Show Notes
Shane asks: "My best employee wants to be a manager so he can earn more money. I don't have a management structure."
In this episode, Scott reframes Shane's problem (it's not structure—it's economics), explains the ROI mindset for employees, and shares the 10X principle from his first boss at Hertz. You'll hear the gas price story (justifying salary in year one), learn about Cursor's 20X model, and get a copy-paste conversation script for raise requests. Plus: the economic unit cost framework for tying pay to production.
The bottom line: Want $150K? Show me $1.5M in value. Align pay with production, not titles.
Got a business question? Ask Scott here: scotttodd.net/ask
📜 Full Transcript (Click to expand)
Scott Todd (00:00)
Welcome to Fix My Business. I'm Scott Todd. In the last 10 years, I have built three seven-figure businesses. And today we are going to help Shane get unstuck with his business so that you can make sure that you're not falling into the same trap. So Shane writes, my best employee wants to be a manager so he can earn more money. I don't have a management structure. Shane,
I don't think that you have a problem with the management structure. I think that's false decoy. I don't think that at all. I think that what's really happening here is that your employee doesn't understand basic economics. And maybe it's time to have a sit down with them and explain it you. So let me explain. One of the traps I think people fall into, especially employees, is this trap that, man, I'm being paid some rate. I'm being paid some market rate.
that's out there. I mean, I had an employee once that told me I should be making more because the market can pay me more. Well, then you should go where the market's telling you to go. Like that's the straight up answer because at the end of the day, what every business owner needs to understand and every employee needs to understand is that everybody makes money when the company makes money. Personally, I expect an ROI on every team member.
So if I'm paying someone money, well, I expect some return on that investment. It's not a gift. I'm not just paying you to like move some cogs through the system. I am paying you to produce something that's of higher value. Think about that one for a minute. If I pay, if I go out and I invest in some software or I go out and invest in some company, I don't want to just give them my money and think, well, I hope that they bring me back more money. It's somewhat expected.
I give you $10 as an investment, I want 11, 12, 20. And every employee on your team is an investment. It's an investment because you think that you can take some raw material for this dollar amount and convert it into something higher. That's what everybody needs to understand. That's how the system works. And if you're not getting that return on investment, then that's an economic problem within your business.
And the same thing applies to the employee. If the employee wants to make $150,000 a year, and they came to me and like, want to make $150,000 a year, I'd say, cool. That means that you need to show me how you're producing $1.5 million worth of value. I will pay you $150,000 if you can show me how you're producing X amount of value.
And I think a company that's really done that really, really well over the last couple of years is this software company called Cursor. And Cursor has grown their revenue base. I heard an interview, I don't know who it was with, someone from the company and they were talking about how they expect a high return on the investment. I think it was like a 20X production or something to that effect. And what's happened is that company
has grown in revenues to over a billion dollars in revenue with 300 employees. That's somewhat unheard of. It's rare, but it goes back to this mindset that I want a return on investment. And if you're not getting that, well then you really have to have that conversation. And this mindset for me came about when I worked ⁓ the, when I,
Well, when I started in the Fortune 300 company, Hertz, when I started at Overt Hertz, my first boss there told me, he said, hey, I'm paying you this amount of money and I expect you to produce a 10X return for this company. And I want to see it one year from now. I want to see it on a piece of paper of either how you have saved this company money or how one of your initiatives has created more revenue for this company.
I want to see your income justified. And I had never worked in a company like that. I mean, that was just rare for that manager. But it's something I adopted because guess what? I took them to heart. When I went out and looked to save money, I could justify it because I'm like, hey, we reduced this expense. Boom, it's off the expense item. Or when I rolled out initiatives to make us money, when I took that and we did something or we tweaked something,
I logged it. mean, classic example is I went in and I saw I was a financial controller. I went in and I saw that ⁓ a location did not have their gas prices set correctly. We were essentially losing money every time we were selling gas at this location because they weren't following the system. Then I realized that this is not just a ⁓ one location problem, that this was a systemic problem within our local branches. So then I went through and I started looking at it.
ran a report, and then I compared it to gas prices in the local area, scraped the internet, and I identified like, hey, we're losing money here. We put out an initiative, everybody raised their gas prices to the market rate. Guess what happened? Profits went up. I could justify that. Even in a company like Hertz, I could justify that. I had no problem hitting that return on investment on my first year, and I always took that mindset forward.
no matter what job I had, even when I was vice president, I still had that mindset. I expected my team members to do the same thing. Today, I expect my team members and my businesses to do the exact same thing. And if I look at you at the end of the year and I can't see how I've justified the money that I've paid you, well, we have a problem. And I think that really, Shane, what you have to do is you have to go back to your employee and say, I hear you. I hear you.
I want you to make a million dollars a year. I do. I want everybody on my team to make a million dollars a year. I want to make $2 million a year. But the economics say that in order for me to pay you a million dollars a year, you need to produce $10 million a year. Now, what ideas do you have to get there?
And instead of just jumping and saying, you know what? I'll pay you this money today and hope and pray that you're going to deliver the results for me. I wouldn't do that. What I would say is, hey, I'll tell you what. Here's the baseline. This is what you make. This is what the company makes. Show me how you're contributing to the revenue or the profit going up. Profit's important because, look, at end of the day, we can have all the revenue, but we can all give it away too if we're not making any money.
I need you to show me how you're making this profitable and I'll tell you what I'll do. I'll share the profits with you. You bring me more profits, I'll give you more profits in the terms of a salary. That's a fair trade off. So I don't think that we always need to go down and just automatically write someone a paycheck, even if we're scared that they're going to leave, even if we're like Shane saying, I don't have a management structure. I don't think you need a management structure. I think that you need a good...
economics lesson with the employee so that they understand how economics works in this business. Now, there's one other thing that I would encourage you to do, and that's this. I want people to really think about economic unit cost. And what I mean by that is what is your employee delivering and how can you tie it back to results and pay for those results?
Let me give you an example. I own an IT training company and we have contractors that do our training for us. Well, I don't pay them a salary. I pay them to teach a class. That's the economic units of an IT training company, right? Think about that one for a minute. The IT company makes money when we have students that we are training. That's the way that it works. Now, I can't just pay a
an instructor to sit around and do nothing and not train anybody. So we pay trainers when they are training. That's the way that it works. So what does the employee do? Or what does your employees do that you can track on a per unit basis and say, hey, if you up your output, well, I will up your input of cash. All right, Shane, there's some stuff there to think about.
If you have a question, head over to scottodd.net forward slash ask. I wanna get your questions here and answered so that you can get unstuck. And I will see you in our next episode.
Welcome to Fix My Business. I'm Scott Todd. In the last 10 years, I have built three seven-figure businesses. And today we are going to help Shane get unstuck with his business so that you can make sure that you're not falling into the same trap. So Shane writes, my best employee wants to be a manager so he can earn more money. I don't have a management structure. Shane,
I don't think that you have a problem with the management structure. I think that's false decoy. I don't think that at all. I think that what's really happening here is that your employee doesn't understand basic economics. And maybe it's time to have a sit down with them and explain it you. So let me explain. One of the traps I think people fall into, especially employees, is this trap that, man, I'm being paid some rate. I'm being paid some market rate.
that's out there. I mean, I had an employee once that told me I should be making more because the market can pay me more. Well, then you should go where the market's telling you to go. Like that's the straight up answer because at the end of the day, what every business owner needs to understand and every employee needs to understand is that everybody makes money when the company makes money. Personally, I expect an ROI on every team member.
So if I'm paying someone money, well, I expect some return on that investment. It's not a gift. I'm not just paying you to like move some cogs through the system. I am paying you to produce something that's of higher value. Think about that one for a minute. If I pay, if I go out and I invest in some software or I go out and invest in some company, I don't want to just give them my money and think, well, I hope that they bring me back more money. It's somewhat expected.
I give you $10 as an investment, I want 11, 12, 20. And every employee on your team is an investment. It's an investment because you think that you can take some raw material for this dollar amount and convert it into something higher. That's what everybody needs to understand. That's how the system works. And if you're not getting that return on investment, then that's an economic problem within your business.
And the same thing applies to the employee. If the employee wants to make $150,000 a year, and they came to me and like, want to make $150,000 a year, I'd say, cool. That means that you need to show me how you're producing $1.5 million worth of value. I will pay you $150,000 if you can show me how you're producing X amount of value.
And I think a company that's really done that really, really well over the last couple of years is this software company called Cursor. And Cursor has grown their revenue base. I heard an interview, I don't know who it was with, someone from the company and they were talking about how they expect a high return on the investment. I think it was like a 20X production or something to that effect. And what's happened is that company
has grown in revenues to over a billion dollars in revenue with 300 employees. That's somewhat unheard of. It's rare, but it goes back to this mindset that I want a return on investment. And if you're not getting that, well then you really have to have that conversation. And this mindset for me came about when I worked ⁓ the, when I,
Well, when I started in the Fortune 300 company, Hertz, when I started at Overt Hertz, my first boss there told me, he said, hey, I'm paying you this amount of money and I expect you to produce a 10X return for this company. And I want to see it one year from now. I want to see it on a piece of paper of either how you have saved this company money or how one of your initiatives has created more revenue for this company.
I want to see your income justified. And I had never worked in a company like that. I mean, that was just rare for that manager. But it's something I adopted because guess what? I took them to heart. When I went out and looked to save money, I could justify it because I'm like, hey, we reduced this expense. Boom, it's off the expense item. Or when I rolled out initiatives to make us money, when I took that and we did something or we tweaked something,
I logged it. mean, classic example is I went in and I saw I was a financial controller. I went in and I saw that ⁓ a location did not have their gas prices set correctly. We were essentially losing money every time we were selling gas at this location because they weren't following the system. Then I realized that this is not just a ⁓ one location problem, that this was a systemic problem within our local branches. So then I went through and I started looking at it.
ran a report, and then I compared it to gas prices in the local area, scraped the internet, and I identified like, hey, we're losing money here. We put out an initiative, everybody raised their gas prices to the market rate. Guess what happened? Profits went up. I could justify that. Even in a company like Hertz, I could justify that. I had no problem hitting that return on investment on my first year, and I always took that mindset forward.
no matter what job I had, even when I was vice president, I still had that mindset. I expected my team members to do the same thing. Today, I expect my team members and my businesses to do the exact same thing. And if I look at you at the end of the year and I can't see how I've justified the money that I've paid you, well, we have a problem. And I think that really, Shane, what you have to do is you have to go back to your employee and say, I hear you. I hear you.
I want you to make a million dollars a year. I do. I want everybody on my team to make a million dollars a year. I want to make $2 million a year. But the economics say that in order for me to pay you a million dollars a year, you need to produce $10 million a year. Now, what ideas do you have to get there?
And instead of just jumping and saying, you know what? I'll pay you this money today and hope and pray that you're going to deliver the results for me. I wouldn't do that. What I would say is, hey, I'll tell you what. Here's the baseline. This is what you make. This is what the company makes. Show me how you're contributing to the revenue or the profit going up. Profit's important because, look, at end of the day, we can have all the revenue, but we can all give it away too if we're not making any money.
I need you to show me how you're making this profitable and I'll tell you what I'll do. I'll share the profits with you. You bring me more profits, I'll give you more profits in the terms of a salary. That's a fair trade off. So I don't think that we always need to go down and just automatically write someone a paycheck, even if we're scared that they're going to leave, even if we're like Shane saying, I don't have a management structure. I don't think you need a management structure. I think that you need a good...
economics lesson with the employee so that they understand how economics works in this business. Now, there's one other thing that I would encourage you to do, and that's this. I want people to really think about economic unit cost. And what I mean by that is what is your employee delivering and how can you tie it back to results and pay for those results?
Let me give you an example. I own an IT training company and we have contractors that do our training for us. Well, I don't pay them a salary. I pay them to teach a class. That's the economic units of an IT training company, right? Think about that one for a minute. The IT company makes money when we have students that we are training. That's the way that it works. Now, I can't just pay a
an instructor to sit around and do nothing and not train anybody. So we pay trainers when they are training. That's the way that it works. So what does the employee do? Or what does your employees do that you can track on a per unit basis and say, hey, if you up your output, well, I will up your input of cash. All right, Shane, there's some stuff there to think about.
If you have a question, head over to scottodd.net forward slash ask. I wanna get your questions here and answered so that you can get unstuck. And I will see you in our next episode.