Don’t Put All Your Eggs in One Basket

Yesterday, Jeff Haden posted an article for Inc.com called “Can You Afford to Fire Your Superstar?” In the article, a reader asks whether or not to fire a salesperson that brings in almost half of the company’s revenue but was caught in an ethics violation.

The article brings up a key issue faced by many small business owners: over-reliance on key team members.

The most common way this issue rears its head is a lack of succession planning and an owner that is intimately involved in every detail of the business. If the owner is responsible for too much, #1) he/she will never be able to sell the business because no business exists outside of the owner and #2) if something were to happen to the owner, the business would fall apart (and likely so would the owner’s personal finances).

The same thing can be true if a business owner relies too heavily on any individual member of the team. A business’ success should not be based entirely on one person, and most certainly not on one employee who doesn’t have a vested interest in staying with the company for the long haul. If your company would fall apart if you lost one of your team members, you need to make some changes to strengthen the foundation of your company so that you can withstand any unexpected issues (your star gets a new job, is somehow rendered unwilling or unable to continue performing his/her job, or you are forced to fire them for some reason).

Running a company is an investment. Just like in investing, you should not put all of your eggs in one basket. In the spirit of strengthening your business’ resilience against unforeseen issues, here are some tips for limiting risk from a lack of diversification:

  1. If an activity is absolutely vital to the operation of your business, there MUST be more than one person that knows how to do it. If you have only one employee capable of performing a task that has the power to stop and start the business, you’re setting yourself up for disaster. Make sure to cross-train employees on vital duties so that, in an emergency, there is someone who can step in and pick up the slack temporarily while you find a replacement for the key team member.
  2. Keep track of your reliance on individual team members, just as you would your reliance on any individual client. Most  business owners know that if too much of their revenue comes from a single client, they are in a dangerous position because they could lose the account, and then lose the entire business. The same holds true of employees, so you need to pay attention to this metric as well. If you spot a troubling trend – like the company in the article who has one employee generating half of the revenue – you need to take steps to correct it. Immediately. As the author states, if one sales person is so drastically out-performing all of the others you should take a look at your hiring and training processes and any other policies at your organization that could be affecting performance to quickly identify the issues and make the changes necessary to create a better productivity distribution so you are not reliant on just one team member for success.
  3. Know how long it would take you to replace key team members. You should know roughly how long it would take you to find a suitable replacement for any key member of your team so that you can have a backup plan in place that will cover you for at least that amount of time. Typically, the more skilled and/or experienced a person is, the tougher they are to replace. You also need to be cognizant of how competitive your salary and benefits are in your area, how large the pool of qualified applicants is in your area, what your company’s reputation is, etc. in order to gauge how long it will take you to fill the spot. Additionally, at small companies even more than large ones, cultural fit is key. You’ll likely need to add in some extra time to make sure you find someone who is qualified and a good fit for the team dynamic. Of course it’s not pleasant to think about what would happen if your best employees left, but you need to have a crisis plan in place so that you’re able to survive if one of them does.

Clearly, the best scenario is you hiring well and keeping your employees happy so that you never have to fire or receive a resignation letter from your top performers. However, the reality in business is that, eventually, you will lose some team members. The tips above will help you be prepared so that you can make a smooth transition.

If you have any additional tips, please share them in the comments section below.

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One thought on “Don’t Put All Your Eggs in One Basket

  1. Pingback: Weekly Roundup: Feb. 26th – Mar. 3, 2012 | NewVentureMentor

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