Capitalism, Marxism and Micro Capitalism

Dollars

A few years ago, I was a rapidly rising star in a now defunct company. In spite of my lack of education (no degree) and in spite (or maybe because) of my lack of experience, several members of management were very gung ho on my vision and attitude. I like to make things happen, and I really like to help my bosses make money. I never thought of myself as a potential leader of the company.

The old General Manager, Joe Green, had a way of seeming to try to never actually do anything, to never have an action or a decision that you could pin on him. As horrible as this sounds, it had successfully allowed him to draw a 6 figure salary for over 8 years, so in a way, I have to respect him for that. Due to the collapsing economy, our ownership eventually had to relieve Joe, announce a 10% across the board pay cut, including the Sales Reps commissions!

I was distressed. My first reaction was to look for a job. But I sat down and thought about it. I had a great job, doing work that I loved and was good at, and prior to the pay cut was almost making as much money as I felt I was worth. I had recently turned down a 20% pay raise running a competitor’s company. The job change would have meant longer hours, more responsibility and a pretty good chance I was walking into a system designed for failure. So I still wasn’t in a hurry to leave, but I found the pay cut unacceptable, not only for me, but especially for the line workers making half my salary.

During the meeting where he announced the pay cut, the owner explained that we needed to generate $6 million dollars in annual revenue and we were on track for just above $5 million. His choices were to sell the company at a ‘fire sale’, shut the door and right off the $5 million capital outlay from him and his partners, or to make a temporary cut and try to build back up to profitability to the point where we would all be restored to our previous salaries and commissions. He was choosing the latter.

After the meeting, I spoke to a few of the employees who had been with the company for over a decade. They said a few years earlier, they had all been given a 10% pay cut and it had never been restored. That night, I drew up a plan. I was very excited about it, and thought it would almost guarantee our company making it to the next level, to the 20-50 million dollar annual revenue.

I had looked at recent balance sheets and other financial statements, so I knew all labor combined from the first sales call to the close to engineering and production and installation equaled 25% of all revenue, and he had just cut 2% of that by relieving us of our commander and another 2.5% by slicing our pay.

My plan called for making the new pay permanent, then offering a 10% raise for every 10% increase in revenue or other increasing the net profitability. My idea was to not restore our actual pay cuts, but to take the guys making $25,000 who were now on track to make $22,500, as well as the very top executives who remained after Joe was terminated, the $75,000 who now made $67,500, and restore the 1,000,000 times .25, or $250,000 evenly across the 50 total employees, or $5,000 each, and not only that, every time we increased the gross profit number by an additional million, we all would each get another 5K, of course, at some point we would max out our efficiency and have to hire more people at various positions. These increases would go on forever, 25% of our revenue would be dedicated to the labor component, with each employee participating in a way that meant it was possible for each person to earn $50,000 – $75,000 more than the new base salary.

The next day I asked for a few minutes of the owner’s time. We sat down and discussed my proposals. Besides what I have laid out above, I expressed my belief that we needed to pick a new GM almost immediately. He disagreed. Let it shake out he said. He said he liked some of my ideas about the incentive plan, but he thought it ought to be proportional. He argued two things, one, the people we paid the most were worth the most, and should benefit the most for success and he was dead set against letting the labor factor stay fixed to fund the incentives as we grew more profitable.

“What about the stockholders?” he asked.

“What about them?” I replied.

“They are 5 mil into this company already.”

I asked him how much the company was worth at that moment. I suggested it was worth a dollar. He corrected me, less. It was of negative value if you took the outstanding debt against market value.

“I said, ‘there is your answer!’”

“What do you mean?”

“Well, you stockholders own a bankrupt company, if we, the 50 people who show up for work every morning can build you back to profitability, then it is as much our company as the folks who invested in it and let it go bankrupt!” I said. Then I continued, “I am not asking you to make us share holders, its still all your company. I am saying the only way you aren’t out 5 mil plus whatever the company owes to the bank is if you treat us as your partners, not your employees. You come in here and TELL us we are getting a pay cut, you better be damn sure to let us know how you plan to get our money back, and you should have a plan to reward us beyond that if we can save you while saving our jobs.”

“I will think it over, but I think I want the new GM to introduce this incentive, and I think I want to wait three weeks to introduce the new GM, but I am pretty sure I am not comfortable with building the incentive to do more than restore the lost wages and maybe add 10% and it needs to be proportional.”

I said, “Well, it is your company, but I think you are making a mistake by not appointing a new chief and by not telling the folks here about a plan to get their money back. I also think you need to uncap the incentive and make it equal, because if you give EVERYONE here an equal incentive to maximize profits and reduce waste, you will succeed beyond your imagination.”

He did mention to some key people that he would announce a new leader in three weeks and that he was working on an incentive program. Then he left, as he had several other businesses, we rarely saw him more than a few days every month or so.

When he came back, we had more meetings. In the first one, he praised us for really turning things around. It turned out the previous GM had been a mobile rain cloud. He dampened everyone’s efforts to the extent that we were all able to make a marked improvement, we were now tracking at over 6 mil in revenues and profits were up, as were collections! He then asked us if we had any suggestions. Most of the other department heads had something to say, I turned to a clean page in my legal pad and wrote two letters that covered the page, then I held it up like a sign: GM.

Everybody laughed. The owner said, “But you all have done such a great job!” I said, “We have been running on adrenalin, on fear, and on the joy of not having Joe holding us down, but we need a leader!” I looked around the room and said, “There are seven other department heads here, you pick anyone of them, and I will follow them, and I am pretty sure the rest will, too.”

He came back two more times before he picked his leader. I was truly shocked because he picked the most competent and probably the smartest person in the company, Jose. Jose had come to America by way of Europe, he was an engineer, and a businessman from Brazil. Because of his somewhat heavy accent, and his lack of American certification, the previous GM had always been dismissive of Jose. It was a great frustration to see the talent in Jose being under used, so it was with great joy to see him given the opportunity.

Sadly, the owner never pursued the incorporation of the “ownership/partnership” plan I had laid out. As the economic times grew tougher, we lost more and more key people, including our new GM. Jose is now very successful with a larger firm in a different line of work. I am happily employed in the wholesale department of an old established company. Before all the doors closed, before Jose even left the firm he told me that the owners very nearly picked me instead of him. I am glad they chose him, though I wished they had listened to my plan.

My wife told me she thought I was too much of a Marxist. That I scared them off with the equality talk, with the partnership talk. Maybe she was right, but I wasn’t a Marxist then, and I am not one today. I believe in Capitalism, but I believe every employee is truly self employed, and the company that recognizes this and encourages the employee to become an active partner will be a company that succeeds for many decades to come.

I believe in Micro Capitalism, with each employee acting in cooperation with his fellow employees, but as an owner, one who participates in the wealth he creates, not at the expense of the capital partners who bring money, but never show up for a day’s work, but in an expanding base of wealth for the stockholder whose company goes from 5 million to 20 million in sales and the profits go from 50,000 to 3 million. Both share the wealth in a way that is more than either would have had without the true partnership. You wanna call it Marxism, fine, watch your company wither and die when hard times come.

Think of it as enlightened capitalism, or micro capitalism, where each part of the team gains from the success of the whole, where turf battles are converted to profit opportunities. Can Wholesale help Retail? Can Engineering help Production? There are endless opportunities if one can ungrasp the meager fist full of dollars and allow the wealth of a fully engaged team to succeed.

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