15 years ago I thought being a successful businessman meant being the CEO of a Fortune 500 company. 10 years ago I thought it meant being the CEO of a large advertising agency, providing services to Fortune 500 companies. Either way, I dreamed of big buildings, big revenues, lavish and stylishly modern offices, nice clothes, nice cars, nice lunches, and lots and lots of employees. Over the past 10 years as a business owner I’ve had plenty of lessons pounded into me, and while each person must come up with their own definition of success, since we all like and enjoy different things, my definition of success has come to be something quite different than it once was.
Before going any further, I should note that when I talk about “business success” I’m talking about something different than “personal success” or “personal financial success”. Personal success for me has little to do with business success these days and more to do with how I am as a husband and father. Personal financial success for me has more to do with living debt free and having the means to do the things I want, which you would probably not find terribly extravagant.
Business success has come to meant the following for me at this point in time:
1. No debt.
2. No more than one full-time employee.
3. Maximum productivity.
Why no debt? I’ve had enough over the past 10 years of business loans, lines of credit, and credit cards to get a good taste of debt, and I don’t like it. It ties hands, stifles creativity, cripples growth, and limits options.
Why no full time employees, other than myself? It’s easier. By only dealing with 1099 employees, I don’t have to worry about health care, payroll taxes, and a host of other human resources matters. Most importantly, with a 1099 employee it’s easier to align their interests with mine by paying them a portion of what I get paid. If they don’t do the work, the client isn’t happy, the client doesn’t pay me, and I don’t pay my contractor. If the contractor does a good job then the client is happy, and so is everyone else. There is more of a connection between the contractor and the end user. If I have employees on salary who get paid regardless of how clients feel, then they don’t have as much incentive to care about how clients feel.
Our politicians and many of business types are obsessed with maximum employment. Politicians want low unemployment since employed voters are happy voters, and many business people think lots of employees is what makes a business successful. But low unemployment is easy, and not necessarily a good thing. It used to be that you couldn’t support a family on a single income. For most of history other than a portion of the past 100 years, fathers, mothers, and children often all worked in order to merely survive. Life was hard. But technological progress, specialization, and trade allowed many to improve their standard of living such that a family could live better on just one income than they had previously with several (credit cards do this too, but it is, of course, unsustainable). With only the need for one person in a family to work, this allowed for more intellectual pursuits, which in turn spurred more progress in those areas that improve standards of living, and so on. Plus 12-year old kids weren’t having their arms ripped off in hog fat rendering plants. In other words, unemployment is often a good thing.
Likewise with businesses, maximum employment is not always desirable. Many companies could do more with less. Companies can become bloated with all that is required to support a large workforce to the point where maintaining the workforce seems like the purpose of the business more so than producing anything of value to external consumers.
For both business and government, as well as society at large, the goal should not be full employment, but maximum productivity. Full employment does not promote a higher standard of living, in fact, as pointed out, high unemployment can be a sign of high standards of living if people are not working because they do not need to. Maximum productivity, on the other hand, is what raises those standards of living that matter most to us such as education, health, life expectancy, concern for the environment, human rights, care for the poor and needy, etc.
Too often, we see an entrepreneur who starts a company that grows to have thousands of employees and we say “Wow, isn’t that guy a great entrepreneur? Look how big his company is!” We don’t know how much money he makes. We don’t know the profit per employee. For all we know, the company may be losing money, but we assume a company is successful and more valuable to society if it has a lot of employees. On the other hand, a company with a handful of employees may generate a million dollars per employee with large profit margins, and yet not attract much attention because it only has three employees and $3M in revenue, vs. 500 employees and $50M in revenue. Yet all other things being equal, which company is truly better for society?
We give awards to businesses for growth in terms of revenue and jobs created, and occasionally profitability, but too much attention is focused on the former rather than the latter. I’d like to see an award for the most productive companies. Those that do the most with the least. These are the companies that drive innovation, leading to higher standards of living, and at the moment, that’s the definition of business success I’m shooting for.