My friend “Roy” is a talented businessman and — in most respects — a natural-born entrepreneur. He’s made several fortunes in his life, but he’s lost them too. As I write this, he is starting over again — for the fourth time. “My life has been a roller coaster,” he said to me over a beer the other night. “And I don’t know why.”
I know why. Roy is missing one key characteristic of an instinctive wealth builder (IWB). That characteristic? Trust.
I’ve read half a dozen books that identify the qualities that distinguish moneymakers from the rest of humanity. A few of them have been very good. Whatever Brian Tracy or Jeffrey J. Fox say on the subject, for instance, feels true to me.
But they’ve never written about trust.
Yet, trust matters.
The capacity for trust, in fact, is an essential characteristic of the IWB.
Let me tell you why.
Roy’s first three businesses took off strongly because he had good instincts about what products to sell and he quickly became adept at whatever selling method was most appropriate for those products.
I watched him develop a $10+ million business three times. And all three of those businesses fell apart at that level.
As you know if you’ve read my book Ready, Fire, Aim, entrepreneurial businesses naturally disintegrate at the $10+ million level (what I call Stage III of their growth) unless the entrepreneur is willing to cede a good deal of his authority to professional managers.
In Ready, Fire, Aim, I said:
“Your [Stage III] business can’t continue to grow without corporate executive types… even if the sound of it gives you the creeps.
“To get to the next level [Stage IV], you have to solve big problems you’ve been having. And the solutions need to be foundational, not temporary patches that will fall off over time. You need to have all your operational activities running smoothly. That can be done pretty easily if you are willing to let these people help you. That’s what they are trained to do. Give them the tools they need, and let them go to work.”
But Roy could never do that. When his businesses were in the greatest need of disciplined marketing, fulfillment, and accounting, he refused to bring in top-level people to get the job done. Instead, he kept pressuring the people he had. They were good, hardworking people, but they were not capable of running a business of that size.
So things started falling apart. In Roy’s first business, it was the marketing. In his second business, it was customer service. In his third business, it was product quality. All of these problems could have been easily avoided if he had hired top-notch managers to take control. But he never did.
He just couldn’t trust them.
You see, it was impossible for Roy to trust any employee who was smarter than he was. He assumed that very smart employees would figure out a way to take advantage of him. Roy didn’t like being taken advantage of. He obsessed about it. So his solution was to hire only people of modest intelligence.
That might seem bizarre. Even farfetched. But it’s as common in the entrepreneurial world as chicken pox is in a primary school.
In past issues of Early to Rise, I’ve written about one of the best-known marketing gurus of our time. He is, without a doubt, a marketing genius. He has made a seven-figure income for as long as I’ve known him. But he has never built a business of any value. And because he doesn’t have a business to fall back on, he will spend the rest of his career working 60 hours a week.
The reason he hasn’t been able to build a business is because, like Roy, he cannot trust people. He doesn’t trust his employees well enough to hire great ones. And he doesn’t trust his partners well enough to establish long-term relationships.
There’s a guy I know who has opened two very successful bistros. He has a great personality and is a natural at marketing and merchandising. His restaurants outsell any others like them in South Florida. Whenever I have the chance, I go to the one near my office to have lunch.
The other day, I walked in… and found out that he had been “fired.”
“Fired?” I said. “I thought he was the owner.”
“He was a partner,” his replacement explained to me. “But the other guy had the money.”
“So why was he fired?”
“I don’t know. It was something about the accounting.”
“Something about the accounting” means that the money guy believed my friend was stealing. I’m quite sure he wasn’t. But if he was stealing, it was the money guy’s fault. When you are running a retail cash business, you have to make it impossible to steal. If he had done that, he would never have felt compelled to fire my friend.
But he did — and he thinks he has solved his problem. The truth is, his problems have just begun. I won’t go to that restaurant anymore because I went there to see my friend. And neither will most of the other customers I know — and I know a lot of them.
My friend, you see, was a rainmaker. And if there’s one person you don’t ever want to fire it’s someone who can make rain. (In my friend’s case, that meant continuing to find ways to bring in new customers while keeping the old ones coming back.)
Now you may be thinking that I’m starting to contradict myself. I’m arguing that the money guy made the mistake of trusting my friend with the money. He was too trusting, you say, not lacking trust.
But I don’t think that’s what happened at all. I believe my friend was fired precisely because the money guy realized that he had created a business that depended entirely on my friend’s skills and talents. Because the business was dependent on my friend, the money guy felt insecure. And because he couldn’t figure out how to properly monitor the books, he fired him.
When Eddie, one of my real estate partners, talked about the salespeople he worked with, he’d often say, “Salespeople are all whores and thieves.” (He was very direct.) Then he’d add, “But they are the ponies you are betting on. When a champion horse loses a race, you don’t kill the horse. You get another jockey.”
That’s what the money guy should have done with my friend. Instead of fearing that my friend would steal from him, he should have hired a good accounts manager to oversee the books and let my friend do what he does best… which is make rain.
It all starts with trust. Not blind trust, smart trust.
You must be smart enough to know that to develop a big business you will have to eventually hire people who are smarter and more talented than you are.
You must be smart enough to understand that everyone is interested in his own career and happiness. So you must be smart enough to create a system of rewards that encourages those smart and talented people to work to their full capacity.
To do that, you have to give them a lot of freedom — the freedom to sell and promote your business, not the freedom to control the books. Accounting and legal issues must always be under the control of a competent manager who works directly for you. Once you have that in place, you need to trust your good people and let them do their jobs. If you learn to do that, your business growth will have no limits.
If you are not now a trusting person, here are some things you can do to change this aspect of your thinking:
- Make it a policy to hire the smartest and most ambitious people you can. If you feel scared by someone, figure out why you are scared. If it is a question of character, don’t hire him. If it is a matter of intelligence and talent, realize that your reaction is an obstacle in your way. Overcome your trepidation by reminding yourself that you are in charge of the relationship. That person is there because you have something he wants, something only you can give to him: his future.
- When you encounter anyone who is smart and talented, tell him that he is the kind of person you like to hire. If you say it right, it will flatter him. When the day comes that you need him, he might be happy to quit his job and come to work for you.
- When you hire people, make sure you provide them with all the resources they need to succeed. And develop a compensation program that will keep your new employees happy and motivated. Resist the urge to be stingy. When it comes to talent, err on the side of generosity.
- Realize that one day your superstars might be making as much as or more than you. Look forward to that day.
- Keep in mind that what any good employee most wants is the ability to showcase his talents. And when he does a good job, he wants recognition for it. Those two desires only you can fulfill.
But, like I said, it all starts with trust.
And here is how trust works — at least for me.
I don’t actually trust the other person per se. My trust is entirely invested in me.
I trust that if I create the right opportunities and provide them with good compensation and acknowledge their accomplishments, the employee (or partner) will stay with me.
I trust that if I am honest and straightforward with an employee (or partner), he will generally return the favor.
I trust that if I take a genuine interest in a superstar employee’s career and truly do everything I can to smooth his journey upward, he will realize what I have done (more and more as he has the experience of having people work for him) and reward me with loyalty.
Meanwhile, I trust the employee to continue to be the person he has always been. That’s why, when I do job interviews, I am always looking to be sure that the candidate’s character is as strong as his intelligence and talents.
I also trust people to be human.
Being human, most people are either honest or want to be honest. But I also know that if I make it too easy for them to cheat or steal, most people will take advantage. This is equally if not especially true of smart and talented people. To keep my employees honest, I maintain control of legal and accounting issues, as I’ve said, and I give them my trust — which is by far the most important thing. As the author and poet George MacDonald said, “To be trusted is a greater compliment than being loved.”
I also recognize that a little larceny won’t kill a healthy business. When I set up auditing and accounting procedures, I make them reasonable, not Draconian. When it comes to my employees’ time, I am liberal too. I kid them for being late or missing days, but I don’t penalize them for it. I trust that they know as well as I do how much time they have to put in if they intend to succeed.
My final word on the subject is this — and I paraphrase motivational writer/speaker Frank Crane: You will never be deceived if you do not trust, but you will never become wealthy unless you do.[Ed. Note: Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]