they place Efficiency as one of if not their single highest priorities? If not, then be prepared for the time factor above to bite you in the ass, not to mention that over the long run, efficiency is what will be the difference between red and black, between an extra vacation on the beach to tightening your belt at Christmas time. An employee that affects the efficiency of a business is invaluable.

3) Security is another factor that is often unidentified. Now, I’m not referring to how good your alarm system is, I’m addressing how confident you feel in this person you are going to entrust with your business. If it’s just “adequate” or “OK”, but they’re a bit cheaper than their competitor that instills in you a feeling of true Security in knowing that your business is in good hands, then you should really deeply consider what that worth is to you. I know, for me, that knowing my investments are being looked after by someone that I have full confidence in, then I sleep better at night. What is that worth? Doubtful that it’s not worth more than the difference between the two candidates.

4) Another question to ask yourself is how much Longevity will this person provide to my business. This can be looked at in a couple of ways. Will they still be their in 3, 5, even 10 years? How important is experience in your industry? This really is the one thing that there is no replacement for. Do you want to be re-hiring next year (see Time and Efficiency above)? Are you making a long-term or short-term investment? If the candidate asking for the higher pay is around in five years, do you think the money on this first contract is really that important on the big picture? Another consideration in Longevity is not just the length someone might work for you, but the length that the changes they make will continue to have affects on your business. If you’re hiring someone who truly understands Efficiency and the idea of remodeling business systems, then the return from their changes will ripple deep into the future.

As a reminder, these are just examples of some of the factors to consider in any major purchase or contract. The important thing is to learn to respect the total VALUE of a person based on a deep consideration of all their intangible factors. Too often I see people who, when choosing between two options that are things, they seem to make good decisions, but when it comes to people, they make a choice that doesn’t truly respect the VALUE of their candidates. In essence they are stepping over dollars to pick up nickels. Don’t be that person. Take the time to accurately assess what some of the intangible costs and rewards are in a major decision, especially in regard to hiring personnel, and be willing to pay for VALUE. Never forget that all businesses are people businesses.

Sometimes, it is best to subcontract out major decisions like hiring a general manager in order to get an impartial, non-emotional opinion on which candidate really represents the highest worth to your business. Even though this might cost you a bit of extra money to do this, once again, don’t get caught stepping over dollars to pick up nickels.

Enjoy the New Year and may you find VALUE where you seek it,


Nick Kern

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