The Question That Actually Fixes Your Business | Ep 930

0:00If everybody on the team has to say what their personal goal is, and they get to set it, and if they hit their personal goal, as long as it's aligned with the company goal overall, if they set that goal, they can set it as big or as little as they want. What happens is that the social pressure of wanting to set good goals automatically self-corrects.

0:23Welcome to The Game, where we talk about how to sell more stuff to more people in more ways and build businesses worth owning. I'm trying to build a billion dollar thing with acquisition.com. I always wished Bezos, Musk and Buffett had documented their journey. So I'm doing it for the rest of us. Please share and enjoy. A good friend of mine in my building had a really, really interesting way of managing talent to get and drive higher performance and output. And so the reason I wanted to make this is because at the end of the day, every entrepreneur has the same problem, which is they need better people and they need to get more out of the people that they have.

0:54And a lot of that comes from culture and training. but every once in a while you stumble upon a process that has teeth. And so I think it's super cool because it is reinforced through multiple different psychological levers and it's got really cool stuff to it. So let's dive in. So one of the things that he shared with me that he did is that he has a level of variable compensation. That's not new. It means that there's some level of performance, check marks, et cetera, that they have to hit in order to get paid. Makes sense. Now, the way that most companies do this, and I'll tell you that what we've done up to this point for us is that in positions that are not directly like sales, for example, it's very easy to have a commission structure, etc.

1:35But for, let's say, leadership and executive positions, and so this is important if you're trying to build your, you know, your solopreneurship into an actual company that has values, you need to have people who are all aligned and driving hard like owners towards the same goal. And honestly, it's much more enjoyable that way. And so the way that we have split our things up to this point is that we do something called MBOs, which is managed by objectives, which are for the company and then also for the individual. So we usually split them 50-50. So let's say we've got a leader who, let's say like a director of marketing.

2:04They're not going to like get a sale, but we know that they're in charge of all of the rainmaking for that particular business line, right? And so they might get, let's say, half of their, they might have a base. Let's just use round numbers. Let's say they're making, their targeted earnings is$200 ,000. We're going to give them$100 ,000 base, and we're going to give them$100 ,000 of variable compensation, right? Now of that variable compensation, that half, we split that again in half, half of that, which would be 25 % of their total comp, is going to be of whether the company grows overall. So if we hit X, Y, and Z metrics, they'll get, you know, growth or new sales or profitability, then they're going to get those things, right?

2:43And the other half is going to be on whether they did something personally that they have control over. So it might be adding a new channel or a new platform or creating some sort of process that we want to automate or bringing in a new XYZ manager. Those would be things that they have complete control over that we can checkbox. Even if the business doesn't do well or it doesn't hit the goals of growth or just marginally grows, they can still get half of their variable comp. So if you've got 100 grand, they got that guaranteed. And they've got 50, that as long as they do all their stuff, they've got.

3:12And then they get to purchase being the upside of the business if the business overall grows. And so that is how we've done it up to this point. It's worked well. But what he presented was a different way that I really, really, really liked. And a key part of this is that the management by objectives and the things that we set, we set for our team. So they don't have a choice in it. they just accept it or, you know, they might try and negotiate a couple terms, but that's more or less how the compensation structure works, right? With the way that he sets it up is that every position has a level of variable compensation.

3:45And that level, you can determine, you know, you can say you want it to be 10 % or it can be 20 % or it could be 50%, you know, it depends on the role. But maybe let's say a frontline customer service role, right? Let's say 15 % of their compensation variable. So if they're targeting, let's say$50 ,000 a year, then that would mean $7 ,500 would be potential to be variable. So that would be like, whatever, 600 bucks a month-ish, right? Of their compensation is kind of in the air, hung in the balance. And so here's the cool thing. What he does is that he says, this is the variable comp and you get to set the goal every month.

4:24So it's a 30-day rolling goal. And every month they get to set the goal of what they're going to do, they have to show up publicly. So you get some social pressure in there, right? You also get autonomy because they're the ones who are picking it. And so here's what's cool is that if everybody on the team has to say what their personal goal is, right? And they get to set it. And if they hit their personal goal, as long as it's aligned with the company goal overall, like it's going to contribute to that goal, then they can make it, right? They have to obviously prove that it in some way furthers the overall division or department's goal.

4:58But as long as it's aligned with that, the extent to which and the amount that they have to, because it's got to be quantifiable, right? If they set that goal, they can set it as big or as little as they want. What happens is that the social pressure of wanting to set good goals automatically self-corrects. You might think, well, what if they just say they get, you know, a half a percent, you know, improvement or something like that, and they hit it. Cool. But the thing is, is that people on the team are going to be like, dude, come on, that's the goal. And then all of a sudden they raise it, but they raised it, no one else.

5:33And so they have complete autonomy and ownership over that goal. Now for you as an owner, what you can do, obviously, is let's say that you're targeted earnings for the person's 50 ,000 dollars a year. That's fine. You just take 15 % and make it variable. So like they have the potential to earn the whole thing, or they have to earn somewhat less. Like, don't worry about the variable comp. The piece is that we have intermittent reinforcement which is another way of saying variable reward for an employee. They have complete autonomy, and they have social pressure, and they have some level of competition.

6:01And this is really useful in roles that don't necessarily, A, directly, you know, tie to the bottom line like sales does, and are more difficult to quantify, right? And so this gives those roles the opportunity to feel like they're contributing to the overall growth of the company and have something in the balance that matters. So I wanted to share this with you because I thought it was really, really cool. We're going to be implementing stuff like this in some of our portfolio companies, but I thought it was just incredibly sexy. I didn't want to keep it from you because I think it's really, really cool because there's just so much psychology behind doing things this way.

6:41And it just allows everyone to participate and grow as employees within the company. and as a tangential tertiary benefit of this, your churn will go down because people will feel like they're making progress. Pretty cool, right? They'll feel like they're making progress and that they are growing and that they are challenging themselves. And that at the end of the day is what you want every workplace to fulfill for your employees. Now, whether they feel fulfilled, you have no control over. But if you can create an environment that increases the likelihood that they feel that way, given a normal human construct, I think that you're going to build a better business.