In today’s feature, Transforming CEO Thinking: Turning Costs into Assets with an Investor Mindset, CEO coach Daneal Charney, reveals how leaders can reframe talent as an appreciating asset. Discover actionable strategies to harness employee lifetime value, align HR metrics with business goals, and position HR as a strategic driver of growth. Dive in and redefine the role of HR in your organization!

Key takeaways:

• Leaders need to start thinking with an investors’ mindset wherein people are an asset versus a traditional cost;
• HR needs to focus their efforts on metrics that matter versus dashboards that overwhelm in order to engage leaders in key conversations;
• Leaders and HR need to connect with efforts that impact the employee lifetime value and drive forward value for investors.

Turning leadership thinking around people on its head is what she has been doing for the past 15 years as a Fractional VP of People when and where it’s needed most. Core to that flip is moving CEO thinking around people from the cost to the asset column—and helping them realize the dividends of the investor mindset.

“I’ve always had an interest in what makes a leader. The best leaders are focused on creating the next version of themselves and getting that one per cent better every week,” said Daneal.

Now a trusted coach and advisor for some of Canada’s most promising technology scale-ups, Daneal has been recognized as amongst The Top 25 HR professionals in Canada and served as an Independent Fractional VP of People across multiple sectors as Executive in Residence for the MaRS Discovery DIstrict.

Why People Are Assets In A Material World

“Even before I became an aspiring angel investor, I've always struggled with the fact that HR is a cost on an income statement. That just fundamentally didn't make sense to me when you see that people you invest in end up contributing 5x 10x to your business,” said Daneal. “You know that is an appreciating asset, so it just doesn't make sense to call that a cost. It just doesn’t—but we do.”

Enter the investor mindset backed by the power of people analytics and years of experience.

“What the investor mindset does is look at talent as an asset versus a cost and really connects people’s efforts to how they contribute to your business and ROI,” said Daneal. “it recognizes that if you invest in human capital—whether that's providing a clear growth path in your business, mentoring them, letting them run an initiative or whatever that investment means of your time—that it results in a material impact on the financials of your business.”

Daneal emphasizes the importance of that ‘material’ impact in shifting leadership thinking to a more talent-centric understanding of profitability.

“If you ask an accountant why certain numbers get put where they do on the balance sheet, it’s because they are material. They have a material impact on your business,” said Daneal. “So, if you think of a business that invests in people and has a steady state of staffing, low turnover and people steadily contributing, this will result in a stable business where revenues are more predictable—and, as CEO , I can forecast more easily, so my investors are happy. This is the definition of a material impact on your business, right?”

An Asset Whose Lifetime Value Appreciates

As a strong proponent of employee lifetime value and able to quantify that ROI for leaders, Daneal finds her pitch for the investor mindset hitting home more readily in a post-pandemic era wherein leaders recognized the true potential of HR and value of their employees.

“The CEOs I deal with are VC-backed and need to show investors that they're spending their money effectively. If you’re not investing in people and dealing with constant churn and performance issues that takes you away from actually achieving the milestones you promised the investor you would achieve,” said Daneal. “The employee lifetime value concept thinks of candidates as future customers with a high acquisition cost and a need to quickly convert to value. Every day you are reselling to keep them engaged and focused—and you try to do that for as long as possible. That is how to drive up the employee lifetime value.”

Evolving Expectations & Key Conversations

This is where imbuing leaders with the investor mindset around their people can make a material difference for the organization and talent alike.

“The pandemic broke the mold of what HR is and got us into other areas of the business. We were able to kind of catapult forward post-COVID because the pandemic gave Chief People Officers or HR the opportunity to finally get recognized for what they were and what they could be,” said Daneal. “That’s because during COVID, there were not only the lockdown health issues and remote employees, but the need to build resilience and so many social justice issues. We saw a real rise of diversity and inclusion along with the recognition that we need and can get a lot better at this.”

Perhaps most importantly, it got a lot of conversations going between HR and executive teams, but the challenges ahead, Daneal notes, are no less people-centric. From crisis management communications to AI ethics, ESG and cybersecurity, Daneal notes, HR is pushing and being pushed well beyond its role.

Nonetheless, Daneal has seen some backtracking from those best of times following the worst of times and stresses the importance of HR not only keeping those communications flowing but taking a pro tip or two to maximize the employee life value equation—and subsequent returns on investment.

HR Tips For Forging Strong Futures

Anchor HR’s Raison d’Etre: “Fundamentally, HR has to work on its execution and contribute to a key business metric or metrics. We need to be asking, ‘Why am I even here? If I work backwards from the core business metrics, how am I directly or indirectly driving these metrics?” said Daneal. “I think what the people and culture department really is a performance-enabling department and it supports the organization to work better and smarter. So, HR needs to be a coach and a facilitator and really figure out what unique piece of the solution they can drive.”

Speak to Meaningful Metrics with Language that Connects: “I think it's really important that heads of HR are very good at reporting—with dashboards and analytic speed—speaking to why something is trending up or down and what the business should do about it. It’s about engaging the executives in conversations that speak to the investor mindset,” said Daneal. “It’s about meeting them on a common ground in a language that connects and that varies for me from client to client. The language part is really, really important, which is why I like the employee lifetime value, because when I share that with CEOs and investors, they really, really get it.”

Quantify Employee Lifetime Value: As a metric, employee lifetime value basically breaks down to performance (or EBITDA per employee as a proxy if you’re a public company) X Tenure—and is wrapped around the idea of future forecasting. The concept and formula was inspired by the customer lifetime value and drives home why leaders want to be investing in this asset—because they contribute revenue to your business,” said Daneal. “This is why organizations like SAAS Capital and OPEx Engine have been tracking Revenue Per Employee and say it’s one of the most important metrics for profitable growth.

Reign in Dashboards for Impact: “The story has to be there. Having a dashboard that includes measuring metrics that nobody cares about doesn’t connect—you're not going to have the right conversations and you're not going to be a decision maker,” said Daneal. “So HR must answer this question, ‘If I invest in an initiative, what is the metric that I'm ultimately driving to with this initiative?’ Whether it's revenue or a lagging indicator, they need to connect the dots for leaders.”

“For example, if revenue per employee is much higher for one product division than another, what is driving that? How can we potentially get the lower division to go higher based on what we know?”

Invest in Your Best: “It’s all about doubling down on the people who are contributing the most to your business and are committed to your business. A lot of HR has their top talent pegged, but what are you doing about it. Are you actually investing more time and money in those people to then contribute more to your business—to take them from a 2x to a 5x contributor? What’s the strategy?”

Say Goodbye As Needed: “I’m pleased if profitability and focus pushes us to being more effective as leaders and as organizations, but obviously I don't want companies to just lay people off. It can be a lazy solution and there’s a lot more we can do,” said Daneal. “That said, keeping people who are dragging your organization down or not committed for a year or two is not fair to them, to you or to the investors who have given you money.”

And don’t forget that profitability will multiply with the right people in place over time.

What it boils down to for Daneal is driving a conversation, using the data and language that business cares about—while engaging the lifetime value of every businesss’ largest asset.