(With Apologies to Phil Musick*)

I’ve never written one of these columns, but in cleaning out my notes the other day, I realized I had many, many thoughts; none of which are expandable enough to create a full-fledged column.

Hence, this shortcut.

Sing along with me now.

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Observation: There are no shortcuts – Everywhere I go these days I find trash discarded randomly. It makes me ill. Especially when our kids see it.

But of all the gutter-filling refuse in this town, there is one preeminent package and that is a small plastic bottle labeled, “5-hour Energy”.

Who the hell is drinking all of this crap? Because it is first and foremost that --- crap. It is by no means natural, and for all intents and purposes, consumers of this poison are subjecting themselves to both immediate and long-term (genetic) harm.

But putting that aside, the primary thought in my head when I see one of these bottles or their brethren is, “Shortcut, shortcut, shortcut.” Essentially, all bottled remedies are shortcuts. Instead of getting a good night’s sleep, 5-hour Energy (FHE) is taking full advantage of the fact that people will part with their cash if it means they can cheat Mother Nature and stay awake and alert during times when they should instead be sleeping.

I have only two signs in my office: “It’s about results,” and “There Are No Shortcuts.”

If you are going to artificially stimulate your nervous system to cheat your need for shutdown time, then you are doing exactly what our federal government is so addicted to --- you are deficit spending. In other words, a bill is coming, and it’s going to include principal, penalties, and interest.

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Observation: One can learn a lot by observing – I know, I know. But how else do I introduce this topic?

I took my son to the movies the other night. We have a routine that includes first finding our seats and then Daddy going back to get the grub. Once I knew that Jaxon was safely ensconced, I went back to the place where all movie patrons get robbed. As my eyes focused to the light, I could see a giant line and then what looked like what ought to be a line, but had no one in it.

As I got closer, my early guess became valid. The “second” line was for “Cash Customers Only.”

“Well, Hallelujah,” I muttered to myself, “Finally, I benefit from the fact that I hate credit cards.”

As I paid (cash) for my overpriced box of popcorn and drink, I said to the young person taking my money, “What percentage of the people pay you with cash?” His response really threw me, “You’re the first one tonight,” he said, “Most nights I get two or three cash buyers.”

I glanced over my shoulder to the “other” line (the overhead sign there said, “Credit/Debit Card Buyers Only”) and asked one last question, “What percentage of those people (jerking my thumb in the direction of the other line) use the ‘credit’ option?”

“It’s probably half and half,” he opined, “Maybe a little more credit than debit.”

As I went back to my son, I found myself a bit bedazzled. I remember thinking, “A credit card for an $8.00 bag of popcorn and drink. The processing charges alone probably eat up a good 20% of that.”

Again, you can learn a lot by observation. This one act play, combined with my aforementioned bottle of FHE, tells me why we are having riots in the streets. Put these two seemingly disparate clues in the hands of a great forensic economist and he or she will tell you that you are looking at a nation of overworked and “over-borrowed” people. (There is just no way to infer from those clues the fact that our nation is also bifurcated into “payers” and “takers”. More on this later.)

And it would be very, very easy to add in the phrase, “frustrated”.

I define “frustration” as the “distance between actual and perceived realty”; with perceived realty being that which our omnipresent screens portray almost every time we see a television show or movie.

You know what I’m talking about: the cars are always late model and the perfect actors adorned with the finest in clothing and jewelry. The homes all sit high above the city, laden with the latest technology and convenience-providing equipment.

Actual reality is quite different, is it not? At our house right now, a chair forces the freezer shut. It looks like hell, but I refuse to pay for another compressor. We have at least three or four screens that are bent or in some way broken. Again, it’s an expense I can defer.

Our heightened awareness of “how the other half lives” sets up the paradigms of our frustration. Our television and computer screens show us these people (again, perfect in all aspects) and their possessions as we drift off into our uncomfortable sleep state.

The next day, we step into our own lives.

Instant frustration.

And so we reach for the bottle of pills. Or, we charge the candy bar that we probably didn’t really need in the first place. (But it felt so good when we ate it.)

Look around the next time you are in any public place. You’ll see symptoms of this same disease. Then ask yourself, “Where does this end?”

It’s a frightening thought.

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Observation: Make sure everybody pays their way – This may sound cold, but I stopped seeing “employees and associates” as “employees and associates” some years ago. Probably 30 years ago.

When I see someone on my payroll, I really see two things:

• Their Predictive Index (for those of you who don’t read these columns regularly, these are the sum and substance of an individual’s personality) – you can learn more about the PI by reading the relevant column from June 23, 2011, and,


• Their burdened cost to the organization.

It is this second metric that I want to spend a few minutes talking about.

Have you ever sat down and, as a business owner, calculated the revenue offset for each one of your people? By “revenue offset” I am referring to the amount of money you must generate in order to cover that particular individual’s true cost.

I didn’t think so.

Well, you should. And here are some tips:

• First, the cost-side. Here, you must start with the total compensation (salary, bonuses, commissions, the like --- all cash out).



• Add to this the cost associated with everything from Social Security contributions, healthcare, workers compensation insurance, life insurance, paid vacation and holidays, sick days, parking passes or offsets, discounted meals, and any other benefit unique to your organization.

  For sake of simplicity, I usually add in here a number equal to 30% of the compensation. So, if my total comp to any employee is $50,000/year, I figure that my real cost on that person is $65,000/year.



• Finally, one must also consider all costs related to what I call “housing” that worker. Some might argue that this is a sunk cost anyway. I don’t. So, I add in a percent of my rental, insurance, and operating costs. This tends to add anywhere from 5% to 10% per employee to the equation.

So, let’s say that my total cost on our sample person is roughly $70,000. Is this the final revenue number I need to “recover” from this individual?

Of course not. Nowhere in that equation have I covered my profit margin. Or, other fixed and variable costs.

The general rule of thumb is that a business should recover some multiple of each employee’s cost. And it doesn’t matter if that employee is on the “making” or “selling” side of the business. (Note: Regular readers get tired of reading that I consider all employees to be doing one of just two things: “making stuff” or “selling stuff.” I do allow for one person to “count stuff.” But I’m taking that individual off the table in this analysis.)

On the revenue side (the “selling” side) I want to see a multiple of 2.5. That is, if someone costs me $100,000, he or she has got to provide revenues of at least $250,000.

I know this sounds large, but it works for me. It takes into account all of the costs mentioned above, including profit margin, monies for R&D, reinvestment in infrastructure and equipment, mistakes, and all of the various insurances and legal fees. (Legal fees --- how I hate legal fees.)

On the “making” side, I’m less penurious. Here, I’ll settle for 150% of costs. But this gets tricky. For how does one calculate “costs” for someone who is part of the manufacturing process?

We all have our own formulae. Mine is so arcane that I dare not get into it here. Let’s just say that it is a combination of quality control management (remember, it costs far less to fix a problem in the factory than in the field.) This philosophy applies whether or not you are a traditional manufacturer. It also takes into consideration your “throughput.”

Longevity also plays a role on both sides --- but more so on the production (the “make it”) side than it does on the revenue generation (the “sell it”) side. People simply become more efficient over time. This must also be considered.

And don’t overlook turnover. The single biggest cost in any organization is the cost of replacing people! We’ve been through this before; one must recruit, interview, test, re-interview, a minimum of five to ten people just to keep one. Once you get that one person identified and hired, he or she is then entitled to a “honeymoon” period of three to six months. During this time, your productivity is minimized.

Should the individual not work out, that whole process starts over. Except that you are out all the dollars and time related to the hiring process.

So, what’s your number? If you’ve got staffers sitting around looking for things to do (and they’re good with numbers) have them do the calculations. If you’re small, do them yourself. Once you become familiar with the data, you’ll shortly be able to create your own standards.

But once you have this data, you’ll also begin to find ways to continually improve all of your processes. That’s something that must never stop.

Finally, and before someone writes in to tell me how cold-hearted I am for seeing people as I’ve outlined above, please understand that I have probably spent a half-million of my personal (and after tax) dollars over the years, helping those people in their personal lives.

I have done everything from bailing them out of jail to making their mortgage payments to paying them to stop smoking.

I have put their kids through college and paid their airfare to attend family funerals. I have dried them out from their drug addictions, and I have held their hands when their children were sick.

This is a tough proposition for all business owners. You become very attached to your people just like you become attached to your own family. In some cases, you spend more time with your business associates than you do with your family.

All this and yet I can tell you that, and on the day the IRS took my house and cars, not one of my employees came running up my driveway waving cash or check, in an attempt to stave off my loss. In point of fact, I honestly cannot recall any employee ever once coming up to me and saying, “You do a hell of a job running this company.” (Maybe that’s because I don’t?)

If you’re a business owner, you know what I’m talking about.

But you’re not in it for the praise. You understand the rules of this game.

But it’s all ok – I really don’t care if I’m revered or loved. I just want to be someone who is consistent and available. So long as I can provide employment and produce meaningful and relevant products and services for society at reasonable prices, all is fine.

Now, go figure out those costs.

(*And I may even be wrong about Musick. That phrase might belong to another, now-departed, great Pittsburgh columnist.)