Who is an owner? Who is an employee?

By | March 18, 2008

Having been in business for a few years already, we’ve faced the challenges of hiring, keeping and firing employees. In fact, it’s one the reasons I use a rule of thumb: “you’ve never been a boss until you fire someone!”

Really, performance management is an ongoing hassle, too for the entrepreneur as the business is usally small, demands on resources high, and time limited. In fact, in a small business, such as ours, finding ways to implement a fair merit-based compensation plan is difficult for one simple reason: do well, and money comes in; do badly, and you’re out of business. There is really very little buffer, esp. when performance goes STRAIGHT to the bottom line, for poorly performing employees.

So, how do you reward good employees? Perhaps the most obvious is that they get to grow with the company, with roles and salaries growing alongside, as well as smaller benefits: time off, smaller gifts, bonuses, etc..

But does there ever come a point where they can be part-owners? My own thoughts are summarized in one test: If you want to be an owner of something, you MUST be prepared to pay a reasonable amount of CASH for a share of the business. It’s only that act of investment that makes you an owner, anything else is not.

Why? Because you took the effort to create that cash, you struggled to save that cash, you know how much work it might take to replace that cash should the venture go under, and as such, you will work very hard to make sure it doesn’t. Grants of options, etc., just don’t cut it.

What do you think?