Three years in, a friend's startup is still barely making a profit. So he asked me for advice.
"Since you're in a commodity business, where margins are naturally tight," I said, "the only way to win is to hire superstars. Smart, creative, hard-working people... that's the best way to make your business different."
"I know," he said, shaking his head. "But I don't have the money to attract those kind of employees."
I looked around his offices. A leased space in a high-rent district. Fancy furniture. Catchy artwork. Fully-stocked break room.
He's well on his way to competing in a "coolest offices" competition.
But that's not a competition he needs -- much less can afford -- to win.
Hold that thought.
Last month I spent time behind the scenes at Getafe CF, the Spanish professional football (soccer) club that plays in La Liga, one of the premier soccer competitions in the world. (Think teams like Real Madrid, Barcelona, and Atletico Madrid.)
Getafe is a small club in suburban Madrid completely overshadowed, at least in terms of financial muscle, by nearby clubs like Real Madrid and Atletico. (In fact, Getafe's 17,000-seat stadium sits just 9 miles from the monolithic Santiago Bernabéu, Real Madrid's 81,000-seat stadium.)
In 2017, Getafe played in La Liga's second division. After earning promotion to the top flight in 2018, the team finished a respectable eighth. (Many teams struggle to stay out of the bottom three upon promotion to to a higher division.)
Last year, Getafe missed finishing in fourth place and thereby earning a place in the Champion's League by just two points -- even though player salaries totaled 39 million euros, the fourth lowest in La Liga, and a figure roughly equal to what Barcelona superstar Lionel Messi makes.
How? Great defense and an efficient counterattack, giving up few chances and taking full advantage of opponent mistakes. A highly sophisticated fitness and injury prevention program.
And a spending philosophy my friend's business -- and your business -- could benefit from.
I asked Alberto Heras, Getafe's marketing director, what percentage of total revenue goes to player and coaching salaries. "Ninety-nine percent," he said.
I laughed. "No, seriously," I said. "When you factor in facilities, infrastructure, all the costs that go into running the organization... what percentage goes to player and coach salaries?"
"Seriously," he said. "We put nearly everything we have on the field. Everything starts with our players and coaches. If they aren't great... nothing else we do as a club really matters."
That philosophy has clearly worked. Getafe's Champion's League near-miss is proof.
So is the fact the club consistently sells out home games and retains members (think season ticket holders) at a rate of over 99 percent. Corporate sponsorships are up. International brand awareness is on the upswing, in part due to La Liga's expanding global footprint and rapidly-increasing broadcast rights value.
Because it all starts on the field. If the team isn't great... nothing else they do really matters.
The same is true for you.
One question every business owner must answer is, "What are superstar employees worth?"
But you have to be able to afford to pay more.
Which might mean letting employees work remotely -- which employees are increasingly eager to do -- and putting that money towards salaries instead. It might mean using off-the-shelf tools instead of assuming you need custom solutions. It might mean eliminating "cool" perks that sound great in theory but are basically meaningless to employees, especially if it means earning a lower salary.
Take a hard look at every expense -- every fixed cost, every variable cost, every cost cost -- and determine if that money helps you win on the field.
Be relentless about making your salary expense as high a percentage as possible of your total expense.
You almost certainly say your employees are your most valuable asset.
So start acting that way.