Risk / Reward Ratio – The Most Important Perspective Lesson You Must Learn as a Business Owner

Does this seem familiar? You hire a student or student parent because he or she is so nice and really needs the job. 

In time though, you realize this is not a good fit. But, because of your good heart, you keep that person on because, “Sally is a good person and if we fire her this, this, and this will happen to her.” What you fail to address is that, “If we keep Sally on this, this, and this may happen to our school.”

Let me share with you a story from an interesting lunch my wife, and I enjoyed on a beautiful spring day in Dunedin last year. Janet and I met up with my brother Jim and a long-distance student of his. 

It think his name is Steve. Either way, he had a thriving business. Each year, he rewarded his top staff with a month-long trip to Florida which included training with Jim. Nice perk.

We enjoyed our lunch chat, and I won’t bore you with the details, but he had one employee strategy that he has used long before that Trump fellow’s TV show. 

Simply put, everyone on the staff knew that one person will be fired in October or November. Regardless of the overall success of the team, one guy is gonna go, and everyone knows it. They just don’t know who that person is.

While I’m not advocating or disagreeing with this approach, I think it keeps the focus on the purpose of the business. That is to keep the company profitable. 

As I know only too well, the owner takes all of the risks. It’s one thing to lose a job. People lose jobs all the time. It’s a completely different experience to lose everything you’ve built and saved for  because you, as the owner, has been sued into the ground for some infraction, real or imagined, that your employee did.

I had multiple employees earning over $200,000 a year. Where are they now? Living their life, of course. Their risk was only that they might lose a job I created for them. 

My risk was that their actions might spark a massive lawsuit; which is exactly what happened. There was no skin off their back, but mine was laid bare.

My point is simple. You can’t afford to carry someone whose only risk is finding a new job if you let them go versus you losing everything for their lapse of competence.