Applying leverage, in its many forms, is essential if you want to build a bigger and more valuable business.
In order to support my local business association, in Wadhurst, East Sussex, I recently agreed to run a business clinic for anyone who might want some help. One of the first enquires we had was about becoming an employer for the first time. If you are in a similar position HMRC provide some excellent advice on the niceties of PAYE (see here…) as it can seem complicated to the uninitiated. It reminded me of one of my clients who was so fed up with employing people he decided he’d just work for himself. “Employees: who’d have them?” he’d say every time I met him.
To be fair to my client, employing people can be both costly and hard work. I recently saw someone calculate the “true cost of employment” as 1.85 x salary, for a medium-sized business, when NICS, overheads, personnel support, software licenses and training were added. In a small business you may not have all these costs but it can add up to more than you first thought. But it’s not just the money; there are a lot of hidden “costs” to being someone’s employer. These get worse if the recruitment process gets messy, or you have to try a few times before you find someone that you like and who wants to stay; many don’t – job-hopping is the “new normal” in some sectors.
Recruitment “costs” (time + money + emotional energy) can be very much higher than you anticipate as recruiting the right person is not as easy as it seems. I have worked with (and helped!) many clients recruit people only to find out that, after quite a short period of time, the employee either left or was asked to leave. This is particularly true in Sales jobs, often one of the first things that people want help with in a growing business. Many people want to be in Sales for the wrong reasons and you really don’t want them, but separating them from the “good guys” requires a proven process and quite a lot of experience to get right.
Of course, employing people is essential if you want to grow beyond a certain scale in most businesses. It is perhaps the most common example of how you can apply leverage to your business. Leverage is most commonly understood as a financial technique, it is also called gearing, but I think it has a wider application as an idea: for me it covers anything you do that allows you to multiply gains (or losses) in your business. With recruitment, you are leveraging other people’s time, skills and experience. You can also leverage other people’s knowledge, by hiring advisors like me, or money, by borrowing. Now, whilst applying leverage is absolutely essential it is fraught with risk and problems which only experience will allow you to minimise. If you haven’t done any of this stuff before you really will be better off with help from someone who has. Whilst I think this is a blindingly obvious statement most people don’t do it and something as apparently straight-forward as hiring someone can be far more troublesome than it needs to be.
In the lifecycle of a business there are often windows of opportunity when you will get the best return from leverage: spotting them is a bit of a skill and many people do it at exactly the wrong time. My “reluctant-employer“ client was faced with such a “window” several years ago now and I persuaded him that, in spite of his reluctance to employ one more person, it was worth the effort and preferable to working on this own. My powers of persuasion were sorely tested but he went for it and he now runs the most successful business of its sort in the world. He now has quite a few staff but he’s got over his employee phobia. Employees: who’d have ‘em? Well, I’ll tell you: anyone who wants his level of success, because there isn’t really an alternative for most of us; just be careful how you do it.