SHOW NOTES FROM PODCAST EPISODE 51
You will get a lot of questions from your employees in the early days. You have two choices each time this happens:
Answering the question and moving on is the easy way at first but it makes this employee dependent on you. Instead of thinking for themselves they simply call you. They rely on you more and more. Each time they have a problem they call you and turn it into YOUR PROBLEM.
This turns you into the bottleneck. All important decisions come through you. All fires go straight to you. Nobody in the company is capable of solving problems without your input. If you go on vacation everything stops. If you don’t answer the phone everything stops. If you are busy a line of problems backs up behind you. Customer service suffers. Employees suffer. Everyone gets frustrated.
Don’t let every problem in your company become your problem.
Invest the time it takes to turn your employees into extensions of you that know how to use your logic and the company’s goals to frame decisions and solve problems. This is the important but not urgent stuff that helps you build a strong company. It takes some extra time now but it’s an example of how 2 hours of work now can prevent 1 hour of work a week for the next year.
A side benefit is you’ll learn how employees think and a lot about their competence level. Each one of these interactions is like an interview case study. You’ll learn who you can trust to solve problems and who you can’t. Get rid of the employee you can’t or move them to a position with less decisions to make. You’ll learn who you can promote to oversee other employees. You’ll learn who has the soft skills we talked about: communication, positive & logical thinking and emotional maturity.
Another side benefit is that you will learn from your employees and this environment encourages creative problem solving. Your employees will have a voice. They will be a part of finding the solution. Go into the process with an open mind and you’ll be surprised at what you are able to learn.
Your customer service rep calls you. He has a customer on the line. The customer has a question that he has never heard before and isn’t sure of the correct answer.
Let’s say a customer wants to set up an appointment at an off-time and we don’t have any employees scheduled to do the service during that time.
What do I do? He asks.
It would be easy as a boss to do option #1. Call the customer. Ask them about their order. Find out how large and profitable the work would be. Make the decision if its worth servicing the customer. Then call main employee at that location yourself and see if he can do the job. Schedule him to work. Make a special appointment for the customer. Organize the logistics. Thats faster and easier in the moment. You can just do the work yourself and it gets done right and its faster.
Why is this a problem?
It turns you as the owner or manager into the bottle neck. Next time the rep has a question he’ll call you again. And the next time. And the next one. All of his problems will continue to become your problems.
Here is the better solution:
Ask the employee what the goals of the company are? To get customers and achieve profit without distracting from the main operation.
What information do you need to find out if this aligns with our goals? I need to ask the customer about their order and find out how much revenue it would generate.
How would you make the decision? I’d assumer our labor costs us $20 per hour and the truck rental will cost $100. I’d think about how long the job would take. I’d do some math and find out if there is money to be made.
If there is money to be made how would you make it happen? I’d call the employee at the location and see if they are available to work that day. If they are I’d schedule them and set up the appointment with the customer and organize everything.
There. Boom. Now the employee knows how to approach the problem and think about solving it.
Now you as a business owner need to set up a system. If someone has a special request the first thing we do is find out more about the service and find out if it will be profitable and worth our effort. This is how we calculate it. This is our baseline for it to be worth our time. If it’s worth our time we should set up a special appointment, rent the truck, schedule the workers and make it happen. Here is the contact list so you can contact each employee at each location. Here is how we schedule the customers.
Next time they do all this without your input. No stress for you. It happens automatically.
This is an over-simplified version. There will be more coaching. Some employees aren’t capable of reasoning like this. Others do it very well. Some can’t give you answers that you like. Require those employees to hand off this problem to a manager under you that you trust to make these decisions.
There is a balance here. Not every problem requires a process. Some problems are unique and some are repetitive. Being totally hands off is not the answer and its not what I’m suggesting. There is a balance between being helpful and enabling your employees to continue passing every problem directly to you. Empower your employees to take action and give them the tools to do so while also making time to help with the problems.
Warning – this can backfire if you don’t give your employees the tools to solve or prevent the problems. If you expect them to read your mind it can create a horrible working environment and can crush employee morale. It can also lead to major problems when employees start guessing what to do.
Don’t get upset when they call. Don’t make them feel guilty for calling. Don’t condescendingly go through this process with a bad attitude. Be open minded and encourage them to call and get answers if they are unsure. That is how you make them feel valued and supported while also giving them the power to make future decisions. Be happy. Smile. Be eager to help.
Not all questions are around process and frameworks. Sometimes the problems could have been prevented. Sometimes the problems are unnecessary stress. Sometimes the problems are not really questions and don’t have a straightforward solution.
When this happens don’t blame the employee, blame yourself. It’s easy to begin to think your employees are incompetent or that they don’t care. While this is sometimes the case and you should adjust your staffing or let those employees go – if it happens over and over again it points to a flaw in your system. If questions come in all the time it means you need to adjust the training or the structure to give your employees more tools. Don’t hate the players when you are in control of the game.
If you keep using this framework to treat these types of problems you will create a horrible work environment and your entire business will suffer. It’s your job to spot these problems in the structure and fix them so next time that problem is prevented. Don’t turn your problems into your employee’s problems. Too many owners blame employees for failing when they never gave them the tools to succeed in the first place.
The great thing about going into every interaction and approaching it as an opportunity to get into the mind of your employees is that you start to learn a lot about them. You learn about the emotional maturity because you have witnessed them deal with stressful situations. You learn about the communication skills because you have communicated with them and they have communicated with your customers. You learn about their logical decision making because you have been on the other end of the phone listening as they think through a decision.
These are all of the most important skills and they are also the hardest to pick out during an interview.
You’re able to create a company culture. You are able to spread the framework and values throughout your company.
You find the problem solvers. You find the management potential. You find the people who understand the business and think like you do.
So what do you do when your business grows need another manager?
You promote from within. When you need a new manager you don’t go try to hire someone off the street. Thats risky because you are unsure of the emotional maturity, the decision making and the positive attitude. You hire someone who you have worked with and who you understand. You hire someone who thinks like you do and understand the values of the company.
The highest paid management at my company all started as $15/hr laborers. They stood out from the rest. They grew with us and they will continue to be promoted as long as they continue to add value. It’s a win win for everyone.
SHOW NOTES FROM PODCAST EPISODE 50.
These are the skills that are immensely valuable and very hard to teach. They’re the intangibles.
Communication – do they speak clearly and look you in the eye when they talk? Do they get their point across in an efficient, succinct and logical way? Miscommunications cost big money so this is critical.
Positive attitude – enthusiasm and an eagerness to be alive is impossible to teach but its contagious. You want people like this around your customers and your other employees. It makes everyone more productive. Having a grumpy front line is devastating for team morale and also the customer experience. Don’t put up with it.
Logical thinking – some people make bonehead decisions. Give them a pass the first time but you’ll notice really quickly when someone just can’t hack it on this front. Run some mock situations in the interview and see how they would solve problems. Make them think on their feet a bit and see what happens.
Emotional maturity – being able to keep a level head and make good decisions under pressure is always a huge bonus. Things get stressful on the job and you can’t have employees getting emotional and letting anger or stress influence their actions.
Quick learning – things are changing faster than ever. Tech is revolutionizing a lot of ways business is done. Your business is supple and ready to chang strategies at a moments notice. As a small business being able to change quickly is your main advantage. You need employees that fit with this core value.
It is really hard to tell if an employee has these things during an interview. You’ll learn a lot once they are working alongside you. And that brings me to my next observation.
Inexperienced employees can make great assets:
Okay so you have a simplified job description, more cushion on the profit and loss statement and applicants beginning to apply for your job. It’s time to make a hire.
I suggest that you think long and hard about whether an experience is REALLY required to do the job well.
I’m going to make some generalizations here. There are exceptions to this and every situation is different. But here are some things to consider and some of the reasons that I love hiring inexperienced people.
Inexperienced employees often COST LESS.
You can get a recent college graduate for $45k a year that is pumped up and eager to learn and make a name for him or herself. Compare that to the high skilled person with 20 years experience that might need $100k a year to even entertain the thought.
That is a BIG difference on the bottom line and leaves more money to hire more employees, invest in more marketing or buy more equipment that can help your business grow.
There will be a lot MORE qualified applicants if you don’t require experience.
If you accept inexperienced employees during the recruiting process you will have MORE APPLICANTS
If you limit your position to only those with experience you will have less applicants who apply and less applicants to choose from. If you can train people quickly you have the luxury of hiring based on soft skills and hiring the TYPE of person you want on your team.
Inexperienced employees are OPEN MINDED and happy to follow your lead.
Remember the systems you worked tirelessly to create? Remember how your employees are supposed to direct customer service to the customer service staff and do what you want them to do?
Experienced employees often already know the best way to operate. They already know how to talk to customers. They already know how to do the job.
A silly but great example is child care. My mother-in-law turned out to be the worst babysitter in the world and my business partner who had never previously held a baby turned out to be the best. How could that be?
My mother-in-law already knows everything about childcare. She raised 3 children in the 80s and they all turned out fine.
A lot has changed since the 80s. They found out a baby sleeping on its belly is dangerous. They found out water before the age of 4 months isn’t good. They found out blankets are dangerous in cribs. The list goes on and on. Modern research has proven a lot of things wrong that were common practice in the 80s.
My mother-in-law refused to listen to anything we said. She refused to respect our feeding schedule. She refused to avoid feeding water to the baby. She refused to be careful for allergies when introducing new foods because “I did all of this stuff when you were a baby and you turned out fine”.
Well things are different now and we have found a proven better way of doing things.
On the other hand my business partner took notes and did everything exactly as we requested down to the T. He implemented our system and did exactly what we asked him to do without question. It was a dream!
Inexperienced employees are ready and willing to listen and follow your lead. They don’t have habits that are either good or bad. You can mold and form the habits however you like and in the most efficient way possible.
Similar to the last point but slightly different. A fresh, unfiltered outlook is often great. The new biased perspective can often bring up new ways of thinking and shed new light on problems or inefficiencies. Encourage employees to present new solutions to you in an organized way (before implementation). Make it clear that freelancing on the job isn’t okay but recommendations are encouraged!
Remember there are some areas where experience really matters. In a software development position I need experience. In an executive role I need experience. In in any role that I’m unfamiliar with myself I need experience. If I need someone to come in with the goal of implementing changes or solving problems that I can’t solve I need experience.
Let’s touch on compensation.
One of the advantages of charging more for your services is that you can pay your employees well and attract great talent in most positions. Paying your laborers $3 per hour above market rate does a lot for attracting reliable and clean cut folks for example.
You will find that a lot of your employees (especially the laborers) are happy to just show up to work with the goal of getting through the day and doing as little work as possible. That is fine. These employees should be paid based on the value they bring. They might leave when they don’t get raises but they are easily replaceable.
But a select few individuals will start to shine. They’ll get good at solving problems. They’ll be an extension of you. You’ll be able to trust them to lead others and you’ll be able to give them more autonomy. They’ll help you grow and innovate. They’ll help you make the company and its systems better. They’ll challenge you as an owner and you will be able to learn from them. They’ll teach and solve problems for other employees and take stress away from you.
When someone adds serious value be ready to pay them serious money. You’ll lose these type of employees quickly if you are stingy with your compensation structure. Be ready to get out of your comfort zone here. Consider tying their pay to performance to limit your risk and increase the upside for them if they succeed.
Sometimes great employees will outgrow your company. At the end of the day it is your job as a boss to make your employees better. When they are ready to add even more value to an even larger company with higher margin products it might be time to send them off to do bigger and better things. Sending an employee off to take a bigger and better role somewhere is a very rewarding experience as a business owner.
A lot of people really push back on the thought of hiring inexperienced employees in their organization. First of all this isn’t a steadfast rule. Just something I think you should consider doing and something that can give you an advantage if you do it well.
Just a clarification – this system works best when you are hiring early employees and building your team. This would be very different if you trying to tell someone how to hire their next branch manager or someone to help you grow and overcome challenges.
Hiring your first employee is very uncomfortable. It’s scary. The anxiety in fact can be so crippling that many many people can’t take the leap from freelancer to entrepreneur because they just can’t do it.
So what is the goal of hiring your first employee? TO MINIMIZE RISK.
When you are hiring your first employee you need someone willing to follow your lead and follow your process. You need someone who will listen to you and will do as you tell them to do at least initially.
It is VERY RISKY to hire someone and let them do their own thing with little structure. You do not know the person. It’s as simple as that. You are trusting your business in the hands of someone that you do not know. You are trusting them to take care of your customers. To operate your equipment. This is a big deal.
This is why so many people gravitate towards hiring and partnering with their friends. To try to mitigate risk of the unknown. I have done this and it can be great but more often than not it causes problems. Thats why you need a system and a stranger willing to follow that system.
When you are hiring your first handful of employees your goal shouldn’t be to hire another entrepreneur or top level manager.
You might also be thinking that you would be really upset to be hired by a boss who has this mentality. Of course you would. You are an entrepreneur. You don’t want to be told what to do. I get that.
You, as the business owner, are the manager. You don’t need more managers! You need people to follow your lead!
There are a select few people in my company that have earned the right of not being told what to do. They don’t get that right when they first get hired. When they first get hired they are expected to follow the process that I’ve worked so hard to build. Its the only way to keep things organized and deliver a consistent product to my customers.
That isn’t to say I don’t listen to my employees and verbally encourage them to bring ideas to me on how to improve. When they call me with questions I challenge them and encourage them to think through it and solve the problem. I don’t just tell them what to do and expect them to be quite.
The people who earn the trust and prove they can MAKE GOOD DECISIONS get the trust and get the autonomy.
Interviewing well is a skill and I’ve found that its not directly correlated with drive.
Just like you can’t learn much about someone on a first date its really hard to learn a lot of valuable information in a job interview. Especially your first few early interviews when you aren’t sure what you are doing. You really get to know someone when something stressful happens on the job. When you watch them solve real problems. Don’t get me wrong you can weed out 90% of the people during the interview but it isn’t as simple as saying “if you do a better job hiring you can find all these traits in experienced people”.
In my experience, not always of course, unmotivated people get really really good at telling people what they want to hear all the time to make people think they are excited, driven and getting things done. They put a lot of energy into this. They calculate what they are going to say when you call. What they are going to say at the next team meeting.
It’s a sad truth but most employees have 1 main goal – to do as little work as humanly possible and still get paid on Friday. In my time as an owner/operator I’ve had only a handful of employees come to me eager and willing to take stress and work away from me and put it on themselves.
Finding motivated and driven employees isn’t impossible but its hard to hire and interview for it. You have to see it for yourself. This is the main reason why I love hiring inexperienced people and developing and promoting my own talent.
You might say “how am I going to challenge and empower great people with this kind of rigid structure? I would argue all day that challenging and empowering and your employees can be done with structure and processes. Your company has to have structure to succeed. You will have an absolute mess on your hands if everyone is out there doing what they want to be doing in the way they want to be doing it.
Employees want structure. Even high level employees want structure and a way of doing things. You need to develop a framework and set of rules employees can use to solve problems. If you don’t build the framework and set the rules every problem will become your problem and will require a quick decision and work on your part.
Motivating and making your employees feel valued is about how you treat them on a day to day basis. Do you listen to them? Do you treat them with respect? Do you encourage them to speak up when they hear something or see something they think they can improve upon?
That is the environment that employees love at any company. It’s not about the kegerator and ping pong tables.
Another concern you might have: Yes, but smart inexperienced people figure out real fast what they’re worth and jump ship faster than you can spin your head. What about that?
All employees, experienced or not, jump ship if you pay them less than the value they bring.Employees just just ship often in general. That is part of running a business. Processes and structure allow you to deal with this and build a company that can survive it.
You have to be willing to pay good people more than you are comfortable doing. I pay employees based on the value they bring my business. If they kick ass and add a lot of value I pay them a lot of money.
Hire fast and fire fast.
We’ve all heard the saying “Hire slow and fire fast”. I like that reasoning for high level employees making $50k+ per year. I also like that reasoning for high skilled employees that require extensive training or investment. There are a lot of costs associated with hiring a full time employee at that level. Turnover is more expensive.
But for $15 per hour help in your service business the best way to figure out how much value they can bring to the table is to give them a shot and watch them work. In many cases you’re investing the cost of a background check and a few hours of training. Don’t waste your time meticulously interviewing and testing personality traits, emotional maturity and decision making skills.
This does not mean you should skip the interview or do a shoddy job at it. Do a phone interview first to weed out 3/4 the candidates. Bring the rest in for an in-person interview. Do a structured interview and ask them some questions that require them to think on their feet and give you a good feel for their soft skills. You want people who can exude eager professionalism and be genuinely excited to help deliver a quality service to your customers.
Make it clear during the interview process that there will be an early probationary period where employment is not secure. They can leave at any time and they can be let go at any time. Tell them what you are looking for in an employee.
Minimize the risk by having them work alongside you or your best crew leader. This way the service quality won’t suffer. Keep them from handling cash so they can’t steal from you. Make their first few weeks very structured so you don’t have to worry about them slacking off.
Fire quickly. As soon as it’s clear someone is unmotivated, untrustworthy or a poor communicator let them go. As soon as they stand you up for a work shift let them go. As soon as someone fudges hours let them go.
Overall hiring employees is complex. There is no single guiding rulebook to doing this stuff right. It’s a lot of making the best hypothesis you can with the information you have available. Don’t get emotional about it. It’s about logic and doing whats best for the future of your business. Take the things in this article into consideration and don’t be afraid to attract and hire inexperienced employees but keep an open mind. Do what works for you.
This isn’t easy stuff. It takes setting aside time (that you likely don’t have) to recruit, interview, hire and train. There will be turnover. There will be headaches. There will be questions. There will be mistakes. But it’s the only way to build a business thats primed for growth in a stress free free way.
Show notes from episode 49.
Many industries have the luxury of having an abundance of talent applying for every position. Marketing agencies, big banks, private equity firms and the like. In the service sector we don’t have that luxury. There is a major shortage of people out there willing to do manual labor for $15 an hour.
It’s no secret it’s the number one challenge in our industry. Don’t believe me? Ask any small business owner what the hardest part of his job is. The answer is always the same – finding employees.
It’s a level playing field. All companies struggle. Turnover is high for everyone. Our competitors deal with the same problems. We just have to do it better than our competitors at building systems and finding the right people who can do it.
Put in the same effort marketing your business to potential employees as you do marketing your business to potential customers.
Just as you compete on price and quality with your competitors in respects to your service you must compete in these areas when appealing to potential employees.
We can compete on price by paying more. We can compete on quality by making our company a better place to work. If you do the 5 things from the previous post before you hire you’ll be leaps and bounds ahead of your competitors off the bat. Your company will be a better place to work. You’ll be able to pay them more money.
You’ll win on price and quality.
But it’s not that simple. While we have simplified our system to the point where we don’t NEED unicorns and spectacularly competent people to work for us we do have a lot higher standards. We aren’t willing to hire chainsmokers with poor hygiene. We aren’t willing to hire grumpy gossipers. We aren’t willing to hire scruffy and unkept people. We aren’t willing to hire those who can’t pass a drug test and a background check.
To justify the higher price we charge we have to show up with clean cut employees who exude eager professionalism when they interact with our clients.
There are still reliable and competent employees out there ready and willing to work. Now let’s talk about how to find them and how to convince them to work for us. Paying them more and treating them better is not enough to really dominate your competitors in this area.
Don’t limit your efforts to the job boards.
Monster, Craigslist and Indeed should be utilized. Its a great way to get a steady flow of 20 applications per week. You should post and you should interview the candidates. Be selective on who you hire. You’ll find good talent here but it isn’t enough to staff an organization with the turnover and growth of a service business.
But you have to get creative with your recruiting so you have a larger pool of candidates to choose from. Recruiting follows many of the exact same principles as marketing. Just as we find your ideal customer and get creative in how you reach them we can do the same for our ideal employee.
Who is our ideal employee?
As a first hire for the typical service business we are looking for a clean cut reliable person who is a good communicator and can follow directions.
Some examples of people that might make a great fit for your business:
College students have a lot of free time and they often work at the campus bookstore for $9 per hour. Major companies don’t like to hire them because they invest resources teaching and training them just to lose them when they go back to school or graduate. They’ll be entering the job market next year for $50k a year but they’ll work right now for $12/hr. They’re often clean cut, reliable, great communicators and fast learners. They are hungry for experience and a resume boost. You can find great talent here if you are okay with turnover when they go back to school or graduate.
Hospitality and retail workers can make great employees during their off-peak times. They work evenings and weekends. You need employees who can commit to business hours when the sun is shining. This can be a great way for them to earn extra money and for you to get competent help.
Offer flexible hours to work around full time commitments that are always changing. The local prison here has guards that work 4 days on and 6 days off. Sometimes they work nights. Sometimes they work days. Sometimes it’s weekends. Some of them would love to have a flexible part time job during those long stretches of time off.
Find people with seasonal jobs or commitments.
Workers on oil rigs or fishing crews work 7-30 days on and then have several weeks or even months off. Many nurses and other fields work 3 12 hour days a week. That leaves 4 days off if they want to earn extra money. Teachers have summers off. Coaches have off-seasons off. Professional athletes in non-flashy sports often work side jobs. Hire them in the off season.
Uber drivers get busy on weekends and in the evening. Maybe they want to pick up more hours on a consistent basis on weekdays when things are slow for driving.
Turnover can be minimized by paying well and creating a great work environment but it is unavoidable. You have to keep a new supply of applicants applying for your jobs, going through training and joining your team.
Consider sharing employees with another company.
Seasonality should be considered. Find companies that you can collaborate with that have a different peak season. Security companies often have a ton of part time flexible staff that they put to work on evenings and weekends. Same with catering companies. Event co-ordination companies.
If you are a snow plowing company consider sharing employees with a lawn care company. If you are a lawn care company consider recruiting at your local ski resort that closes down all summer.
Find ways you can recruit employees from a more diverse pool.
Consider learning Spanish so you can open up your applicant pool to more people. Maybe you need a crew leader that is fluent in English but the crew members aren’t required to interact with customers.
Go after people with full time jobs that aren’t actively looking but have interest in making a change.
All this sounds great and easy right – but how do we reach them?
Go after off-market talent.
There are a lot of people out there who would love to work for you but aren’t actively seeking you out. They’ll never apply to your job on Indeed. They’ll never knock on your door. How can we find them?
I’m a big proponent of guerrilla recruiting and doing things that don’t scale. My competitors aren’t doing these things because they are hard to do. They are sweaty. They are gritty. They are sometimes risky or laughable. They’re almost always uncomfortable.
Get in front of people physically.
Take a pocket full of business cards or flyers to the gym at 6pm. Stand out on the sidewalk downtown. Go to the local basketball courts. Walk up to anyone who looks like a possible candidate and say:
“Hey – do you know anyone looking for work? We are hiring a lot of positions with flexible hours this summer and we pay $15 per hour. Here is my card. Have anyone you know reach out!”
This is a lot less awkward and a lot less pushy than asking the person directly if THEY are the ones looking for work. You’ll end up sparking conversation with people and they’ll have questions. They’ll consider applying themselves. They’ll tell a friend that they know.
This sound silly but it works VERY well. I’ve spent many hours on the street corners of college campuses doing this type of recruiting. We’ve found some great employees this way.
Write chalk advertisements on the ground. I’ve written the following in sidewalk chalk in high traffic areas thousands of times:
“$15/hr + tips. Flexible Hours. StorageSquad.com/Employment“
Put small lawn signs out that say the same thing. Put flyers in local Gyms and fast food restaurants. Get creative here and get sweaty! This stuff works and it will likely turn into your #1 recruiting method.
Consider setting up a formal internship program for college students. College students really struggle to get real world experience. Companies would rather have them push paper around than invest the time and energy in teaching them how to add value within the company.
You can delegate real tasks and get real value out of college students. My company is ran by student managers at each of our universities. They work part time during the school year and then during our busy season play key roles.
Find people in leadership positions that could refer people to your company.
The principle of an elementary school. The head football coach. A trainer who works with a lot of semi pro athletes. The internship director at your local college. Your local chamber of commerce.
Make a landing page and put an application on your website. This page should make it easy to learn more. This page should get people excited to work for you.
Consider making a recruiting video (warning cringeworthy content I made in 2014 that needs updated) for the webpage. Record yourself talking about the job and why it’s different and why your company is such a fun place to work. Interview your current employees. Ask them what they love about the job. Ask them how it has helped their careers. Ask them about helping customers. Record their responses and put together a video that your potential employees can watch to get excited.
Lean on your personal network of family and friends. I know this might not be vast in your city but it can be very effective. Facebook has been a great way to find employees for us. We post about the great wages and flexible hours and we get 10 or 20 good applications.
Offer a referral bonus for current employees if they help you recruit a new employee. $50 or $100 will go a long way to encourage your current workers to reach out to their personal networks to convince friends and family members to apply to the job.
If you have multiple locations consider bringing in employees from other cities and covering housing expenses. Have a college aged cousin in another city that wants to bust it all summer and earn some money? Have him come live in your basement for the summer. We travel our employees often. We put them up in hotels or let them sleep in our guest bedrooms if they come in and work hard for a week or so during our busy season. This adds to the cost but it can be an effective way of doing it in some cases.
In my experience the best hires rarely come from paid job boards. You’ll find good talent, don’t get me wrong, but it isn’t plentiful. Our hire rate is low. Give some of these other methods a shot and track what works and then double down!
Show notes from episode 48.
First a little bit of background on me and my experience with this stuff. We have hired 13 different full time employees and 1000+ part time employees over the past 9 years since we started. We are a pickup and delivery storage company. We aren’t a tech company. We aren’t scientists. Is our company simple? Far from it. Our logistics are crazy. But it’s not rocket science.
Of the full timers most of them we placed in bigger and better jobs for bigger and better companies. A few were let go. One of them quit. I challenged and empowered them and they learned alongside me. We run a small niche company. I would estimate the entire USA market is $10MM in my industry. So its natural that some of them ended up outgrowing our company.
Soon the value they could add for someone else with a larger higher profit margin business was larger than they could add for me so the balance was off and it made sense for them to move on to bigger and better things and get paid more money.
Let’s start with a hypothetical you are probably all too familiar with. It happens to every entrepreneur when they finally get some momentum.
The phone keeps ringing but you can’t answer it. You are busy and can’t focus on the important stuff that isn’t urgent. You are running around putting out fires. Your lead time is increasing and speed is no longer your competitive advantage. You need some help.
This is good news. It means the business is growing. Your concept has been proven. There is room for you in the market. You have an opportunity here. Making a hire is the next step.
But hiring is the hard part and it’s the part that many many businesses can never get right. It’s what keeps small stressful businesses from becoming organized profitable businesses ready to grow. This is exactly where most small businesses get stuck and why it’s hard to find a local small business that answers the phone and can meet you tomorrow to help you solve your problems.
Hiring is hard because nobody else will work as fast as you do. Nobody else will care as much as you do. They’ll make more mistakes. They’ll ask a lot of questions. We hear it all the time and could go on and on and on with the reasons this isn’t an easy step.
The first step is understanding that a switch in perspective needs to take place and your role in the company will totally change.
You have to make the switch from laborer to manager. From doer to delegator. Just because you know how to do the job perfectly does not mean that you know how to train and manage others on delivering a consistent service to your customers.
The job requires skills. The job requires experience. It’s complicated to do. Okay I get that. Before you make a hire you need to do three things:
1. Get comfortable charging more for your services
Far too many business owners and operators undervalue their service and choose to compete on price because they feel like they have to get every customer that walks in the door.
Let’s make an assumption here and say that 50% of the customers in the market care only about the price and they are okay accepting a slow turnaround and/or shoddy service. You need to ignore these customers all together and feel perfectly fine turning them away and losing out on their business. Your service isn’t designed for them.
You can’t get emotionally attached to a lead. You will lose leads. You will get turned down. You will have people try to haggle with you and stomp off in a fit of rage when you refuse to play the game. That is perfectly OK. You have to make the choice NOT to compete on price. Podcast episode 13 talks more about this.
Your service is designed for people who are looking for quality service on a quick timeline and are willing to pay a premium for those things. So what does this mean?
Its a numbers game. Converting 30% of your leads charging 50% higher is a lot better than converting 75% of your leads 10% above your costs. Play the game and stand by your guns. You will lose some customers. Thats expected. This is the hard work of building a scalable and healthy business.
Charging more does a number of great things for your business. It allows you to pay your employees better and invest more in a more selective hiring process with background checks and more thorough interviews. It allows you to invest resources in managing them and making sure they have the tools they need to succeed. It puts some padding in there so you can step back and work on the stuff that is important but not urgent and delegate things that aren’t in your wheelhouse. It allows you to focus on what you are best at and turn down business. It allows you to fire customers that are causing most of your problems.
2. Simplify the job by breaking it down to its simplest form and removing non-essential tasks
Even an amazing employee can’t thrive in an environment where they are asked to do 30 things well. Take as much off of their plate as possible so they can focus on doing their main objective well and aren’t spread thin among a bunch of different tasks.
We learned this lesson the hard way at Storage Squad. We used to have a 30 item checklist on the back of the clipboard each of our employees carried with all of the jobs they needed to remember to do when servicing a customer. It ranged from customer service to box labeling to billing to loading to scheduling.
They sucked at everything. Ivy league kids were failing miserably at delivering a consistent service to our customers. Our training was complicated and took a lot of time and energy. When we finally got an employee trained up and doing a decent job turnover would cripple us.
We figured out we needed to simplify their tasks and take as much off their plate as possible. Instead of training them to be proficient (at best) at customer service we directed all of the customer service to a specialist who focused on doing only that job really well. We had employees focus on driving and loading the truck and instead of also having them unload and organize the warehouse we had a totally separate team do that. We had specialist employees handle the billing. We had someone off-site handle the scheduling and communication with customers. And on and on.
When we simplified it they did much better. Training was much simpler. Turnover was easier to deal with. Average employees begin to thrive and we didn’t need to find spectacular people to implement our system.
3. Start by delegating the low-skilled aspects of the job
Looking at the big picture it’s easy to think there is no way someone who isn’t you could do the required task. But when you start to break it down and think about all the actual tasks you will be asking them to complete it often paints a different picture.
I have a friend who is a loan officer and business is booming for him. He is extremely busy and works at least 70 hours a week but he is doing great and makes really good money. He is starting to bump up against the wall of what he can personally get done in the business. His lead time is starting to slip. He isn’t able to devote the necessary energy to new leads to tie them down, etc.
He runs his own branch and has a lot of autonomy and he has the freedom to staff his office based on his needs. We began chatting about this and he mentioned to me “I have to hire someone experienced in the home mortgage industry but that is expensive as the average loan officer in town makes about $70k a year.”
I asked him why he needed experience and he told me that the job is complicated and an inexperienced person wouldn’t understand how it all works and that he doesn’t have the time or energy available to train a new person.
So I had him track his time at work for one day. He used the app aTimeLogger and we set up the categories. The top task for the day, which he spent roughly 3 of his 9 working hours doing, was “Compiling and completing loan applications to send to underwriting”. This involves a lot of phone calls, emails and dealing with customers to get all the required tax returns and bank statements and the like ready to send off.
So I asked him more about the process and we came to the conclusion that most of it is busy work. I asked him how long he would need to spend with me personally to make it so that I could help him and do 90% of the required stuff for that task without asking questions.
He said if we went through 2 loan applications together in about 3 hours I could probably do enough to be a really big help and after about a week of experience and questions I’d probably have 100% of it down for 95% of his applicants.
He makes $250k a year. The hardest part of what he does is make the sale. He is on the phone and in meetings with people earning their trust and convincing them to trust him with the huge life event that is financing a home.
But he only spends about 25% of his time on the phone with leads and drumming up new business. The rest of it is busywork that he could delegate if he only simplified the ask and had the employee who makes $40k a year do a lot of it. It doesn’t make sense for him to hire a high powered loan officer because he doesn’t need help drumming up business. That is his strength. He needs help with the busywork and an inexperienced person would prove very valuable to him!
4. Build out systems and a structure for your employees to follow
Hiring your first employee is very uncomfortable. It’s scary. The anxiety in fact can be so crippling that many many people can’t take the leap from freelancer to entrepreneur because they just can’t deal with the risk.
So what is the goal of hiring your first employee? TO MINIMIZE RISK.
When you are hiring your first employee you need someone willing to follow your lead and follow your process. You need someone who will listen to you and will do as you tell them to do.
It is VERY RISKY to hire someone and let them do their own thing with little structure. You do not know the person. It’s as simple as that. You are trusting your business in the hands of someone that you do not know. You are trusting them to take care of your customers. To operate your equipment. This is a big deal.
This is why so many people gravitate towards hiring and partnering with their friends. To try to mitigate risk of the unknown. I have done this and it can be great but more often than not it causes problems. That’s why you need a system and a stranger willing to follow that system.
Employees want structure and processes. You want structure and processes. At this point in the early days you know the best way to do things because you have been out doing it. You want someone who is willing to do it your way.
Now that you have a simplified job description its time to build the guide. If this happens, do this. If that happens, do that. There will always be surprises and later we’ll deal with how to help employees get better at making their own decisions but for now you want to remove all doubt and make that person an extension of you.
5. Get your compliance in place before an employee starts the work and be aware of the extra cost.
Hiring employees is expensive and requires a good deal of administrative work.
While paying an employee under the table is tempting it is illegal and risky. You need to get insurance and register with the required local, state and federal agencies for tax purposes.
You need workers compensation insurance in place to cover you and your workers in the event that an employee gets injured on the job. This is often paid as a minimum at first but as you grow it is directly correlated with total payroll as a percentage. This is handled by a state agency so it varies by state. Sometimes you are required to purchase this insurance through the state. In other states you have the option to go private or purchase through the state. If you are a young company in a high risk industry you are often left with only the state option.
The more risky the job the higher the percentage. Roofing has the highest in most cases. Nearly 40% of the wage can be paid in the form of workers compensation insurance. More often this is more like 15% for most labor jobs and 5% for most clerical office/computer jobs.
Each employee in your company will have a different “class code’ based on the work they do. The code determines the cost of the workers compensation. Make sure you differentiate between your customer service reps and your laborers so you don’t have to pay for high risk workers compensation on your clerical staff or management.
You will have a payroll audit and they will determine your final liability based on your class codes and your records. Keep good records – more on that soon.
Unemployment insurance (FUTA) is next and its taxed at both the federal and state level. This is a complicated system and your rates go up or go down based on employees claiming unemployment after they leave your company. It is usually about 1% of wages up to a certain amount but can be 6%. Here is some more information. Expect this to be no more than $500 per employee per year and often much less.
Disability insurance is another one related to payroll as a percentage. In some instances an employee is required to opt in and get money withheld for short term disability. Long term disability is covered by the employer as a percentage depending on the state it is between 1-3%.
Liability, property, auto and umbrella insurance. You need these things to protect your business and personal assets in the event of an accident. Generally 3 different policies. More here.
Payroll taxes next.
FICA (Federal Insurance Contributions Act) taxes are taxes based on payroll that fund social security and medicare. The total liability that you need to submit to the government is 15.5% of wages. You as employer pay ½ and the employee pays ½ and their half is withheld from their payroll. You need to register with the IRS so you can pay and withhold FICA taxes.
You are required to pay 7.75% of the employees wages on top of their standard earnings in the form of FICA.
How much will this cost? It depends on the industry but I’ll give you an idea based on my own experience in the moving and storage business.
We pay our laborers $15 per hour in most cases. We’re in a 33% workers compensation bracket in one of our states. We pay 7.75% FICA. 2% disability and 2% unemployment (after a few claims per year).
That is an extra 44.75% on top of the hourly wage for a total of $6.71 extra per hour per employee. That turns the $15 wage into a $21.71 liability. And whats more the employee’s $15 per hour turns into only $13.84 after FICA and about $10.50 after taxes are withheld.
It’s tempting to pay your employees cash or treat them as independent contractors and just send them a 1099. This isn’t the right way to do business. These taxes go back to the workforce over time and provide valuable safety nets for everyone involved. Look at it as the cost of doing business and operating in such a stable political and economic environment. Price it into your services and follow the rules so you can grow a healthy scalable company.
I recommend an online payroll service. Not only do you need to have all of your ducks in a row on insurance and taxes but you also must have an I-9 form and a W2 filled out for each employee or you are at risk. I use Gusto and they let me manage it all from my computer. They do the withholding. They do the reporting. They help me efficiently file all the necessary forms. They even let my employees fill out their forms from their phones so I can remain paperless.
So on a $15 per hour wage our cost is $21.71 per hour and the employee only sees $10.50 in his bank account.
Don’t forget the background checks and drug tests as well that run a few hundred dollars to onboard a new employee. Plus the 10 hours paid training time for each employee. Plus the time we spend interviewing 10 employees for every 1 we hire. Plus the time and money we spend recruiting employees. Plus the time and money we spend building training systems and videos to teach them the work.
Add that to the fact turnover is common in hard labor intensive work and the average employee will only last 4 weeks and the total cost per hour rises to about $30. Thats 2x the offering wage and nearly 3x the take home pay.
So what does this mean?
See step 1.
Get comfortable charging more for your services. Ever wonder why a moving company bills you $50 per man hour but only pays their employees $15? It’s because they have to do it to make any money.
Do things right so you can deliver a consistent service and then get comfortable charging more for your services so you can build a healthy company ready for growth.