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Strong business growth indicators: Revenue, retention, and karma

Even when a close friend of mine, an entrepreneur, was jobless and broke, he offered to pay for our dinners together. Initially I refused; if I'm employed, I argued, and I have an income, I should be the one to pay for dinner. On occasion he'd let me have my way, and other times he refused. By not letting him spend money, he said, I was not allowing him to receive money.

He explained it to me this way: Money is not just physical currency, or income, or wealth, but rather energy that flows with karmic implications. By not spending it, you are not allowing yourself to receive it. Though he was currently short on funds he would never get out of his situation if he didn't put money, or energy, back in motion.

So maybe this take on money is a bit woo-woo for your taste, but from a business standpoint it makes perfect sense: Companies that believe in discretionary spending tend to thrive, and companies that hoard their wealth stay small.

The laws of economics substantiate this somewhat: when we raise wages we increase spending. Yet there's still debate that by raising the nation's minimum wage from its current, paltry $5.15 to $7.25 over two years, we are going to blow up the works; businesses will respond by laying off the people that the increased minimum wage was meant to help.

I say that this is a short-sighted concern. In the long-term we need to raise the minimum wage; we need to keep the energy of money flowing and continue to feed our collective prosperity.

As an entrepreneur I'm learning the hard way that one must spend in order to prosper. I may be able to do something much more cheaply than if I hired a professional to do it for me, but if I hire someone to do something I'm not very good at while I pursue something I am good at, I've given the business a chance to grow beyond it's current parameters. And if I pay more for the right person to do that job I will grow the business even more—in ways that are not always immediately measurable, but substantial nonetheless. When it comes to business expenses, you get what you pay for isn't totally true: You get what you don't pay for, and you get exponentially more for what you invest in.

Google gets it. They are famous in the Valley for offering employees perks like free snacks, shuttle service to and from work, and onsite drycleaning. While these services are discretionary and VERRRY expensive, to Google these costs are simply investments toward retaining the cream of the workforce (anyone who has interviewed at Google will attest to the company's often controversially high recruiting standards; a topic for another post). Every time I visit Google I marvel at the fancy check-in and refreshment stations for visitors and the well-appointed meeting nooks and volleyball courts for employees, I ogle and tell people how nutty it is that they provide endless supplies of trail mix, but I can't argue with Google's abilty to back their expenditures with solid business performance and growth.

On the other side of the spectrum are companies that view employees as cost centers only, not as investments—we'll call them reactionary companies. There's no need to name names, we've all worked for a company in this camp at some point in our careers: if you are in sales and working for a reactionary company, your worth is determined solely by how much you close (over your salary, of course). If you are on the "cost center" side and not responsible for revenue, a reactionary company will focus less on keeping you motivated and more on keeping you as low and as fixed an expense as possible. Forget about going to that industry conference you've had your eye on; unless your company had already budgeted for it when you were hired, professional growth is often considered unjustifiable.

Of course, all companies, even Google, have to set limits on discretionary spending. And some businesses are almost profligate about offering up extras (witness the startups of the late 90s that burst on the scene with $100,000 launch parties and a Superbowl commercial before earning a penny of profit). Small businesses, in particular, struggle with the balance between spending on nice-to-haves that will maintain employee morale and build the business and making payroll. A friend of mine who worked at a start-up complained one year that she would have rather dined at a simple family restaurant for her company holiday party than have been feted at the nicest hotel in San Francisco. But her management was set on making the company appear more profitable than it actually was.

The Start-Up culture of the late 90s got it partly right. Though my job from that period didn't last, I loved where I worked in 1999—who wouldn't love the weekly happy hours and massage therapy? I was given merit raises when I deserved them, not once a year at a standard 3.5% percent. Employees who worked long hours to make deadlines were fed while they were in the office and allowed to take comp days when their projects were completed. Yet we also hired 90 people in a quarter and, perhaps, grew before we knowing precisely where to allocate our resources. The point is, small businesses, while limited, have more flexibility to offer up these gifts of generosity, and in return the company gets more than it pays for in work and loyalty.

Though small, growing companies may not be in the position to spend on employee perks or extensive travel, the goal is to find opportunities to invest in growth. These opportunities may be small at first, but they must be taken in order to receive larger opportunities later.

Apply this to the minimum wage debate: while there is an immediate effect of higher wages on a business's bottom line, there is a longer-term benefit of employee loyalty and quality of work. Companies that refuse to honor this dynamic by laying off minimum wage workers will alienate their higher-wage employees, who will be forece to pick up the slack, or they will cripple their companies when the work can't be absorbed.

While layoffs is a concern, on a larger scale these reactionary companies will fail and make way for those that do invest in their resources. The minimum wage increase is just the thing to get this renewed flow in motion.

I think of my friend who, in spite of his current financial situation, paid for dinner. A few dinners later, he's en route to running his own business—funded by others like him who dare to put the spreadsheet away and build energy before income.

(Next time: What industries are desperately in need of building better financial karma?)

Jory Des Jardins also blogs at Pause and