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The Green Sheet Online Edition

August 22, 2016 • Issue 16:08:02

Street SmartsSM

Bid farewell to traditional job security

By John Tucker
1st Capital Loans LLC

Dr. Homa Bahrami, Senior Lecturer at the University of California Berkeley, Haas School of Business, said, "Job security is gone; the driving force of a career must come from the individual."

I agree. And for this article, I'll explain why by highlighting important changes in our national economy. I believe we are living through one of the worst job markets of all time. Despite the unemployment rate being under 5 percent, the reality of our situation paints a completely different economic picture, as follows:

  • The labor force participation rate is the lowest it has been in 40 years.
  • Millions want full-time work but can only get part-time or piecemeal contract work.
  • Millions are among the long-term unemployed (off work for six months or more).
  • We're producing the highest level of educated human capital in history, but technology, robotics, globalization and poor trade deals have left too few well-paying jobs in the United States for these individuals to attain. This leaves many stuck with high student loan debt with only part-time or on-call work, or stuck in jobs they could have done with only a high school diploma.
  • Millennials are paying high amounts in Social Security taxes, but they might not see a dime of it once they retire in 30 to 40 years.
  • Pension plans are virtually non-existent.
  • The Federal Reserve, through its seemingly forever quantitative easing, keeping the fed funds rate at near zero for over 10 years, and more, has destroyed the value of fixed-income assets and created an over-priced stock market bubble that's ready to pop. This has basically hurt the prospects of passive investments.
  • The cost of living continues to increase across the board while overall wages are either stagnant or declining. Plus wealth inequality is the highest it's ever been, with the middle class on its way out, leaving a situation of where we will only see the haves and the have nots.

The online job board disaster

We are told to rack up student loan debt for a degree (because a degree always "pays off") then run to major online job boards to look for a job. But let's take a quick look at the abysmal online job board hiring process:

  • A company posts a position on an online job board, and 200 people respond.
  • The company uses HR software to filter the respondents to a pile of 50, based on keywords found in candidates' resumes. If your resume doesn't contain the keywords in the exact form the company is seeking, the software will bypass you, even if you could perform the job in your sleep.
  • Then, a newly recruited, low-level employee completes a second filter, based on the resumes' appearance such as bullet points, structure, etc. This reduces the group to 20.
  • The same employee will conduct telephone interviews with the 20 remaining candidates. However, he or she will be unable to answer specifics about the position or the company and will just go through a series of inane, canned questions such as, If you were an animal, which animal would you be? Then, the employee will set up face-to-face interviews with a manager.
  • You arrive for your face-to-face interview, and the waiting room is packed. When you are called in, at least five other people are waiting to speak with the manager about the same position you seek. The manager goes through another series of canned HR questions, can't answer any in-depth questions about the position, and tells you after 20 to 25 minutes that you'll receive a call with a decision within two weeks.
  • The call never comes. You later discover that the open position either went to one of the manager's relatives, or the company promoted from within. Basically, the entire process was a complete waste of time. The company planned to hire from within its existing network all along.

Time to create our own jobs

Going forward, we must create our own jobs. After all, we are in professional sales, which is founded on business development. And that is the process of creating long-term sustained value in the form of new markets, products and processes.

Keep in mind that by working in professional sales, we are already functioning as entrepreneurs, which is all about taking a look at what's currently happening and asking: How can this be done better? What market segment isn't being served? How can we make solutions and products better? Where can we do things differently?

1099 more secure than W-2

There's no better way to do this than as an independent contractor, whose income is reported on IRS form 1099. You might think you are more secure as an employee receiving IRS form W-2 each year, but the base pay and benefits for such employees are a phantom. All of the upfront payments you receive as a sales employee are merely just "draws" against your future sales production. This is why if you don't hit certain quotas, your payments could be clawed back, or you could be immediately terminated.

The W-2 model offers no real job security. Many sales managers will set sales quota levels for receiving bonuses so high that they know you won't reach them (thus reducing how much they have to pay you). And they will likely cycle you out after a few years to hire someone new for a lower base pay.

You eliminate these issues as an independent contractor, because you are building your portfolio with lifetime compensation for the duration of the relationship with the client. In addition, you can't be pushed out of your job due to politics, insane quotas or an out of touch sales manager.

As Street SmartsSM author, I've been highlighting various ways merchant level salespeople (MLSs) can rebrand, including being technology professionals. In that vein, here is a fictional example of production for a rep selling POS systems:

  • Over a 12-month period, a rep signs up 100 new merchants on a five-year contract term. All 100 merchants are signed up with a new POS system.
  • The POS systems are financed with a $100 a month plan for 60 months for a total of $6,000.
  • The merchant processing pricing comes out to a 30 basis point markup of interchange.
  • The merchants, on average, process $400,000 a year in processing volume.
  • Other fees include a $12 monthly statement fee and a $200 annual POS system servicing fee.

The revenues derived from the 100 merchants include:

  • $600,000 over five years from the sale of the 100 POS systems on the 60-month financing plan
  • $600,000 over five years ($120,000 per year) for the basis point markup of interchange alone

  • $1,720 over five years from the annual and statement fees

1099 versus W-2

If an MLS who is an independent contractor receives a 65/35 split on revenue share, this turns out to be $390,000 from the basis point markup of interchange over five years, before even adding in revenues from the transaction fees. For POS system sales, if the independent contractor receives $1,500 upfront for each system, this comes out to $150,000.

Also, based on usual Schedule A structures, the independent MLS would likely get about 50 percent of the annual and statement fee revenue, which comes out to $860 over five years. This is a total of over $540,000 with a good chunk of this compensation being paid out in year one and the rest paid out over the next four years.

In contrast, the employee (W-2) most likely would only get a base salary of $60,000 and a bonus of $20,000 per year. Also included might be a benefits package providing insurance, time off for holidays, sick days and vacations; a company car; half of the employee's Social Security contributions paid; and 401(k) matches. All of these might be valued at about $20,000. This comes out to $100,000 in total gross compensation and benefits, which would represent the only compensation from a given year's production the employee would receive. And the employee could be fired thereafter for any reason.

The only truth is entrepreneurship

As we progress through the 21st century, our economy will be like nothing we have seen before. Technology, robotics and globalization will continue to take away jobs. People will continue to run up debt on college degrees and subsequently find no jobs where they can use the skills they just acquired.

The answer going forward is entrepreneurship. For sales professionals, that means working to develop our own businesses as independent contractors. In this manner, you can eventually build up your recurring revenue portfolios to where they cover all of your personal expenses, giving you financial freedom.

The days of searching for a job on an online job board are over. The days of depending on an employer to manage your retirement are over. And if you must go to college, do not spend $100,000 for it. Using the Information Age's excellent market research capabilities, global technologies, shared virtual offices and more, you can duplicate many of the competitive value propositions of large companies as independent contractors.

Going forward, those who create their own jobs will have the strongest chance of true job security; those who continue to seek work as employees, will struggle with high levels of unemployment, high levels of debt, and they will never get to the point of saving enough to have any truly meaningful retirement. end of article

John Tucker is Managing Member of 1st Capital Loans LLC, as well as an M.B.A. graduate and holder of three bachelor's degrees in accounting, business management and journalism. Tucker also has over nine years of professional experience in commercial finance and business development. You can contact him by email at tucker@1stcapitalloans.com or by telephone at 586-480-2140.

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