Hiring an Entire Person
Imagine you’re the coach of a winning basketball team. You’re doing pretty well but, you’ve lost a few games that you feel could have been won if your players hadn’t been out-rebounded. When it’s time to start scouting for the next season, you find yourself trying to decide between two players.
The first player is built like Shaq (the younger, leaner Shaq) and is a rebounding machine. Unfortunately, he shoots like Shaq at the free throw line (only from the field as well), slacks off on defense, and is rumored to be a diva in the locker room.
The second player is a great all-around recruit who has high stats in points, assists, AND steals, and is known to be a hard worker and generally well-liked guy. The only downside is that he’s built like Muggsy Bogues, and, unless you’re playing an exhibition game against a preschool team, is not likely to be pulling down any boards.
So, who do you draft? If you’re like me, you take the second player every time. It works this way in business too. You may find an area in which you feel your team is currently lacking and try to recruit to fill that specific gap. But that’s not always the best choice.
First, let’s discuss the reasons why you shouldn’t hire someone just to fills a skills gap. For starters, you may not need enough help in that particular area to fill an employee’s time. In a basketball game, there’s a lot more a player needs to do than just stand around under the goal, boxing out to get rebounds.
Or it could be that there’s too much of a need in one area, and one person can’t do it alone. Even if someone is the best rebounder in the world, if they’re the only one from their team under the net facing down five other guys, their chances of success go way down.
Finally, particularly in certain high-demand positions, an individual with a specialized skillset might not be the best fit for the team overall. They could bring an ego or simply have a personality that does not work well with your company culture. (Or they could be so lacking in other areas as to be a net drain on productivity.) In those cases, another player is a better option.
So now, let’s discuss how you can fill skills gaps in your company without making it a hyperfocus of your hiring. For starters, look at how you can train and improve the staff you already have. Rebounding stats go up when the entire team is fighting for position and going for the ball, even if no individual is a rebounding superstar.
Second, look at how other areas in which you’re stronger can be used to supplement the area of perceived weakness. To continue with our analogy, a team that struggles with offensive rebounding need not struggle so much if they improve their field goal percentage and make more of their shots on the first try.
Finally, remember that you cannot hire only part of a person; you have to take all of them, the good and the bad. Look for someone you are excited to have around for the long-term, who not only has a skillset that can be immediately useful, but for someone who can grow and develop within your company to become an indispensable MVP.
"Your Business is Only as Good as Your Accounting System" by Dave Baldwin
This article may be a rude awakening for a number of small businesses. You may bake the best cupcakes, deliver the best massages, or engineer the fastest and most secure computer systems, and still be held back by your accounting system. It's a sad thing when businesses make amazing products or invest years of sweat equity to build a stellar reputation -- only to watch it all crumble because they didn't build a robust financial infrastructure to support it. The cold hard truth is that every business's accounting system (or lack thereof) is ultimately what makes or breaks the business.
What does accounting have to do with your competitive advantage?
The competitive advantage of a business is that which your competitor cannot easily duplicate. In Rule #1, investor Phil Town details the approach by which he follows Warren Buffet's methods for investing in companies. One of the criteria is what he calls "moats," or layers of protection around the proverbial castle that comprises a business. One type of moat is a well-established brand name. Even if a competitor builds a superior product at a lower price, they cannot copy or take away brand recognition. A strong brand does not guarantee success in itself, but it is a key factor in the longevity of a business.
Now, let's take a look at how management systems play a role in competitive advantage. Let's use a hypothetical example of two marketing agencies. Both agencies have highly creative talent. Both are well-known in their markets. Both work with high-profile clients. Both have a well-established track record for delivering great service. But they diverge in one area: accounting. We'll call them Agency A and Agency B.
Agency A has a basic nuts-and-bolts accounting system. They keep track of their costs, they know how much money they have. They know their cash flow, and they know their break-even point. They know how many client engagements they need per month to cover their overhead expense and taxes. The goal of Agency A's accounting system is to keep the lights on. And it works.
Agency B, on the other hand, looks at accounting differently. They aren't just trying to survive; their goal is to grow. Their goal is to dominate their space and scale their business to twice its current size over the next two years. They have built a system to support their objectives.
Now, let's take a look at the difference between their accounting systems.
Sales, Marketing and Revenue Forecasting
Agency A knows how much revenue they bring in each month. They have a rough estimate of how much they are likely to make for the next six months, based on their recurring monthly revenue from regular clients as well as a few deals in the works that they expect will close soon. They exhibit at a couple of expos each year, and they've found that these usually generate enough business to pay for themselves. They don't feel the need to examine any data, because they know that certain marketing tactics work if you just do them. They don't take clients whose budgets are too small. They will never say no to a client with a big budget, unless they just can't do the work.
Agency B knows how much revenue they bring in from each of their major service lines, and they've used their accounting system to determine which types of services are the most consistently profitable. They track their marketing campaigns and sales activity relentlessly, and they pay close attention to how much it costs them to acquire each new customer. They notice where their best customers come from, and how many marketing touches each one required. Based on this data, they constantly fine-tune their campaigns and focus their advertising spending on the most effective marketing channels. They are sometimes surprised at what the data reveal. They are not concerned with how big or how small a client is; only whether the job is profitable and whether the client is a good fit. They take pride in their track record of starting with small clients and helping them grow. They have also walked away from multimillion-dollar accounts when the risk was too high.
Talent Utilization and Capacity
Agency A tracks time spent on client projects with a reasonable degree of accuracy. They have a pretty good sense of how busy everyone is. They are very cautious about hiring, because they've made the mistake in the past of hiring too many people and then needing to let some go when business slowed down. They often use independent contractors and freelancers as a stop-gap measure when large projects come in or when work becomes unusually busy. They like having a flexible work force that can be called on an as-needed basis. Hiring full-time staff is generally a rarity unless someone leaves the company, so they usually do not advertise for new talent. When they do hire, they are often in a hurry to fill the position quickly because it is in reaction to a sudden upswing in work, so they can't be as selective as they would like to be.
Agency B is rigorous about utilizing their team's time and talent in the most effective possible way. They have broken down each service line into standard operating procedures, and they have defined benchmarks detailing reasonable time spans for completing tasks. When they notice that tasks are taking longer than usual to accomplish, they investigate to figure out why. Agency B's management carefully watches the team's capacity and is always advertising and interviewing candidates for their next team member. They are always anticipating growth, and they know when to pull the trigger on a new hire based on their sales pipeline and capacity of their current team. They view the next hire as inevitable, and they recognize that finding the right person may take time, so they are always advertising and interviewing whether or not they have an immediate need.
Company Culture
Agency A has a ping pong table and free coffee in their employee lounge. They take pride in having a hard-working team, but also a laid-back office. Employees generally like working there, and the pay and benefits are comparable to the rest of the industry. Communication is good overall, and people have a lot of flexibility to do their jobs in the way that they prefer- as long as the work gets done and the clients are happy. People sometimes work from home, and they enjoy the flexibility to adapt their schedules to the needs of their families, to a reasonable degree. There is no obvious path for advancement at Agency A, but management points out that there's plenty of room to grow for people who take initiative. They've been frustrated a couple of times when their best people left to take jobs in larger firms or to start their own businesses. There have sometimes been grumblings about inconsistencies in pay, but the owners feel that this is not justified.
Agency B has a no-frills workplace. Everyone discussed the idea of adding perks like a nicer employee cafeteria, but since the company has a generous profit-sharing plan, and everyone feels a sense of ownership in the company, no one wanted to spend the money on extraneous benefits. At Agency B, everyone loves their work. They know their numbers, and everyone is fantastic at what they do. There is never a boring day at Agency B, because they are always taking on new challenges. Since the company is always growing, new opportunities for career growth are always emerging. It is rare that the company makes a bad hire, and when they do, it becomes apparent quickly. The wrong people weed themselves out. There is a sense of friendly competition among the team. People work different schedules, but everyone is dedicated and working hard, and no one doubts it. Because everyone's job is measured against benchmarks, there is never any question as to who is performing and who isn't.
Which agency would you rather work for? Which one would you be more likely to invest in? Which one's services would you be more likely to retain?
Every single competitive advantage listed here, and countless others, all boil down to accounting systems. There is one difference between best-in-class businesses and average businesses, and it all boils down to their accounting systems. As boring as it might sound to some, the accounting system of a business is what creates the clarity and insight to make decisions. Businesses that have imprecise accounting systems tend to make decisions based on feelings, and people tend to perceive feelings as more accurate than they really are.
If you're weighing your options for next year and considering what investment of time and energy will make the biggest difference, the first place to look is your accounting system.
Dave Baldwin is an integral part of The Bookkeeper staff experienced in marketing and management consulting. His own entrepreneurial journey was spurred on by a desire to help introverted entrepreneurs succeed in business.
When you're not a "startup" anymore...
All of "Hamilton" is great, of course, but, among the multitude of great lines, there's one in particular that always speaks to me as a business owner. During Cabinet Battle #1 (a rapped debate about America's fiscal strategy), Hamilton states to Jefferson, "Thomas, that was a real nice declaration. Welcome to the present; we're running a real nation."
Though the line is directly referring to conflict between the Federalists and Anti-Federalists, it always makes me think of the challenges startups face after they've achieved their first measure of success. You start with your own personal "Declaration of Independence" (from your previous job), start a company, and then just fight to survive. One day you wake up and it's a real business. The question then is, "Now what?"
Speaking from our own experience growing a fast-moving startup over the past five years, I wanted to offer our advice on what to do next when your startup grows up.
Scaling economically.
Ironically, in a lot of ways, it's easy for a startup to be profitable. The staff is small and working like crazy, and no one expects a huge salary or a ton of perks, so you get a lot of bang for your buck out of the few people you have. You probably don't have an office yet (maybe just a co-working space), so there's not that huge monthly expense hanging over your head. The overhead in general is low, and you're really putting your A-game out there for every possible sale.
Sure, it's not sustainable in the long-term (unless you are cool with regular nervous breakdowns), but in those early days you can often at least break-even, even if you're not rolling in the dough.
Eventually, you realize that your staff does need to grow, or that you do need a place everyone can work centrally. (Though you have to be careful not to add those costs just because they're things you want. See our prior article, Living a Lie: The mistakes that make entrepreneurs go broke.)
Scaling is not without its risks, but there are steps you can take to mitigate those risks. Having a budget is key, obviously, but it is also helpful to map out conditional budgets for if you add various expenses, such as rent (or if you were to have a slow sales month). You can use those to establish a set point for when you're willing to add to your overhead. (For example, once we are regularly at x recurring revenue, we will sign a lease on an office, or hire support staff.) This can allow you to scale at a safe pace, without over-expansion.
Managing changing stresses.
When a startup is new, your main stressor is where the next sale is coming from. As the business grows and acquires clients in greater numbers, some of those stressors go away, and new stressors are added.
One of the biggest headaches in a growing company stems from managing a growing staff. When the company is small, you're operating in your area of expertise. As the company grows, you have to learn more about being a leader. Hiring and managing employees can take a mental toll, especially as you realize that the systems that worked when the company was smaller are no longer sufficient. (For instance, you will likely need to invest in a CRM that can help your new staff navigate their workload. Even if the original startup members don't need it, new employees will.)
Additionally, as you get more and larger clients, the clients themselves will require additional management. It can be hard to deliver the same level of personal attention when your time is spread so thin between them. It will become necessary to delegate some of the customer service duties to other staff (terrifying as that may be).
This is not to say you drop contact with clients, or aren't available when they need something; it just means you unload some of those duties onto other people, so the client can get what they need (even if they're no longer getting it directly from you).
Becoming who you are supposed to be.
It's not uncommon to feel a bit "lost" as your company grows. I experienced a small existential crisis the first time we signed and began work with a new client with whom I myself had never directly communicated. Once I got over the brief panic that I might no longer be needed, I realized how freeing it was, that I knew we could bring in revenue without my involvement. As we grew and hired additional staff, I didn't have to work on every single account; a new admin meant that I didn't have to manage the filing and calendar anymore.
I began to have something almost resembling "free time", and for me, that was terrifying. I had to figure out what to do with myself.
Fortunately, I really enjoy the study of business, in general. I began focusing on how we could improve processes, expand into new markets, and stay ahead of changing trends. I worked for us to become one of the first Xero-certified partners in our area, and began focusing on new business types (B-Corps, for example), so we could be prepared to serve upcoming businesses.
I also started focusing on who I wanted to be as a business leader, and who we wanted to be as a company. In a lot of ways, the company's growth has freed us to circle back to those original goals and mission statement. It's not enough just to grow a successful business; we want to stay in line with why the company was founded in the first place.
It's easy to imagine what you think a business owner should look like (see our article What makes an owner? for some prime examples) and fall into the trap of backing too far off from the company, or becoming an absentee owner. This is not what embracing your changing role means. It means that, instead of ordering business cards, you're calling referral partners (not that you're relaxing on a yacht while the minions do all the work).
It seems ironic that success should bring so many difficulties, but adapting to those new challenges is what sets companies apart. Be flexible, stay committed, and plan for everything you can, and you'll keep the fire you started growing strong.
Living a Lie: The mistakes that make entrepreneurs go broke
"You have to spend money to make money."
"Maintain the image of success."
"Fake it 'til you make it."
There is an ideal of the successful entrepreneur as a jet-setting globetrotter, someone living high on their quickly-amassed profits earned through their brilliant business insight. We want the overnight success and rock star-status of Richard Branson. (Comparatively, Larry Ellison, who has over eight times the net worth of Branson, took a less meteoric path to wealth, and is relatively unheard of.)
The unfortunate side effect of our idolization of instant-millionaire entrepreneurs is that many have come to associate that glamorized lifestyle with proof of product value. In other words, "If I look and act successful, people will assume I know what I'm doing and hire me for my services!"
Here are the four most common ways entrepreneurs blow money on an image.
"I've gotta get my name out there."
Advertising is great. Advertising is essential. By all means, advertise! However...
Don't blow your budget on advertising. While seeing your company on a billboard or hearing your name on the radio is a great feeling, don't throw your money away on that illusion of the "big-time" without knowing for sure that you are going to get a good return on your investment. This is a mistake we have seen time and time again.
I once personally witnessed a (now closed) local small business flush away thousands of dollars on a radio ad which they were convinced would result in a flood of customers to their large weekend sale. They scheduled additional staff, opened early, and...no one showed. The ad was ineffective. In their frustration and desire to not have their money wasted, they played the ad on loop inside the store (i.e., the place where customers weren't), succeeding only in driving their employees crazy.
For the majority of small businesses, big-budget ad campaigns are not worth it in the early days. A local tv spot might make you feel like a celebrity (for better or for worse, given the quality of most local tv ads), but it cannot match the per-dollar effectiveness of a decent website, solid social media engagement, and positive word-of-mouth.
"I have to have a nice place to meet clients/customers."
The information age has transformed the world, and the way we do business in it. Meeting clients over coffee or lunch is a perfectly valid option, as is selling products online without a physical storefront. However, many entrepreneurs still seem to feel as if their business is less legitimate without a physical location.
Rent on offices and storefronts is a significant monthly expense, and that does not include furnishings, utilities, etc. Having a separate workplace to travel to on a daily basis has mental benefits in improving productivity, but it is not a cost to be considered lightly, nor is it a business essential nowadays. A gorgeous office with a big mahogany desk is a nice long-term goal, but it is not worth putting your company in the red.
"Yeah, I think I've got a place in the business for you."
We have written before on the dangers of expanding too early. However, this becomes doubly dangerous when owners begin creating positions for the sake of hiring friends and family. Middle management, and other positions which are not directly involved in revenue generation, are rarely necessary in a young company. It is good to be surrounded by people you like and trust, but, until your business has enough sustained profitability, employing people for positions you really can't support is like inviting people onto a raft with a hole in it. Everyone just starts sinking more quickly.
"The company's buying dinner tonight."
This is the big one and, really, the issue from which all the others stem. It appears that, since the invention of commerce, owners have fallen prey to the temptation to treat the company as a personal piggy bank, not realizing that they are essentially robbing themselves. Personal expenses being run through the company tanks profits, and can become risky from a tax perspective. (Inaccurately deducting too many things as "business expenses" sends up a red flag to the IRS.)
In some cases, a failed understanding of accounting reports results in owners bankrupting their own companies. For example, Owner's Draw does not show up on a Profit & Loss report. So, when an owner views the Profit & Loss report, they might see that the company is very profitable, and think everything is fine. Meanwhile, their overspending is bleeding the business's Retained Earnings dry. When an unexpected setback occurs, they suddenly realize they're out of money and the company goes belly up.
So what should you do?
Though stories of those who got rich quick are fun, it has to be accepted that, for the majority of us, success will be a longer journey. Just as we individuals must live within our means, so much our businesses function within their budgets. Slow and steady wins the race, a penny saved is a penny earned, etc.
"He worked hard and was patient, and eventually earned wealth and a comfortable lifestyle," might not be the most exciting story, but it beats that tired tale of the guy who tried to have it all right away and lost everything.