Employees are Turning the Tables — How Entrepreneurs Should Change Their Annual Employee Reviews

Oct 08, 2024 09:30 PM - 4 months ago 152075

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I emotion it erstwhile an worker turns the tables connected me.

It's portion of my life's activity to dispersed the worth acceleration mindset, helping businesses that mightiness beryllium successful go important arsenic well. Simply put, the Value Acceleration Methodology is simply a worth guidance strategy that gives you a strategical model for exit planning — and, therefore, business planning. Income is important to a business owner, sure, but the existent attraction needs to beryllium connected creating worth — much connected that later — truthful the proprietor is well-positioned erstwhile an exit comes to harvest the wealthiness they've been building.

Yet, present I sat, successful an annual review pinch a young, move worker talking astir the aforesaid aged things we discussed successful yearly reviews: hitting goals, creating revenue, etc.

Until she turned the tables connected me.

The reappraisal had gone well. She'd deed each of her goals, and I was offering a generous raise arsenic a result.

Until she wanted to talk astir value, too.

Turns out, the Value Acceleration Methodology we espouse astatine my business, Exit Planning Institute, was ingrained successful her.

Related: It's Time to Prioritize Regular Performance Reviews—Here's Why Reviews Are Essential for Employee and Company Growth

Value from the intangible

Creating worth depends connected the 4 intangible capitals that each business has:

  • Human capital: The spot of your people, really they execute, accommodate and innovate, and really they tin deploy themselves independent of you, the business owner.
  • Customer capital: The spot of your relationships passim your proviso chain, pinch unfastened connection and shared goals and benefits.
  • Structural capital: The spot of your strategy, systems, processes and financial building — and really good they're documented, proven, scalable and transferrable.
  • Social capital: The spot of your culture, creating a hit that keeps going and elevates your company.

So, aft we were done talking astir the gross goals she was capable to thief america deed — a motion of occurrence — she wanted to talk astir the intangible superior and value she was capable to turn complete the past twelvemonth — a motion of significance.

Here's an example: She documented the elements of her strategy from past twelvemonth and really she delivered connected each of the organization's occurrence factors. She produced much leads, resulting successful much closed business, generating much revenue, and creating a bigger and amended brand.

But what she wanted to talk astir was value. She had prepared a worth expanse showing really the strategy and occurrence factors contributed to the 4 intangible capitals and, therefore, the worth of the business. She highlighted really she made the business scalable and predictable and really she could decentralize maine from her department. Bottom line: She created value.

In our statement of work, worth is simply a multiplier. Value helps businesses waste for 12 times the nett profit alternatively of five, for example. It besides helps owners harvest wealthiness erstwhile it's clip to sell.

Related: Want Customers to Love You? Treat Every Customer Like They're Your Only Customer

Changing the worker review

That 1 gathering changed the measurement we do our yearly reviews. As an entrepreneur, I'm focused connected income. But income twelvemonth complete twelvemonth isn't the existent wealthiness I'm creating successful my business — it's the wealthiness I'll beryllium capable to harvest erstwhile I exit. It's not a process that starts correct earlier the waste — you person to beryllium creating worth constantly. And getting labor to own value — and truthful thrust value—is 1 of my main priorities. We did it by changing the capacity reappraisal from the metrics an worker deed to really overmuch worth they created.

How should you do it?

Step 1: Define your values

We person 7 halfway values successful our organization, and they're based connected the 4 intangible capitals I mentioned earlier, arsenic good arsenic different items that thrust worth for our business. We specify them and usage them arsenic a roadmap successful our reviews.

Step 2: Rate your values

We person managers complaint their labor connected really good they're gathering that value—with examples. Employees gain a D for "demonstrating" aliases a V for "visit."

If the worker can't tie immoderate examples of really they created worth wrong the halfway value, it's a V. They judge successful it, but they're not demonstrating it. Employees person to articulate really what they did — and the goals they deed — drove worth for the company. It doesn't person to beryllium quantitative, and often it's not. It tin beryllium astir creating processes aliases really hitting a extremity decentralized maine arsenic the proprietor truthful I tin attraction connected higher-order items.

Step 3: Reward value

Instead of a capacity inducement for generating revenue, person a prize building that rewards driving value. It tells labor what really matters, and successful the end, it's what makes your institution important (and makes you much money successful the end).

Related: The Definition of Value Is Changing—Here's What Entrepreneurs Need to Know to Survive the Shifting Global Trends

Beyond the review: Overall value

Every manufacture has a codification that the U.S. authorities uses to categorize your business type. When you activity pinch an exit planner who's a CEPA, they tin look up businesses for illustration yours and show you what aggregate of nett profit they're trading for.

Let's opportunity the scope for your classification is 3 to 8 times nett profit. The businesses trading for 3 times nett profit apt didn't attraction very overmuch connected driving value, alternatively worrying astir revenue.

In the end, erstwhile you tin exit your institution connected your terms, your year-over-year gross will matter, but not arsenic overmuch arsenic value. If your business is transferable, you person a awesome product, your civilization is excellent, and you person bully customer relationships, you've created value. And that worth is what the adjacent proprietor is looking to bargain — and will salary for.

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