Financial Poise
A happy employee at his desk, whose company has invested in him

Investing in People: Upgrade Your Company’s Engine

Employee Development and Motivating Your Workforce

Richard Branson: “Train people well enough so they can leave; treat them well enough so they don’t want to.”

Investing in people through training and employee development will help your business grow and, ultimately, make your business more valuable. Only you know how long you want to keep your business and what it means for you and your family, but encouraging a stronger workforce will pay off no matter what path your company takes.

An analogy: If you put a powerful new engine in your car, that engine will generate more power when you drive. If you ever decide to sell the car, the new engine will increase the car’s market value.  In the meantime, the car’s current performance improves. For car lovers, this is the kind of investment that pays off in the short term and long term.

As a business owner, you don’t have a literal engine for generating value — you have employees. You should be looking for ways to improve their work power in ways that pay off now and when you decide to sell your business.

Ways to Invest in Your Employees

The classic way to invest in your employees is through additional training. This is still very important today, but businesses can now accomplish this more cheaply and more efficiently than they used to. Strong and innovative companies leverage technology, knowledge and creativity in their training programs.

Effective Employee Development Training Methods

  • Use Online Courses: many companies offer affordable online courses in areas such as Marketing, IT, Human Resources and Excel.
  • Develop Your Own E-Guides: rather than complex manuals or web pages, focus knowledge into customized company e-guides that are always accessible.
  • Highlight Good Employees: your best performers are often the best trainers, even if new employees only observe. If possible, offer incentives to good employees for training others.
  • Encourage Self-Training: not all employees love to learn. Try to create a culture of learning and innovation. Reward new skills and try to identify employee interests.

You can also use networking to help your talent invest in the right relationships. The right networks will provide support, insight, information and feedback to your employees. Moreover, effective networking will reinforce the notion that you care about who works with you.

Cultivating a Culture of Pride

Your investments are more likely to stick — and more likely to keep growing stronger — if you can cultivate a culture of pride among your employees. This is directly related to the concept of worker empowerment, which means trusting your staff with enough power to make them feel like they have some skin in the game. You want them to have a sense of ownership, control and personal investment in the company.

These aren’t just HR tricks. Studies consistently show that motivated and confident employees are more productive. Businesses that engage their employees quadruple their earnings-per-share growth compared to competitors, improve productivity, better retention and have 21% higher profitability. Investments in employee capital should grow business equity. If you combine a trained, motivated workforce with good networking systems, you should be able to sell your business at a higher premium.

Employees with enough pride and empowerment might be willing to “buy” the company through an Employee Stock Ownership Plan (ESOP), which offers shares of the company to its workforce. This motivates employees to have and own an interest in the company, thereby motivating them and ensuring your company’s continued growth even after a sale.

When Investing in People Makes Sense…

Workforce investments are not a panacea. Avoid making decisions without considering their prospects for success, as well as the opportunity costs involved. To take an extreme example, you wouldn’t commit 100% of next quarter’s revenue to new training programs. Instead, you want a good return on investment (ROI) from your employee investments.

Measuring ROI for Employee Investments

With training programs, you can utilize work logs or other qualitative assessments. Programs that don’t generate enough improvement should be adjusted or shuttled in favor of better ones. These are probably the easiest investments to identify cause-and-effect relationships.

With networking, culture of pride and empowerment investments, measurement is trickier. You may have to rely on observations, self-assessments, team reviews, etc. Emphasize communication between coworkers, managers and executives. Each employee has very specific and localized knowledge about what makes their job better or worse, and they should know if an investment shows promise.

Fortunately, industry associations and other peer network groups probably include owners or managers who have already tried these techniques. Use your professional network (or even the internet) to search out investments with proven track records.

Considerations for Employee Retention

Pay attention to workforce demographics. Succession planning means, in part, making sure that all the key people aren’t lost or growing old at the same time. Much like an apprenticeship system, more experienced workers should impart knowledge to greener workers. Your investment in people gets re-invested this way.

Workers with higher skills command higher wages, on average, than workers with lower skills. Ideally, an investment in an employee means more revenue for the business. This leaves room for higher wages down the road. It doesn’t always work this smoothly, however, and you shouldn’t encourage development that will ultimately push your talent to higher paying competitors.

…and When Investing in People Doesn’t Make Sense

Training is often expensive, especially in traditional formats. One think tank, the Human Capital Institute, estimates it can take as long as six months for a new employee to possess the skills to break even on their salary. (Indeed, a potential buyer may be extremely reluctant to acquire your business if he/she fears having to train all new staff.)

If your business (or industry) experiences a very high turnover rate, new investments in people may quickly be lost for some other employer to capitalize on. These types of businesses should be very selective about their workforce investments.

Even if you identify the best employee development systems, whether networking or training or any other, you still need the capacity and skill to implement it. If there is a good chance that nobody in your business has the necessary prowess, look to a third party. Otherwise, it might be best to find another system.

[Editor’s Note: To learn more about this and related topics, you may want to attend the following webinars: Welcome to the Team! Recruiting and Hiring, Including Restrictive Covenants 2019, Show Them the Money: Wage & Hour Compliance and HR-101: Finding, Negotiating With & Retaining Potential Hires. This is an updated version of an article that first appeared on June 15, 2016.]

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About Michele Schechter

Michele has been a director with Financial Poise since 2012.

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