Over the past couple of months, I have challenged a number of my clients with the following question:
“Are you acting as owners of the business or as an employee of the business?”
When challenged, those clients struggled to come up with a definitive answer, so I explained it this way:
- Acting as an Owner – An Owner of the business is the person who invests significant amounts of capital into the business (both financial & emotional) to fund the establishment of the business and the continued growth of the business. As a result, an Owner will be looking for the Return on that Investment (ROI). The level of acceptable ROI must always be above that which an Owner could earn by making a safe investment (such as in a bank deposit) with the equivalent available funds to reflect the increased risk being taken. As general benchmark, an SME business should provide an ROI to its Owners of between 15% to 35%.
Accordingly, the interests of an Owner well be best served when the business is operated in a way that maximises the ROI. The focus therefore of an Owner is orientated towards the short term by continually assessing whether the funds invested in the business are achieving an acceptable ROI when compared to other available investments.
- Acting as an Employee – An Employee will be motivated by an assessment of the risk and return of putting their mental and physical exertion into the business and expect to be remunerated accordingly. In making that assessment, an Employee will be looking at the future of the business and the potential for career development within that business over the long term.
In other words the best interests of an Employee will be served by the business making decisions that ensure the sustainability of the business over the long term.
As an Owner working in a business, the Owner will want both the ROI as well as to be remunerated for working in the business. However, my experience is that whilst the Owners may want both they will tend to focus one aspect of this equation not both.
At this point the next question from the client is invariably:
“How can I tell whether I am acting as an owner or as an employee?”
To which my response is:
“The answer to that question will in the end come down to how you are feeling about the business. If you are feeling bound to your business in much same the way you feel bound to a job, in my view you will be highly likely acting as an employee. On the other hand acting as a Business Owner means you will always be proactive in thinking about and making the investments required to build the business you dream of creating.”
Which role are you playing?