Good morning!

1. Feature: Financial Benchmarks for SMB Owners (4 min)

2. From the Archive:

   • Our 2025 Article Index for Your Business

   • The Quiet Limits on LLC Ownership

3. Dear TCoL: Dealing With a Manager That Talks Too Much About the Business

-TCoL

Missed our last feature article? Determining Owner Pay in Your SMB

One of Warren Buffett’s most honest lines rarely gets quoted in full.

“We regularly compare the gain in Berkshire’s per-share book value to the performance of the S&P 500. Over time, we hope to outpace this yardstick. Otherwise, why do our investors need us?”

It’s a fair question. And it’s one small business owners almost never ask out loud.

Why take on the stress of building a company — hiring people, making payroll, handling customers, absorbing risk — if the end result is no better than what you could have earned buying an index fund and going fishing?

The question matters more than most owners admit. Because the answer isn’t only about money.

Many owners build for more than profit. They want to create something lasting, to employ others, to give their children a better starting point, to see their name on something that endures. Some are chasing independence. Others want to prove that their idea can stand on its own.

But whatever your reason, it only holds weight if the business you’re building justifies the commitment behind it.

The Benchmark Problem

Public companies have it easy. They can compare themselves to peers, indexes, and entire sectors with precision. Analysts publish ratios. Markets deliver daily verdicts.

Small and midsize businesses do not get that luxury.

If you own a franchise or run a restaurant in a well-documented category, benchmarks exist. You can compare margins, labor costs, revenue per location, and same-store sales against published norms.

But most SMBs are not franchises. They are manufacturers, service providers, and professional firms that don’t fit neatly into any industry code worth benchmarking.

When owners go looking for “industry averages,” they usually find one of three things: outdated data, surveys with small sample sizes, or metrics that don’t reflect how their business actually works. The result is frustration, not clarity.

A Consistent Benchmark Matters

Benchmarks aren’t about bragging rights. They are about decision-making.

Without a reasonable yardstick, owners struggle to answer basic questions:

• Is the business performing well, or just surviving?

• Am I being compensated for the risk I am taking?

• Would I be better off investing my capital elsewhere?

Ignoring these questions does not make them go away. It only postpones the reckoning.

The Index Fund Reality Check

Buffett’s comparison to the S&P 500 is not accidental. It represents a simple alternative: passive investing with no operational headaches.

For SMB owners, the equivalent comparison is not perfect but still useful.

Start with the capital you actually put at risk, including your initial investment and any later contributions. Measure what that capital produced by adding together the cash you took out of the business, the profits you retained, and the change in your equity value over time. Then compare the resulting return to what the same capital could have earned in a low-cost index fund over the same period.

That comparison should reflect the added risk, illiquidity, and effort of owning a business, not just the dollar outcome. If the return does not meaningfully exceed a passive alternative over a full cycle, the business may still be viable, but it is not outperforming the simplest option available to you.

If that is an uncomfortable question, it should be.

When External Benchmarks Don’t Exist, Build One

Buffett did not wait for someone else to define Berkshire’s standard. He chose one, applied it consistently, and let time do the measuring.

You can do the same.

Start by defining your opportunity cost: the return you expect from passive investing. Then build an internal benchmark around these three elements:

1. Owner return on invested capital
   Measure how much capital you have contributed and what it returns to you each year in cash and retained value.

2. Growth in business value
   Use a consistent method to estimate what the business is worth. Consistency matters more than precision.

3. Risk and effort premium
   A business that ties up capital and demands long hours should clear a higher bar than passive investing. This is partly subjective, but essential to fairness.

If your business cannot outperform this benchmark over time, that is not failure. It is information.

Common Errors

Many owners mistake revenue growth for success. Growth feels productive, but it can conceal inefficiency.

Others compare themselves to peers they admire without knowing those peers’ actual structures or compensation.

The most dangerous error is benchmarking only against survival. “We made payroll” is not a performance metric.

Compassion Without Illusions

Building a business is never easy. Markets shift. People get sick. Timing turns against you.

A single bad year does not define you, and a temporary lag behind a theoretical index does not discredit your work. But owners who never measure performance clearly over time often wake up unsure whether what they built was worth the cost.

The Point

Benchmarking is not about self-judgment. It is about honoring your time and capital.

If your business clears your chosen hurdle, you are building something meaningful. You have earned the right to keep going.

If it does not, you have learned something just as valuable. Capital has alternatives, and so does your effort. The clarity of that knowledge does not remove stress, it gives it purpose and allows for your corrections.

And that, for most SMB owners, may be the most reliable benchmark of all.

Dear TCoL: Dealing With a Manager That Talks Too Much About the Business

Question: We have a manager that simply can’t seem to stop talking about the internal workings of our business with anyone that will listen, including family, friends, customers, etc. He is a good manager, but I don’t understand why he does it and how to get him to stop without firing him. Any suggestions would be greatly appreciated.

Answer: “Internal workings” can mean harmless shop talk, or it can mean confidential business information. Make a short list of what is off-limits for external discussions in your company (pricing strategy, financial results, customer details, product roadmap, security procedures, employee information).

Next, hold a private meeting with him and ask one direct question: “Help me understand why this keeps coming up in your conversations.” Then listen. Some people do this to sound important, some to relieve stress, some to be malicious, and some because no one ever drew a bright line for them.

Then draw the bright line. Tell him you value his performance, and you want him to succeed, but this has to stop. Give specific examples of what you don’t want repeated outside the business, and explain the consequence if it continues. Keep it calm and clear.

If it happens again, move to a written warning. Put the expectations in writing, require him to acknowledge them, and document each incident with dates, what was shared, and who heard it. Specifics matter.

Finally, check your paperwork and policies. If you already use confidentiality language in your offer letter, handbook, or agreements, enforce it. If you don’t, this is a good time to add a sensible confidentiality policy (and, for some roles, a confidentiality agreement) focused on protecting true confidential and proprietary information.

We covered general confidentiality language in our prior article: The Most Important New-Hire Document.

Have an interesting business question and need a free bit of advice? Send your question to [email protected]. No confidential info, please!