EntreLeadership - How to Use Profit to Promote a Healthy Culture

Starting point is 00:00:05 I've always wanted to share our profits with our team. And I've done it a whole bunch of different ways. And about the only thing I'm sure of is we're going to change it. We change it all the time. But we're always going to be sharing. Now, I'm not into corporate gimmicks or handing out extra money just because it's the end of the month. I've always believed that if you kill something and drag it home, you should eat some of it. That's life and that's business.

Starting point is 00:00:30 So if you show up, do the work, create value, and serve customers, and there's something left over, then the people who helped make that happen should also benefit from it. Profit sharing is a way to say, we appreciate you, thanks for all your hard work, you're one of the owners. And we made the decision to talk about it openly as a company. Nowadays, we do it every single month,

Starting point is 00:00:54 because when your team understands how profits work, something powerful happens. They stop acting like employees, and they start thinking like owners, that the moment profit sharing becomes expected, entitled, instead of earned, it stops doing what it was meant to do. On today's episode, Entree Leadership's head coach John Falcons is sitting down with Ramsey Solution CFO, Jeff Williams, to talk about how we share the profits with our team

Starting point is 00:01:23 and how to do it in a way that builds culture instead of entitlement. Let's get to it. Hey, Jeff, thanks for being here today. Glad to be here. Thanks for the invite. One of the hottest topics we get when we're talking to business owners in Entree leadership is profit sharing. That's something that we do, a lot of questions, a lot of questions about how. I just want to start with, should people be doing that and why should they be doing it?

Starting point is 00:01:48 I think if your business is healthy enough to where you can reasonably put aside some money to share with your team, you should do that every chance you get. You may not be able to do it from the very beginning, but I would say having an aspiration to doing that at some point in your growth path, I would encourage you to do that. I hear a lot about, you know, I got a Christmas bonus. Why don't we just give a Christmas bonus? How is it different than that? Well, you could do that, but it takes away the connectivity and the alignment with how the company's doing.

Starting point is 00:02:18 If you call it profit sharing, if you actually calculate it that way and treat it that way, it makes the team feel like they're a part of what's going on. Much more connectivity than, oh, I just got a handout from the boss, from Santa Claus for Christmas. It feels way different. And so that's why we paid out every month. We talk about it every month, because it's a big part of who we are. And I'll tell you, it's something incredibly unique.

Starting point is 00:02:41 I've never been with a company that paid profits sharing down as far down in the organizations as we do. You actually just talked about it at a staff meeting. I did. Talk a little bit about what goes into that, what you share with the team, and if you could, just go ahead and mention which team had the largest profit growth

Starting point is 00:02:57 that you shared this morning. Are you talking dollars or percentage? Just say the big number of which team it was. Oh, the percentage. Oh, okay. It was Entree leadership. Okay, go ahead. Okay.

Starting point is 00:03:10 Yeah, we put a lot of effort into how we communicate that, how we celebrate that because we want the team to know what the outcomes of their efforts looks like. And then also feel the connectivity in their own pocket to the work that they've done. And it's hard sometimes. People that are within a business unit here that are doing work directly with customers, that they're doing work directly with customers, They can see it very easily. Somebody who sits in the legal department or HR department or something like that, they may not be able to see it as close, but we want them both to be connected to it. And so we talk about that in our weekly staff meetings.

Starting point is 00:03:45 Once a month, I'll get up and after we close the books and talk about how we did versus this same month last year and then the month before what we just ended. Just so they can see here's the way things are going. They can see for themselves some level of visibility into how the company's doing. So you just hit on a little bit. I want to slow down a little bit here. I'm not asking you to share the actual numbers, but could you just walk through literally, like,

Starting point is 00:04:10 we share this and then we share this, and the metrics that you're looking at financially that you want the team to know? Because I think a lot of people watching this, they get the idea of profit sharing, but they don't actually know how to do it or what they should be sharing. Yeah, what we typically try to go with

Starting point is 00:04:24 is I start out with just giving some shoutouts. And we hear divide them up by teams this past month, as you just rightly said, Entree was one of the top ones in terms of their percentage growth year over year. We want to help them see kind of how we think about the profit statement as well. And so whenever I talk about any business unit that I'm giving a shout out to, I'll talk about how their top line grew and then how their bottom line grew. And not everybody understands that connectivity, but what I try to do is if the top line's

Starting point is 00:04:51 growing at 10% and the bottom line is growing at 25%, that means that they're managing their expenses really well too. And so I want them to see, because a lot of times on the expenses, that's where a large portion of our team sits because they don't deal directly with customers. But we want them to at least think about that math of here's the part that I can do. I can save some expenses. And we talk about it in terms of the business units at that level. And so whenever we get to the whole company-wide percentages that we put up for the whole team, that's a little bit further down the profit statement after everything else has been paid. It's really how much cash is left over and how much did it grow

Starting point is 00:05:25 year over year because that's the profit we're able to distribute out to all the team. And it's a lot of money. It is. And you've said it a couple of times. I'm curious why. Why percentages? Why do you use percentages? Well, for us, what we've tried to do from the beginning is to let everybody feel how they're connected to it. But again, we're not a public company. And we don't want our financial information out there on the street for other folks who may or not like how much money we would make or how much, how little or much we make. And so we try to keep the visibility of what the dollars are across the company to a very small group of folks from a couple of control standpoint. And there's always something that you do at the end of every, every meeting.

Starting point is 00:06:05 What is that? What's that statement that you just like, you hammer us with it? Well, I want to make sure they, again, they feel the connectivity. And so I always say, y'all remember how this takes place, right? Profits are created when revenues go up and expenses go down. Remember, you're all self-employed. And so that was something that predates me. I just started doing it whenever I was given the opportunity a couple years after I started here. But again, it's a reminder at the end. The last thing we want them to remember is that this is how profits are created.

Starting point is 00:06:35 You can create them two ways. You can either add more in revenue or you can save some inexpensive. It has no chance to get to the bottom line if it doesn't come in the top line. But once it's here, how we manage it down is really, really important. I feel like people get squeamish

Starting point is 00:06:48 when they start talking about profit or just the finances of their business. But we don't do that. Dave hasn't set that tone. Why do you think that is? What connection is Dave making between the finances of the business and what's happening with our customers? Well, part of it's about trust. We want them to know we trust them with this information.

Starting point is 00:07:05 And we want them to see how they relate to that information. And he has always been someone who's very, very transparent as much as he can be on how the businesses are doing and all those kinds of things. Because it's something we want to celebrate. And we want the teams to be celebrated in the process. But we always finish with, remember you're self-employed. And that is, again, one of our core values, self-employed mentality. And we want the team to know that everybody has a hand and how these earnings turn out.

Starting point is 00:07:34 And we want them to feel that whenever we are making that announcement. So you want them to have that sense of ownership. Remember, we're all self-employed. Talk a little bit about what we hope that actually translates to to the person on the call, on the computer, doing their work day in and day out. We want them to remember it. It's the last thing we say before I come off the stage.

Starting point is 00:07:57 We want them to remember it because the next time they're on the phone with somebody and that somebody's got a problem or they're needing help, our help, or they need our advice. We want them to go the extra distance to do that. Like they were the only one here. It was a one-stop, one-person show how hard would they work to make that happen? And it's the same thing for folks who are maybe a far distance from the customer, somebody who's working to fix something on a legal matter.

Starting point is 00:08:22 We want them having the same mindset of the way I walk this out, the diligence that I put in the work that I'm doing, can have a big impact on how much money comes in or goes out. And if we're all walking that way and we seek to do that all the time, it makes a huge difference in how things go. We'll get right back to our episode. You run a business so you already know that bad information leads to bad decisions. And everyone is talking about AI, but AI is only as good as the data behind it. The best AI is built on the best data. That's why I recommend NetSuite.

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Starting point is 00:10:03 out of debt. They're in a good, healthy financial position. They've got a little retained earnings. They're safe and they're healthy in their business. But maybe they're just doing the bonus check at the end of the year like Santa Claus. What's your advice to get them from there to a full-fledged profit sharing program? If they've already been doing that Christmas bonus, they've already got the money accounted for in their budget. And so they can repurpose that and rebranded, if you will, from being just a Christmas bonus to being profit sharing. They can divide it up over the, we do it monthly. They can do it quarterly, annually. We've found that doing it monthly keeps the repetitive nature of it. It gets us on the states 12 times a year talking about this so people will remember it

Starting point is 00:10:38 better. But start small. If you've already got those dollars in there, let's say you haven't been given any Christmas bonus. You need to establish over time an amount of money you can set aside that you don't have to pay to yourself, that you don't have to, that you can, we're just going to put it in retain earnings anyway, and start small. And then we're, but don't ever go backwards. Because once you get to a certain level, and if you go backwards, it feels like a pay cut for folks. Because people are going to believe this is a part of their salary at some point,

Starting point is 00:11:02 unless you really hit it hard the way we do. But if it's profit sharing, it's going to be ups. There's going to be ups and downs, right? Yep. Oh, and we've had some of those. Okay, so then what's the difference between ups and downs and going backwards? Well, the difference between ups and downs is that the percentage that we put us up, We have a fixed percentage out of the bottom-line province we put aside.

Starting point is 00:11:23 That does not change. Okay. Whether we're making a lot of money or making a little bit of money. We seldom have months where we don't make any money. I can't remember one since I've been here. But in walking it out that way, they can see going up and going down, which again, that, there was a bunch of months in 22, and 23 and early 24 where we didn't grow a lot. We never went under where we didn't have money, but we didn't make as much.

Starting point is 00:11:50 as we had in prior years. And they get to see that. And we get to talk about that as a group of self-employed people. And we talk about why that is. And that sparks conversations outside of that room of, hey, why is that? Why are our profits, why do we keep going down? Or what happened this month? It creates questions that if I was the only owner here, I would be asking of my team,

Starting point is 00:12:13 what happened? How do we get here? And what do we do to change that? So it sparks great in conversation. So you start small. You come up with a percentage that you can do, you know, reasonably. What should that percentage be? I don't really have one for you.

Starting point is 00:12:28 I know you were going to say that. It'll vary. Ours has varied over time. We want to always try to show growth if we can in the business. And then by showing growth in the business, that grows the amount of money we have to share. And then by doing that at a fixed percentage, it gives us the protection of, if we don't make as much as much as we, make as much as we thought we still are going to pay something out, but then we have to have the conversations. We thought it was going to be this, but it wasn't that. It was something

Starting point is 00:12:56 smaller, and here's why. Or we don't know why. Let's go ask those questions. What happened over here? What happened to Entree or some other less profitable part of our company so that we can lean in and say, these are the things we need to work on? So it creates a lot of good conversations that you might not otherwise get, especially if you're just paying a Christmas bonus. Have you ever struggled with or have we struggled with people, and you referenced this a little bit, People starting to get entitled, just expect it, to just think, hey, this is just a part of my check every month. And when it goes down a little bit, this isn't fair. You know, what are they doing with the money?

Starting point is 00:13:30 Do you get some attitude once in a while about that? It's very rare here. I've had a couple of times where people have asked me questions about, you know, if I had thoughts around what's going on, why we keep seeing this. And I don't mind telling them, you know, because we talk about it from stage, what creates that? If it's got to be either, there's not as much revenue coming in as we thought, or expenses have been higher than we thought, and you should go ask your leaders that question. They're not going to show you the financial statements,

Starting point is 00:13:58 potentially depending on the level that you are in the company, but you can at least ask the question, hey, I want this to get better. I want to get a bigger piece of the profits. I want to get more dollars in my pocket, too. And it creates aligned incentives across the whole organization, which is huge. That's a lot of really good stuff when you get that lined rail really well.

Starting point is 00:14:16 It is. Are there any of the other things that have come up over the years that if you're sitting with a business owner, you're like, hey, watch out for this. This is what I would be on the lookout for if I was thinking of doing profit sharing. I think importance of starting small, having it be something that's manageable, but also increase it. Let's say you get a year where you increase your revenues because you took a price increase, or you figured out a way where you can outsource something that you've been doing yourself and you can save some money that way. share some of that. I know the profits are normally going to go up, but if you can add another percentage to them, it feels like another part of their race. I mean, it feels meaningful to them, and they feel like they're being considered as you're making decisions about the company, which is big. So that's the interesting thing, because sometimes you, the leadership team, Dave, whoever it is for all these businesses, they make decisions that the team doesn't necessarily help make, you know, like let's say Dave wants to,

Starting point is 00:15:15 invest in a big ad spin for a book launch or something, do you ever look at that and say, hey, we're going to take that into account in the profit sharing because this isn't the team's performance that has affected this. This is a decision that leadership has made? Or is that not how you look at it? No. That's a slippery slope if you go on that path. Because that would be like me saying, well, okay, I'm going to, if I go that path,

Starting point is 00:15:41 then I've got to also adjust it. If you just have a sucky month, I'm just going to take and make it. you pay all of your team less and the other teams get more because you had a sucky month. We would win and we lose together. Okay. And that's the mindset that we have here. And so the team members have to have to make the assumption that the decisions that are being made by the leadership team, whether it's a leadership team of, and at Ramsey, if it's a leadership team of one business or the leadership team, the board or somebody like Dave making it for the company as a whole, he's not going to make that to destroy value. He's making that to make it all

Starting point is 00:16:11 better and that we'll all benefit from that and you have to trust that. If you don't trust that, that need to have a different conversation. Thanks, Jeff. Hey, thanks, man. I appreciate it. Profit sharing isn't just about being generous because you can. It's about alignment. You're telling your team, when we win, you win.

Starting point is 00:16:31 And when we struggle, you'll feel it too. That's ownership. But listen, you can't share the profits that you don't have. Profit sharing starts with margin, revenue up, expenses down. And when your team gets the math, they stop asking, what do I get? And start asking, how do we win? If you're considering profit sharing, start by teaching your team how the business works. Then you can build a culture where people don't just work for you.

Starting point is 00:17:01 They build it with you. If you want more information about how to create your own profit sharing plan, we've got an article that walks you through it step by step. We'll put the link in the description. and if you enjoyed this episode, be sure to like, share, and subscribe for more great leadership content. I'm your host Dave Ramsey and this is Entree Leadership.

EntreLeadership - How to Use Profit to Promote a Healthy Culture

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