Startups

Don’t shortchange your biggest asset

By John Dolan-Heitlinger, MBA '80

As a Johnson MBA, you have a solid grounding in how to start up a business. You can write a business plan in your sleep and raise venture capital without turning a hair. You’re all too familiar with how much labor, blood, sweat, and tears it takes to launch an enterprise. But you may not be so well informed about the challenges of staffing your startup. Specifically, you probably have no idea how clueless some of your potential employees can be about finance.

In my more than two decades of running small companies, I’ve seen workers — often dedicated, smart individuals — who didn’t understand the difference between discounting an item 15 percent and selling it at 15 percent of its price. I’ve known board members who couldn’t understand the implications of the financial reports they were reviewing.

I’ve found that it’s essential to educate employees in business basics so that they can understand why the organization works the way it does, and why certain business decisions have to be made. Training employees in this way takes some of the burden off your shoulders and makes for more empowered, accountable, and capable workers.

Getting everyone on the same page

When I was CEO of Keys Federal Credit Union, I began a program of weekly staff meetings to update employees (offsite workers participated first by conference call, and later via videoconference). Once a month, we reviewed the same financials that I had presented to my board of directors.

I quickly noticed that most attendees lacked sufficient finance background to understand what we were talking about. So, I started teaching a series of after-hours classes to explain how our financial statements worked and how we measured ourselves against our competition (we later instituted basic math and writing tests as part of the hiring process to gauge applicants’ financial and communications literacy).

Now, the entire organization had a foundation in understanding basic business principles, including why we needed to make a profit, how much we spent on individual expense items (particularly labor), and how interest rates affected our revenues and costs of funds. Workers understood how their own actions and decisions affected the entire organization.

Weathering the ups and downs

I found that, as we went through the cycles of change that are typical of any business, this foundation significantly facilitated the staff ’s acceptance of “bad news,” such as staff reductions, compensation changes, and incentive program changes. It also helped employees understand how we structured our product and service offerings, why we had to change them periodically, and what our niche was — for example, why we couldn’t provide Merrill- Lynch-type services to high-net-worth clients, or give free services to hard-luck cases. Subsequently, workers were much better able to explain procedures and changes to our customers.

In addition, our high level of transparency helped employees feel comfortable discussing business in the open, including asking tough questions, such as “It looks like we’re losing money — is that OK?” I welcomed such questions, which provided more opportunity to address vital business issues.

Yes, getting your employees up to speed on finance requires investing time and effort. But which would you rather have: informed, empowered workers who understand and are truly onboard with your organization’s charter and processes, or workers who don’t know the difference between 15 percent and 85 percent off?

Management and planning consultant John Dolan- Heitlinger is president of D-H & Associates Consulting in Key West, Fla. He has more than 25 years of experience as a consultant, CEO, and senior executive, and is a retired U.S. Coast Guard Reserve Commander. His recent book, Finance Without Fear (coauthored with William Hettinger, see review), is a useful primer for finance novices; a companion workbook is also available.