How much does it cost you to find a new employee — especially a key employee?  If you use a recruiter, you know your costs (and they can be brutal.)  But then, of course, after you've paid the recruiter there are the costs associated with spinning up the new employee so she's working at full capacity.  And there is the lost opportunity costs that occur while that new person is spinning up.  And finally, there's the cost of starting over if the person you thought was the be-all and end-all doesn't work out.  In short, the cost of finding and training a new employee for a key position can be astronomical.

So the question is, why did you let the last one go?  As is the case with customers, it's infinitely cheaper to keep a good employee than to try and find a new one to replace him.  Not only that, you know exactly what you have (from weeks, months, or years of observation) as opposed to someone new whose quirks you don't know.

I watched one good manager use the work environment to his advantage.  He was working with programmers and was having a difficult time getting them to stay and work overtime.  He yelled, demanded, threatened, etc. all to no avail.  Then he tried a different tack.  He brought in extra computers outfitted for gaming.  They were networked together so all the employees could compete against each other and against those on the internet in various games at lunch and after work.  He also filled the closet with candy, soda, cookies, crackers, and whatever else anyone requested.  A marvelous change occured.  You couldn't get the employees out of there.  They were staying until all hours.  One employee actually requested a cot so he didn't have to leave.  Once the programmers knew they were important to the boss, the boss became important to them.  Go figure.

How much did all that cost?  About $300 per month.  The employees felt appreciated and valued.  They had a work environment that was second to none.  Nobody was out looking for another job.  Good prospects were leaving their resumes, trying to get on at my friend's business.  It went from a place where nobody wanted to work to a place where everyone wanted to work — all for $300 a month.

Now I ask you, is that an expense or is that an investment?  From an accounting perspective it's definitely an expense.  From the perspective of building a great team to be able to build a great business, it's definitely an investment.  The bottom line is this: when you stop seeing your employees as an expense and start treating them like an investment, they'll start giving you what they're really capable of giving.  With good employees, those investments are some of the best you'll ever make.  Don't scrimp when it comes to your employees!