#626 You Do Not Scale A Business You Scale People

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Transcript

Why Hiring Drives Scale

SPEAKER_01 0:00

Welcome everybody to another episode of the Main Street Business Podcast. My name is Mark Kohler. I'm here with Matt Sornson. And today we are talking about scaling, growing your business, hiring employees. And we're going to pretty much tell you all the mistakes we've made doing it. Or no, it's going to be more positive than that, isn't it?

SPEAKER_00 0:17

We've had some successes. You know, you can definitely learn from our mistakes, but we have done some great things and have hired some great employees that have really made a difference in our businesses. You know, I mean, even like three-time Inc. 5,000 winners, fastest growing companies in America, we've uh been a part of. So uh, but we definitely have learned some of the hard lessons and have seen lots of clients as we've been business and tax lawyers as well, and seen what they're doing that's been successful and not as well. So we want to break that down with you, share some insights as you're trying to grow and build your small business. You might be a solopreneur looking to hire the first employee. You might have 10, 100, 1,000 employees. Everybody's in a different phase here, but we want to break down some uh practical tips you can take away to help you scale and grow.

SPEAKER_01 1:03

Yeah, and I we really have each of us done 10,000 consultations or more with small business owners. And this is a constant conversation about the pitfalls of hiring employees, how to lessons learned. And it was interesting this I let me frame it this way, for in my opinion. But in generally, we're selling as small business owners a product or a service. A product or a service. So we can class, there's some variances in there and blah, blah, blah, but generally we're gonna be a product or a service. With a product, I have a client with a couple employees making a million dollars, they're selling products in the middle of the night. There can be a lot of use of technology, software, blah, blah, blah. But with service, however, especially in professional services or even just manual uh skilled labor services in a small town, think landscaper to chiropractor, to dentist, to uh a plumber, your your ability to scale is gonna be driven by your willingness and ability to hire employees, because that service has to be completed under your direction and toolage if you want to scale. Would you agree with that, Matt?

SPEAKER_00 2:17

Yeah. I mean, there's no other way to do it. There is I mean, AI is not gonna get you there. I know people are like, oh, AI, I can replace myself a little bit. You can improve your ability to be productive,

Lifestyle Business Or Growth Business

SPEAKER_00 2:30

but it's other people that are going to exponentially grow your business so it scales. You do not scale a business, in my opinion. You scale people, people scale the business for you. Yeah.

SPEAKER_01 2:42

And I had an interesting experience just last week. Uh, I was on a project, a real estate project I was working on with my wife Patty. And it was interesting in a two-day period. I worked with a landscaper that was in his 50s, and a landscaper doing a different part of the project, with his both of them own their own business in his 20s. Now, the guy that was 50, family, friend, I um I guess he's been with the family working as a landscaper for the properties of my wife's extended family for the last 30 years. He will not hire an employee. He is his own guy, puts on his headphones, loves it. It's just his personality, whatever. But he is only gonna make so much money, that's it, and he will die on his lawnmower before uh uh he'll have to work. I think I don't think he you can put away enough. He's raised a little family, this, that, and another. He is so limited because he will not hire an employee. So I was talking to the 20-year-old Matt, and it was so interesting because 20 to 25 year old, and I said, So uh how's it going? What are you gonna what are your plans? I love to ask that. And well, you know, I hope to just buy this piece of equipment and buy this equipment. And I was like, Are you gonna hire an employee? Well, yeah, I just can't find anybody. I go, really? Or you you just don't want employees. Well, yeah, I don't know if I want employees. So you're gonna just keep doing this. And I said, you know so-and-so? Yeah, I kind of know. See how old he is? He's making the same amount of money for how many years? Well, yeah. I go, what's going on? Well, my wife's pregnant. Oh, really? Okay. College savings, buying a house? You think you're gonna pull this off? You know, whatever. And I I wasn't this rude. But I started to drill down on him, and he would he just didn't see the benefit of hiring employees to scale. I I don't know. And maybe I was being too critical.

SPEAKER_00 4:46

I know I I mean, I I mean, some people like a lifestyle business, you know. Then I you can categorize it that way to be, well, maybe he they don't like the the the burden and the and kind of that sense of responsibility you have for other people when you get employees, you know, and and and that's fine. But they also have to be satisfied with this position that they're gonna be in, is that their limitation and ability to produce income is gonna solely be off of their efforts. And the only way they will make more money is to work more. And I think the most people who enter small business are a little more entrepreneurial, not necessarily looking for a lifestyle business, but they're looking more for a business that is gonna grow and scale. And that is gonna mean taking on risks and taking on responsibilities. And that's why you get the reward. That's why when it goes all well and it's successful, you get to make the money. But you have to be willing to take the other side of the coin, which is that responsibility and that burner. I know it's hard to get over. So let's talk about that landscaper, though, or you know, and let's maybe

The Leap Of Faith With Employees

SPEAKER_00 5:55

just start there and what's the first thing they should be doing.

SPEAKER_01 5:57

Yeah. The first thing that every business owner should do. The first concept is are you okay hiring people? Like if you're not even there yet, then there's this the rest of this conversation might be food for thought because you've got to be able to say, yeah, I want to take that leap of faith. I'm willing to go be in uncomfortable situations. I remember the first employee I fired. I cried. Uh I had a janitorial business. But I'm I'm with you. So the step one is like, yeah, you've got to just be able to go all in and hire someone. Um I don't know. What do you think's next? Like just that.

SPEAKER_00 6:36

Well, I think there's different. I want to give people a big picture because everybody's at a different spot. I think there's administrative tasks in your business that are not worth your time as a business owner, and you can redirect your time into more efficient areas. Okay, so I think that's kind of level one of this, which is let me figure out what that is in the business. Um, maybe I don't need to be actually mowing the lawn at all these places I'm doing the landscaping. Maybe me doing the bidding and managing the customers and the sales is better, and I will let someone else go actually mow the lawn because I can hire that at a relatively lower rate than what I can charge. And so you can start kind of doing this division of labor of I'm growing the business, the brand, I'm getting referrals, I'm doing the market, I'm doing the sales, and I'm I'm going down there. Then I think you get to another level, which is many small businesses, and maybe you're up to 10 employees at this point. And you've got people, you've done some division of labor, you've figured out where you fit in in that business, and maybe it is more in the sales and you're you're managing and helping train people. But there's an and but then there's another level of you need to get people better at you than other functions in the business.

unknown 7:48

Yeah.

SPEAKER_00 7:49

In the small business of 10 or less, you might be the guy for everything. But now we're thinking I need real subject matter professional people that it's not just about replacing

Three Levels Of Hiring To Scale

SPEAKER_00 8:00

the cheaper labor work, it's the higher level work that I think is a next level of hiring and scaling.

SPEAKER_01 8:07

Yeah, I let me repeat what you said and just some different verbiage, because I like what you said. I think level one is really uh hiring someone to do the duties you shouldn't be doing. Uh getting rid of that labor that really takes you away from working on the business and your highest and best use. And I think figuring out that first employee of what are the things I really shouldn't be doing, but allow me to grow and make more money so I have a little more freedom to go to level two. I think level two, a way of describing what you said, is also replicating the service at that point. Like now it's time to just duplicate what is that service over and over again and getting the best people, getting them trained, and knocking it out. I think that third level, and you've said this to me before many times, Matt, is now you're hiring not people to do the work, you're hiring leaders, leaders that can run the operation. And you're really hiring different types of people at level three because the administration's taken care of, the duplication's taken care of. Now it's like I need that leadership to really um build more.

SPEAKER_00 9:19

Yeah. And I think at that point, you as a business owner need to start having some awareness of like what you're good at and what you're not, right? And then say, all right, what does the business need? Um, and what are my opportunities for growth? And then thinking about the people you need to get to help you get there. You've figured out the lower value stuff that was dragging your time down. You're you're working your butt off now, trying to drive the business forward. But now you're at this other stage of I'm doing all I can. There's I cannot do more, and I can't just sub out the lower value work anymore. It's gonna take more for me to get to this next level, which is leaders. It's also, it's also just, I will say, more expensive people many times. It's gonna cost you more. It might cost some equity in the business at some point. You know, there's other considerations that as you start scaling, that in order to get those people that can really get you there that are gonna stay with you, you're gonna need to actually pay to get those people and spend a lot of time hitting your network, building those relationships to bring them in.

SPEAKER_01 10:27

Well, and it's I like that you brought up money because we do I want to talk about con you know employment contracts, non-disclosures, things that we've you know, probably done the wrong way sometimes and the right way others. But staying with money for a minute, the you said how are they expensive or not? I think once you're looking at that position that you're gonna hire for, you have to say, are they

Paying For Producers Versus Support

SPEAKER_01 10:55

helping make more money directly or are they supporting the people that are making the money? Like I we I know producers, Matt and I have been generally following the approach that a producer should be making three times what you're paying them. So if you're paying them 50 grand a year, are they generating 150 grand in product or service? Uh the general rule being a business payroll is a third of the business, overheads a third, your profits a third in a service-based business. If you can do that. But then if you're hiring administrative people, are they freeing up the capacity of you or your producers? And I think that um really helps put numbers to it. Like what are they doing for the bottom line when I figure out how much I'm paying them? It it's a tree, it's a it's a trend.

SPEAKER_00 11:56

Yeah, and I think like if we, you know, we're talking about the dentist or whatever, whatever, you know, it's like, well, I need to hire another dentist. I've already got the admin, I've already got the billing, I've already got the additional hygienists, I've got the and there's some other revenue coming in from this, and we've made an efficient operation here, but we're capped. It needs another dentist. Okay, well, that's gonna cost a lot more. We're not subbing out the low value work. That person's gonna cost you a lot of money. And so, and what happens, I think, in a lot of businesses is when you're making those hiring decisions, it is short-term sacrifice. You are making an investment in bringing in that other higher valuable person that you know can produce, that can drill and bill, you know, go back to the dentist here. They're gonna bring in more revenue than they cost you. You know, that dentist might cost you 300 grand, but they bring in 900 grand of revenue, right? So, how am I so? But I'm gonna make it, it's gonna be good. I'm gonna make money. But they're not gonna make me three times that money in the first month. It might take six months of investment for that to pay off. Meanwhile, who's making less? You're making less, business owner. And I think the trap that's had in many businesses scaling is that business owner gets to a certain level, gets comfortable on the lifestyle and the amount of money they want to take out of the business, and they're not willing to go back and sacrifice, like they did in the very beginning, to get through phase one here. They're not willing to sacrifice to make that investment into people that are more expensive, but can actually drive in the additional revenue to get you up to that next level. Where when you recover and that investment pays off. And if you've done well with your team and your culture and you've kept those people, then you can get to the, then it's just another level and you keep going from there.

SPEAKER_01 13:46

Yeah, it really is a short-term pain for long-term gain. And there's these break points where you get comfortable, but you're like, ah man, I know I can get to the next level. Well, you're gonna have to work a few weekends or a few nights or whatever, a month or two to get to that next level.

SPEAKER_00 14:03

Um and be willing to make less. Be willing to have less money in the business as the business owner, less money you're gonna take home

Short Term Sacrifice For Long Term Gain

SPEAKER_00 14:10

for a window of time. Yeah. In exchange for more later on.

SPEAKER_01 14:16

And and I hear that so often, and many of you listeners have heard someone say, Well, I just can't afford my first employee. I can't afford it. Well, okay, yeah, it's going to cost you and you're living month to month now, I get it. But that employee should allow you more time to make more money or make more money to add to if you're hiring someone that's not going to take free up your time or make money, you're right. You can't afford it. But if they're going to actually take 20% of workload off of you of menial tasks that aren't revenue generators, then you can easily calculate and go, okay, if I'm that dentist, I can X put more people in the chair in my room if I hire that admin. Or if I hire that other dentist until he's fully busy, I'm gonna have to work a little harder. But once he hits his stride, okay. Two dentists should allow me to make the same amount of money. And now the when I now the real gravy hits. Um but you gotta do the math and it's it's a challenge. Um when you're

At Will Hiring And Offer Letters

SPEAKER_01 15:30

hiring employees, let's just go there for a minute. Legally, there's I think employee employers can create more problems for themselves thinking they've got to give them an employment contract or something like that. The at-will concept in the in most states is and especially for the small business owner, hire them. If you don't like them, you can fire them. If they don't like their job, they can quit. That's what's at will. And I think people think they've got to give a contract, but they really don't. Just make an offer and they can accept it or reject it, and you can pay it or fire them. I I don't know. Do I oversimplify that, Matt?

SPEAKER_00 16:11

No, I think that's I think that's absolutely right. I mean, you should be very clear whether you're this is an email communication, a letter. Um, it doesn't have to be a contract necessarily for your employment. In fact, most of the time that's not. It might be, I we typically like the letter. So if there's something in writing specifying pay and any benefits or holidays, and you know, you obviously have to think through those things. Are we, you know, and there's certain laws about what you need to do if there's overtime, are they salary, are they not? Um but the key thing in there I think is going to be this is at will, right? Meaning you need to say that. Meaning what more what you said, they can quit at any time, but you can fire them at any time as well without notice. Um and I think some other things you might want to think about, especially as you're thinking about these other employees and this next level of scaling, is maybe we have a non-solicitation clause in there that says, hey, if I'm hiring you as a dentist to come work in my practice, you can't, you can leave whenever you want, but you can't go solicit all the patients to go leave with you and go and you just open up a shop next door to me. So, and there's other, there's non-competes you can do. Sometimes those are enforceable, many times they're not going to be. Um, but at least I think a non-solicitation is something you may want to do. And this could work in many scenarios. This could be the contractor, this could be the plumber you're hiring. I don't, you know, an additional plumber, I don't care what it is. I just give the dentist here. But I'd at least like a non-solicitation in there to say you're at least not going to come back and solicit the customers you did what

NDAs And Non Solicitation Protection

SPEAKER_00 17:40

work with us to leave our business and become a patient customer of yours.

SPEAKER_01 17:45

Yeah, and you don't have to have an employment contract to ask them to sign an NDA, a non-disclosure agreement. With the social media world around us now, your employee, especially if they're administrative and inside the honeycomb, if you will, they might see you in precarious situations, saying something you didn't mean to say or saying something embarrassing. And if having an NDA, depending on the type of employee, uh, I think is important too, so they can't share something extremely private later and and cause you a lot of problems. Um of course you can't have them sign an NDA that allows you to do illegal things, not say something, but something that might be embarrassing, especially for hiring a social media manager. You know, they're not going to see your best look all the time. So an NDA could be very, very helpful.

SPEAKER_00 18:43

Um Yeah, and I think you'll have right you'll have an employee handbook, of course, and that's you that should usually have stuff like confidentiality and not disclosing customer information or trade secrets of the business or pricing or vendor, you know, relationships and all that. And you know, I've talked to many business owners over the years who have had someone jump ship and basically go compete with them next, you know, they're a small business owner and they've had someone else in their business they've trusted and relied on that's helped them grow their business and frankly made them money. And and next thing you know, they're competing against them, and that person jumped ship. And and I think uh while you cannot protect that from happening in all instances, you can limit the damage on that with some of this stuff, non-solicitations, confidentiality agreements in terms of like uh that uh I like the non-solicitation, non-disclosure, that type of stuff in there. So there are protections you can do to protect yourself. You it is not making you um immune from any anything that could happen, but you definitely put yourself in a better position than you are by going and totally blind and having zero legal protections.

SPEAKER_01 19:58

And it's important for all of you to know, and again, in most states, states can have some unique laws. So familiarize yourself with anything weird in your state. But again, with an at-will situation, I hire you, you agree to work, you can say, here's our employee handbook. You are bound to this. It's not a it's not an employment contract that you agree to pay them for so many months or this or whatever. It's if you want to work here, here's the rules. You can't bring a gun to work, you can't do this, you can't do that, you can't come to drunk to work drunk or stoned. And so an employee handbook uh is certainly something that you can have and should with your employees, even in an at-will situation.

Document Problems To Reduce Risk

unknown 20:45

Yeah.

SPEAKER_01 20:46

I think another area people get themselves into problems, and we we've done these all, done this really well at times. We've had our stumbles over 20 years, uh, hundreds of employees. But another mistake is not when a problem starts to happen with an employee, documenting it. Um having a conversation with the uh employee with a witness, making sure you're documenting things along the way so that if you do terminate them, you might have a better case if they go claim unemployment on you. That could be a big deal to increase your unemployment rates. You also don't want to get sued or whatever. So I think you're obviously going to try to motivate and train and be positive and all this, but when problems do come, you've got to document things and keep an employee file, if you will. It will protect you every time.

SPEAKER_00 21:41

Yeah. Well, are we getting to firing? Are we doing firing on this episode? Matt, we that's a whole other podcast episode. I've been meaning to talk to you, Matt. Yeah. Uh did you need to put something in my file? Yeah, yeah. You know. Yeah, something's going in your file, Matt.

SPEAKER_01 21:57

Uh but slapped me on the butt the other day and said, good job, and I just didn't appreciate that. I just wanted to.

SPEAKER_00 22:03

I mean, we were playing pickleball, you know. It's doubles, partner. Come on. That's what you do out there. Um

Practice Hiring And Keep Improving

SPEAKER_00 22:10

Yeah. So, well, I think on the hiring side, I think this can be an incredible opportunity to grow and scale your business. There's some business considerations there, of course. Hopefully this helped you think about it. Um, there's legal things to it, obviously, as we try to give a couple tips there on what to think about on the legal side, as we're we do view ourselves as your lawyers in many cases if you're using our law firm and being a client uh at KQS Lawyers. But uh, hopefully this helped today and let us know if we can be resourced for you at KQS Lawyers. Mark.

SPEAKER_01 22:39

Yeah, I want to say one last two is just um don't be afraid to try and practice. If you hire someone that doesn't work out, let them go. Try again. You know, like you're not gonna be perfect as an employer. You're not gonna do perfect hiring. Uh, you're going to make mistakes in the process. The only way you're gonna learn sometimes how to manage people is to go do it. And Matt'll tell you, Mark's had some rough years, you know. Like I I I wear my emotions on my sleeve. I'm quite a dramatic guy. And could I been, it's been the last five to ten years, the biggest uh growth area in my life has been managing people. Um, the first 10 years was managing clients, getting those 10,000 consults done. Now it's managing my people that I love. And sometimes I do it great and sometimes I don't. But the point is, if you want to scale, you want to make more money, you want to have a little more freedom, you're you this is an albatross or a hurdle you're gonna have to, I don't want to say albatross, this is a mountain you got to climb, a hurdle you got to overcome. And it's not the end of the world. It's gonna be hard at times, and it's so rewarding too, when you know that you're supporting a family or having someone believe in what you're doing. It's can be super rewarding emotionally.

SPEAKER_00 24:00

So don't think about it. Yeah, and many times the business you have and the opportunity you have is the best thing for that person, and it can be such a huge win-win to you. It's a great job for them, an opportunity for them, and growth area for them, as much as it can be for the business. So um, that's one of the awesome things about being an entrepreneur, is you can, even though we've talked about some of the negatives to it here too, is um there's a huge upside to it, not only for you as the business, but for that person that's the right fit for you and your company. So um thank you everyone for tuning in to another amazing episode of the Main Street Business Podcast. Make sure you're

Subscribe And Submit Your Questions

SPEAKER_00 24:35

subscribed, liking it, sharing it, two thumbs up, leaving positive comments, whatever it is you do. And also remember, we do an open forum podcast, and you can ask your questions. So get to Main Street Business Podcast.com. It's a mouthful, but mainstreetbusinesspodcast.com, you can ask your question there. They come to Mark and I, and we pos those on the open forum show, which we're trying to do at least one of those a month. So make sure you're staying tuned for that and checking out the website. Thanks, everyone. See you next time.