Lesson #292: Should You Clone Yourself When Hiring?

Come on, we have all thought it as entrepreneurs, at one point or another in our careers:  “I just wished I could clone myself in finding new employees for my business.  Nobody works harder than me.  Nobody is as smart as me.  I don’t trust anybody to make decisions or manage teams better that I do.”  Sound familiar?  But, is cloning yourself really the right solution for your hiring goals?  There are clear advantages and disadvantages of a strategy like this, so you will need to figure out if cloning yourself will help or hurt your business, based on your business’s specific needs.  Read on.

WHAT EXACTLY IS CLONING YOURSELF?

Any of you fans of the Alien movie series?  Remember in the fourth installment, Alien: Resurrection, when they manufacture a clone of Sigourney Weaver’s Ellen Ripley character 200 years after her death (from DNA samples of her blood saved in storage), to go kick some alien butt again?  It is pretty much that, only for yourself, while you are still alive, building an army of lookalike “Yous” to go kick some competitors’ butts.

HOW DOES CLONING MANIFEST ITSELF IN YOUR BUSINESS?

Your clones are typically identified by you, personally or through your direction of your HR teams, during your recruiting process.  First, through the job descriptions, with every bullet point sounding like you were actually describing yourself.  Second, through the interview process, with you assessing every candidate as “is this person exactly like me”?  And, third, through the onboarding process, with you training your new “Mini Me” (think Austin Powers), to do the job exactly the way you would do the job.

THE ADVANTAGES OF CLONING YOURSELF?

There are many good reasons to try and clone yourself during your hiring process.  Looking for another similar personality that will fit with yourself and the team culture you are trying to create.  Looking for someone with exactly your same skillsets, that you trust to do the job required and potentially replace you down the road as your succession plan.  Looking for someone who is an optimist on the prospects for your business and can cheerlead that vision to your team with the same fervor and passion that you would.  As a few examples.

THE DISADVANTAGES OF CLONING YOURSELF?

For as many reasons you think cloning yourself is a good idea, I can envision an equal number of reasons cloning yourself could actually be a bad idea.  Maybe you don’t need a “glass half full” optimist like yourself, that is going to tell you everything you want to hear.  Maybe you need a “glass half empty” realist, who will bring a sense of caution to your investment decisions.  Or, you may need a similar “A-Type Personality” to lead your sales team efforts, to help jazz up potential clients.  But, maybe a “B-Type Personality” may be a better fit to manage your more introverted team of technology developers.  Or, why hire someone with your exact same experiences or vantage point, because maybe someone else can help you better identify a better process or avoid known potential pitfalls based on their different past experiences.  As a few examples.

WHAT IS THE RIGHT PATH FOR YOUR BUSINESS?

To me, the decision whether or not to clone yourself comes down to a couple key things.  First of all, what the business needs to be successful should outweigh everything else.  Let’s say you are hiring a head of finance, and one candidate has a dream resume and a track record of proven success for the position, but perhaps the personality is not as outgoing as yourself.  But, another candidate has an okay resume, but a great personality fit.  At the end of the day, who do you trust more to “have their hands on the steering wheel of your business”?  The person that has solid experience and references, or the person that could do the job, but you would rather have a beer with?  In a perfect world, you want everything you are looking for in one candidate.  But, more times than not, you will only get 80% of what you are looking for in one candidate, and you have to be careful to prioritize what of the 20% they are missing is going to do the least damage.

Secondly, it comes down to what do you need personally.  If you did a critical assessment of yourself, are you sure you really need a bunch of “Yous” running around the office.  What do people say about you in your employee reviews from your peers?  Are you creating more chaos than calm?  Are you pulling the company in different directions all the time, without a clear focus?  Maybe what you really need is the opposite of yourself.  You need your Anti-Me to help keep yourself organized, on plan and in check.  It really comes down to what you see as your personal strengths and weaknesses, and filling in any voids in your skillsets.  And, better yet, maybe it is less what you think about yourself, and more what your team thinks about you.  So, man up, ask the tough questions, and get honest feedback from your peers, when needed.

CONCLUDING THOUGHTS

I have tried to present both the plusses and minuses of cloning yourself in your business, and gave examples of when to do it, when not to do it.  But, if you forced me to side one way or the other on this topic, with all other things being equal, if you can find people that share your same passion, vision, energy, work ethic and skillset, good things should surely follow.  But, if you can’t find more “Yous”, that can be perfectly fine too, as greatness comes in many different shapes and sizes, and having new ideas and fresh perspectives can be equally invigorating for your business.


For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #291: Properly Classify 1099 Contractors vs. W-2 Employees to Avoid Legal Troubles

Back in Lesson #30, we talked about when it is appropriate to hire employees vs. contractors.  But, often times, small businesses try to permanently take the contractor path instead of hiring employees, to try to permanently avoid paying employee benefits and payroll taxes.  That can get you into a lot of trouble.  This post will help you know when staff members will legally be classified as employees vs. contractors in the eyes of the IRS, to help you avoid costly penalities down the road.  To help me with this post, I solicited the input of Maria O. Hart, a member of the employment litigation, trials, and appeals practice group at Parsons Behle & Latimer.

For most small businesses, labor is the biggest line item on their P&L statement — and it can be a vicious circle of needing employees but not being able to afford them. These businesses need employees to scale (and, in some cases, survive), but the true cost of an employee can push even the lowest paid workers off the budget. When that happens, business owners turn to 1099 contractors to fill in the blanks. But expecting these contractors (workers who aren’t entitled to the same benefits as full-time employees) to act as employees, and be treated as such, could result in a major Fair Labor Standards Act (FLSA) violation or, at the very least, some substantial tax fraud accusations.

So, how can you comply with federal labor laws? It starts with knowing the difference between 1099 contractors and W-2 employees. It’s not black and white, but there are a few ways to determine a worker’s correct classification, as you can read at this link at the IRS website and the summary chart below from Law Gives:

 Ask yourself, do they work on site? Do you control their schedule? Do they use the company’s tools and equipment to get their job done? Do you discourage or prohibit them from taking on more jobs or other jobs in your niche or industry? Do they work more than 30 hours per week? If you answered yes to one or more of the above questions, you might need to consider that contractor a full-blown employee.

Misclassifying an employee as a 1099 contractor could land you in some hot water with the U.S. Department of Labor, or you may find yourself defending against an FLSA lawsuit from an unhappy employee or contractor — after all, misclassification lawsuits are on the rise. That’s because the line between employee and contractor is blurrier than ever. More and more workers are able to work remotely using their own devices and equipment. It’s a technological loophole the FLSA’s creators couldn’t have imagined when they drafted the statute in 1938 — and more business owners are falling prey to this deadly sin.

Avoid a potentially catastrophic lawsuit by classifying your workers correctly from the start and reclassifying them as needed. Know what your workers are doing and how they’re doing they’re assigned duties. Circle back frequently and perform annual audits to ensure everyone is classified as they should be. When in doubt, put yourself in their shoes. Would you feel taken advantage of if you were in their situation? And, of course, always check with your attorney or employment counsel.  Because if you don't, the price could be steep, including penalty payments plus unpaid past taxes all coming due obligations of the business and its owners (even if they think they are protected from limited liability company structures).

Thanks again, Maria, for your help with this post.  If you have any further questions on this topic, feel free to reach out to Maria at  208-562-4893 or mhart@ parsonsbehle .com.

For future posts, please follow me on Twitter at: @georgedeeb.

5 Essential Media Buys for First-Time Marketers

Getting the word out about your startup business is always a challenge. But at least there are a handful of techniques you can focus on to jump-start your early marketing efforts, all of which are available on a cost-effective basis.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #290: Too Many Meetings Suffocate Morale & Productivity

Early stage companies have many demands on an employee’s time.  From getting the product built to marketing for new customers to getting the capital lined up, it is a never ending battle to fit in all that work in a limited amount of time.  But, what I often see is productivity gets squeezed by early-stage entrepreneurs scheduling way too many meetings, which gets in the way of employees having enough time to do their actual jobs.  And, when productivity slows, the company’s bottom line suffers and employees start looking for the door in frustration.  Let me explain further.

Why So Many Meetings Get Scheduled

There are many reasons to schedule a meeting.  Some are recurring meetings between bosses and their direct-reporting employees, for weekly check-ins and collaborative needs of the team.  Some are one-off meetings for non-recurring items, like annual strategic planning, putting out a client fire or team building events.  But, most get set because entrepreneurs are inexperienced and don’t know any better.  That is largely related to their not trusting the team to do their jobs or their needing to control every single decision that is made.  It is this last category that is the killer.

The Negative Impact on Employees

Employees get frustrated when a couple things happen around meetings.  First, they think it is a waste of time, and they are not even sure why they are needed in the room (so don’t invite everyone to every single meeting, only invite the ones that actually need to be there).  Second, they get frustrated they are sitting in a meeting, and not sitting at their desk getting their actual work done in a more timely fashion (so maximize their time at their desks, not yours).  Or, third, they get offended that they are not trusted to do their job, by a boss that feels they need to keep tight oversight on all of the decisions (so empower your people to make decisions without you).  All of this is a recipe for a disaster, often having employees looking for the exit, where the resulting employee turnover can be crippling to a young company needing to race full steam ahead, as quickly as possible.

Case Study

I was once getting started as an interim executive at a new client and was given a team of people to manage.  On my first day I was handed a calendar of all the weekly meetings that I needed to participate in with my team.  I looked at the long list and realized that about 40% of my time was in meetings, many of which that I deemed as unnecessary, a legacy process from a prior manager.  I didn’t have two days a week to lose in getting my job done.

So, I pulled the team together and asked what each of the meetings were trying to accomplish, and we agreed we didn’t need as many, merging many of the meetings into one.  And, I asked each of the employees to look at their own personal schedules, and to cut out any unnecessary meetings.  One of those persons said they were being included in meetings that were eating up a whopping 80% of his time each week.  I asked how he got any work done at all?  He said he didn’t!!

He said, it was mandatory that he be in those meetings, and he didn’t have a choice.  To which I replied he need to cut his meeting time down to a cap of 20% of time, shedding 75% of his meetings.  He turned white as a ghost saying that was impossible.  I dug in and said it was not only possible, but required by the end of the week.  After a bunch of rethinking his time, he prioritized only the most important meetings, cut his meeting load down to the target, and actually started getting his own work done, reversing years of complaints that he was the bottleneck to others in getting their work done.

How Many Meetings Should Be Scheduled

To me, I try to cap my recurring weekly meetings at 20% of my time.  One one-on-one meeting with each of my direct reports, one meeting with the person managing me and one meeting with my peers to collaborate on needs between departments.  That leaves plenty of other time for the one-off meetings that come up during the normal course of business, again which should be capped within this 20% framework.  This keeps me efficiently working on the most important work that needs to get done, and keeps my team efficiently working on their most important work.  And, when people start checking projects off their to-do list, they feel a sense of accomplishment, the business moves forward and a healthy vibe is maintained in the office.

Flat Organizations Thrive Best

So, my appeal to all you entrepreneurs, don’t suffocate the life out of your companies with too many meetings.  Hire smart people, trust them to do their jobs, and get the heck out of their way, so they can do the jobs they were hired to do.  You don’t have to micro manage every single decision.  Empower your team to make their own decisions in a flat organizational structure.  Even if they make mistakes, that is fine, they will learn from them.  But, the team will be moving twice as fast at getting things done, than if they were burdened with a bunch of meetings.  And, as we know, speed matters with startups.

Concluding Recommendations

Challenge yourself and every employee in your company to cap their recurring weekly meetings at 20% of their time.  That is one day a week, or 8 hours in a normal working day.  That is up to 16 thirty-minute meetings they can schedule, so plenty of slots to work with.  Yes, I said thirty minutes, efficient meetings don’t need to be longer than that.  So, that means come to the meetings organized with a set expectation on how they are going to be run each week.  And, if there is nothing new to update on this week, there is nothing wrong with cancelling meetings.  Give your team the flexibility to only do meetings that they feel are absolutely needed.

As you can probably tell, I am not a fan of scheduling too many meetings.  It often leads to combatting issues like analysis paralysis, management by committee, micromanagement, disgruntled employees and an overall loss of business productivity.  So, instead, take more of a hands-off role in managing your team, kick your business into the next gear and start getting all those unnecessary meetings off of everyone’s calendars.  You will be shocked how much more work will actually get done!!


For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #289: Our First Acquisition--Red Rocket Acquires Restaurant Furniture Plus

As many of you know, Red Rocket has been looking for a business to acquire for the good part of the last two years.  I previously wrote about all the challenges and hard work you can expect when doing M&A related projects, so I won't repeat those. But, I am excited to announce, Red Rocket closed our acquisition of Restaurant Furniture Plus last month, in partnership with Kessler Warshauer Ventures.  And, what a wild ride it was, getting our first acquisition to the finish line.  Let me elaborate with a few learnings from this process for your educational benefit.

OUR OVERALL M&A PROCESS

In the last two years, we looked at over 260 businesses for sale.  We made offers on around 20 of them.  That is a lot of hours invested to simply find 8% of them that were interesting enough to make an offer.  From that list of offers, we agreed to financial terms, and started a formal due diligence process with around 6 of them.  And, we got one to the finish line, successfully unscathed through the due diligence process and negotiations of the formal purchase agreements.

IT'S NOT A DONE DEAL, UNTIL IT'S SIGNED

At one point or another, over the last two years, I would have thought, with 80% certainty, that I was approaching the finish line towards acquiring a pet supplies, beauty products, candy maker, auto leasing, educational toys, and fitness video business.  But, there are many reasons why these deals did not close.  We learned something bad during due diligence.  The seller gets scared away by the agreement terms.  The seller tries to increase the price, after agreeing to a lower price in the letter of intent.  And, in one case, the seller liked our plan so much, they decided not to sell and try to grow the business themselves with our plan!  So, the deal is never done until the agreement is signed by both parties, as the process is laden with many potential pitfalls along the way.

OUR CRAZY MONTH OF NOVEMBER

Normally, serious conversations are pretty well spaced out.  So, with 20 offers made in two years, a normal spacing is around one big deal a month.  But, in November 2017, it was insanity.  We had six different deals that were all in competitive bid situations that we needed to pick one to focus on, and risk losing the other five deals in the process.

We originally passed on Restaurant Furniture Plus, picking a pet supplies business doing creative Facebook marketing, with a very large customer list, that was being sold at a very attractive purchase price.  But, we learned in due diligence that their Facebook marketing economics were deteriorating, the customer email list was really very low quality and with a declining profit base, the purchase price multiple of earnings was increasing by the day.  So, we passed on that deal in the 11th hour of negotiating the agreement.

We went back to Restaurant Furniture Plus and one other business to see if they were still available.  But, they were already under letter of intent, and off the market.  So, we focused on a candy seller on Amazon, that we liked their proprietary branded product line and their attractive purchase price.  But, when we learned their private label product was really branded candies by other manufacturers, that the purchase price did not include inventory (taking the purchase price way up) and there were scores of negative product reviews online speaking to the quality of the product, we got nervous.

At that same time, Restaurant Furniture Plus called back saying they were unhappy with their buyer, trying to change the purchase price last minute, and asked if we were still interested.  We always liked this business, and decided to shift direction and strike the deal with them.  So, I guess the third time of talking with them, really was the charm!

WHAT WE LIKED ABOUT RESTAURANT FURNITURE PLUS

As a lesson for what to look for in a good acquisition, Restaurant Furniture Plus really had it all.  They were serving a big market with a clearly differentiated service offering.  They had terrific unit level economics, with a high return on marketing investment.  They were growing over 67% per year, with a 50% conversion rate on leads, and a loyal repeat customer base making up over 50% of their orders.  It was a lightweight fulfillment model, with very little working capital needed, as their suppliers dealt with inventory and warehousing needs.  The founders were really smart and impressive, with terrific procedures in place, making it simple to transition.  And, it was a way to satisfy my marketing itch, with a service-driven B2B business model that was not going to go head-to-head with Amazon in the B2C space.

OUR THOUGHTS ON THE E-COMMERCE SPACE

With Amazon controlling 65% of all shopping searches, it is really hard to compete with their marketing muscle and pricing power.  Especially with Chinese manufacturers starting to sell direct on their website at wholesale prices (re-read this post about this threat to U.S. ecommerce companies).  So, to be successful in e-commerce, in the era of Amazon and Alibaba (re-read this post about Ali Express's threat to U.S. ecommerce companies), we think you need a couple things.  First, a proprietary branded product or service that you can call your own (preferably not manufactured by overseas suppliers selling the same product to others or themselves on Amazon).  Second, you need to find a category that Amazon isn't going to want to dominate themselves.  Restaurant Furniture Plus offered us both of those things.

KEY LEARNINGS ABOUT SMALL CAP M&A

As for a few learning to share about the small cap mergers & acquisition market, it is materially different than the middle or larger cap markets.  First of all, the entrepreneurs have typically never sold a business before, so they are new to the process, and unknowingly create a lot of friction to getting a deal done (e.g., having never seen a purchase agreement before, which can be scary to them).  And, secondly, they are typically not getting great advice from often less-experienced business brokers (which was not the case with Restaurant Furniture Plus, who was instrumental to helping us getting the deal done).  So, do your homework before engaging a business broker, to make sure they are really good at getting their clients to the finish line.

Compare this to bigger companies.  When a business is put up for sale, it is really for sale with low odds the owners change their minds (so low odds  you are wasting time, spinning your wheels).  And, the investment bankers are much more sophisticated at bridging the gaps and getting both parties to agree on deal terms.  Not to mention the stability and professionalism that comes when buying later stage, higher cash flow producing businesses that have their documents in place, which makes due diligence much easier.  It was frustrating for me being a former big-bracket investment banker at Credit Suisse, running through a process like this.

KEY LEARNINGS POST CLOSING

Make sure you have all your ducks in a row in how you are going to handle your post-closing training and transition period.  There is a LOT to learn in your first 30 days, if you are lucky enough to get that amount of time from the seller.  Make sure you have the right list of topics to get trained on.  And, the right list of technologies and other assets that need to be quickly transferred.  And, make sure the founders are on board to assist as consultants for some period of time after closing.  Preferably, a seller who is flexible to work with you when things ultimately go wrong when trying to transition systems, bank accounts, credit cards, supplier accounts, payroll processing, etc. on a flip of the switch.  Don't plan on running the business for the first month, as you will be knee deep in transition items.  And, the smoother the transition, the less opportunity something falls through the cracks to create problems for you down the road.  And, the first thing to do--hug all your new employees that you plan on retaining, with material incentives, as they will ultimately dictate your success or failure.  You don't want them looking for the door, the minute you arrive, or else you are toast as all their institutional knowledge walks out the door.

OUR PLAN FROM HERE

So, we are obviously excited to have our newest company in our portfolio.  And, I am personally excited to get back into a CEO role again, alongside my partner on this deal, Art Kessler.  But, Red Rocket will continue to be business as usual.  As you have business needs, continue to bring them our way, and our team will be happy to help.  I will do my best to keep the new blog posts coming on a regular basis.  We very much look forward to this new adventure.  And, if you know any restaurant chains looking to source new furniture, you know where to send them!!


For future posts, please follow me on Twitter at: @georgedeeb.

How to Calculate What's Working When Marketing on Multiple Channels

Long gone are the days of blindly spending marketing dollars without a data first mindset to clearly calculate and prove you are driving a return on your marketing investment (your “ROMI”). This previously linked post demonstrates how to track your ROMI at the 30,000 foot view, based on your overall business revenues vs. costs, or at the unit level of an average transaction. But, if you want to really fine tune your efforts to maximize your ROMI, the best marketers turn to marketing attribution tools to help optimize marketing within every sub-channel of their business. Let me explain.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.