The purpose of this article is to help business owners understand the key daily decisions that influence dependence on external funding and either limit or expand the growth potential of a business. There are essentially 4 decisions: 1) cash; 2) people; 3) strategy; and 4) execution. This article (#2) addresses how your decisions about people affect growth and identifies 6 ideas for growing your business.
Some of the most difficult and important decisions a leader makes concern people. Decisions about people have a dramatic impact on growth. Great people develop strategies. These are the people who think about how to beat your competition. Great people execute strategy better than average people.
It is critical that a company try to hire the very best person for each and every position. The smaller your company, the easier it is to see your mis-hires. For example, if I have 5 employees and 1 is a mis-hire, that means 20% of my workforce is ineffective and is dragging down the other 80%. The larger you get, the less obvious your mistakes may become.
In the Harvard Business Review article “How Fast Can Your Company Afford to Grow” by Neil C. Churchill and John W. Mullins, the authors explore the precise calculation of how fast you can grow a business without running out of cash, discussing how using cash to hire the right people can play a major factor in your growth.
What is the Impact?
Too often there is a disconnect between the importance leaders attribute to hiring and the discipline they put into their hiring process.
Responsibility for hiring is treated too lightly.
Not enough time is invested in selecting each person.
The right assessment tools are not used.
Adequate direction to make the right decision is not given.
People ignore facts that are right in front of them when making hiring decisions.
Consequently, companies typically hire less-than-ideal candidates, using “gut” and intuition instead of solid information. It is estimated that companies are lucky to hire a good person at least 50 percent of the time, and only get great people 10 to 20% of the time. It is no surprise that executives find themselves working more hours, having more stress, and feeling that they have to do everything themselves.
Based on extensive research published by Bradford Smart, PhD, in “Topgrading,” the average cost of mis-hiring someone whose base salary is under $100,000 is $840,000 (approximately 8 times salary), and the average cost of mis-hiring someone in the $100,000-$250,000 base-salary range is $4.7 million. Even if you believe your number is only one-half or one-third of Dr. Smart’s estimates, it is important to realize that getting and retaining top performers for every position from the receptionist to the CEO impacts your cash and growth in a significant way.
6 Ways to Improve Growth by Hiring the Right People
There are 6 ways proven to maximize a company’s growth potential through its people:
- Improve Your Interviewing Skills – Dr. Bradford Smart is a guru in hiring the right people. His program was used by Jack Welch and, to my knowledge, is the most used in Fortune 500 companies. Dr. Smart’s Top Grading process teaches unique interviewing and hiring principles, practices, and processes. You can access their information on DVD at Top Grading Tools so that your company can use these same strategies.
- Assessment Tools – Using assessment tools in the hiring process can increase your hiring success fivefold. The best tools allow you to create customized benchmarks for both your organization and the position you are hiring for. As you screen candidates, they take the assessments online and are compared against the benchmarks. We help our clients use Objective Management Group’s (https://www.objectivemanagement.com/) assessment tools for salespeople because these tools are 95% predictive and are the only tools we have found to be focused on salespeople. For all other positions, we also recommend TriMetrix© (http://www.ttiltd.com/results.php) as they focus on the behaviors, values, and skills of the ideal hire. There are a lot of good tools out there – some a little better than others – but the most important recommendation is to use something.
- No Compromising – It is very common, particularly in smaller organizations, for leaders to justify promotional and hiring decisions based on time constraints, market limitations, or some other self-limiting issue. In other words, the decision-maker will hire or promote a less-than-ideal candidate based on a short-term constraint that may or may not truly exist. However, even when a real constraint exists, the long-term benefit to the company is most times best served if diligence and patience prevail.
- Pay Above Average Wages – When considering trends (e.g. aging, education, competition, inflation, globalization, etc.) you compromise your ability to compete in the future unless you are willing to pay better-than-average wages. There is little doubt that we will face an employee shortage in the future, creating wage pressure. It would be better to be ahead of the curve on this front. Your goals over the next five years should be as follows: 1. double revenue per employee, and 2. increase wages by 50%. My prediction is that companies that have strategies to keep wages low at the front lines and in their factories are going to have a really hard time in the future.
- Provide More Training – The first thing that companies do in a downturn is cut training. There should be no surprise that employee and customer dissatisfaction soon follow. Top-performing companies do not slow down training; they increase it. Every company should require a minimum number of hours of training per year for each worker. Achievement of training quotas should be reflected in performance evaluations and affect whether or not someone can be promoted. The results of training are measureable in terms of employee retention, employee productivity, employee satisfaction, and customer loyalty.
- Provide Coaching to Executives – Right Management Consultants recently revisited a detailed study on the benefits of business/leadership coaching. The study examined results realized by 100 executives/managers, mostly from Fortune 1000 companies, who participated in coaching programs that typically lasted from six months to one year. They reported that the employers received 6 times the value to their bottom line of the cost of these programs. In addition, the companies that provided coaching programs to their management and leadership teams realized improvements in productivity, quality, organizational strength, customer service, and shareholder value. They also received fewer customer complaints, and were more likely to retain individuals who received coaching. Individuals who received coaching reported experiencing better relationships with their direct reports, immediate supervisors, peers, and clients. They also reported better teamwork and job satisfaction, reduced conflict, and renewed organizational commitment.
Hiring decisions have a dramatic impact on how fast your company can grow. Hiring and retaining the wrong people uses cash, while hiring and retaining the right people creates cash. Therefore, hiring and retaining people should be given at least as much thought, time and energy as serving external customers and developing products and services. By utilizing the suggestions in this article, you will dramatically increase your hiring success, increase employee productivity, improve employee retention, increase customer loyalty, and drive more growth.
Contact me today to learn how Activate Group helps individuals to increase their success and works with organizations to attain consistent revenue and profit growth rates of at least 20% annually. Call (305) 722 7213 or e-mail me at [email protected].
Reference taken with permission from Gazelles, Inc. Growth Tools, Mastering the Rockefeller Habits by Verne Harnish, and Gazelles Systems Intellectual Property release 4.0. Howard Shore is a Gazelles Coaching Associate.