Do You Understand Human Capital?

Posted on February 3rd, 2017
Human Capital

As business owners and entrepreneurs, we talk about “capital” a lot.

Most of the time, our focus on capital is related to money. How do we find more capital to accomplish our goals? From trying to raise capital from angel investors to borrowing funds from banks, the idea is to get a nice chunk of money to do things like pay employees, purchase inventory, and pay overhead costs.

But capital in the “traditional” sense isn’t the only consideration you have as a business owner. You don’t want to forget about the human capital.

What is Human Capital?

Simply put, human capital is the economic value of each of your employees. Gary Becker and Jacob Mincer popularized the term. It refers the characteristics of workers that make them economically valuable.

The traits that make someone valuable include such things as:

  • Skills
  • Knowlege
  • Creativity
  • Habits
  • Personality

The idea is that all of these items add up to determine how well someone can accomplish their work and add value.

Understanding the human capital in your organization is one way to get the most out of your workers and see solid economic results. You are better able to grow your company, create a unified vision, and increase your revenue when you understand the concept of human capital and use that knowledge to make better decisions.

Know Your Workers’ Strengths and Weaknesses

When you understand human capital, you have a better chance of utilizing your workers in the best way.

Understand the strengths and weaknesses of your team members. This will help you find the right tasks for them to accomplish throughout the day. It can also help you put them with other team members that complement them.

When hiring new workers, you can use what you know about your current team makeup to add people who fit in well. Sometimes it’s not about whether or not someone is working hard. In a lot of cases, it’s knowing where someone shines and will be most effective in the organization.

You are more likely to get the best efforts out of your workers when you understand them and give them chances to make a difference and do their best work.

Know Your Own Human Capital

It’s not just about understanding your team members, though. You should also understand your own strengths and weaknesses.

What value do you bring to your business? How do you function in different circumstances? You should know yourself so that you can work on your business in a way that offers the greatest advantages.

When you understand your own value proposition, as well as your strengths and weaknesses, you can get input and help from those that complement you. Build a team that includes people who have strengths that match up well with your weaknesses.

You can also look for people that you think will help share your vision and help you better manage your business.

Don’t forget: your business is made up of people (including yourself). You need to understand their value and what they bring to the table so you can build a better company.

Miranda Marquit

Miranda Marquit

I'm Miranda and I'm a freelance financial journalist and money expert. My specialties are investing, small business/entrepreneurship and personal finance. The journey to business success and financial freedom is best undertaken with fellow travelers.

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