Hiring Smart: Avoid These Costly First-Time Founder Mistakes | Ep 016

Charles (: 00:22

to the Unsexy Entrepreneurship podcast. I am your co-host Charles Harris, joined as always by Seth Jensen. How are you today, Seth?

Seth Jenson (: 00:29

good, it's good. We were just chatting and it's always a fun thing when the first conversation you have in the morning is straight into a podcast. You you're kind of rubbing the sleep out of your eyes and you're like, let's just broadcast this to the world. I'm at my best. I'm at the top of my game.

Charles (: 00:45

Yeah, we get to talk about really really fun things today we're gonna talk about Your team and kind of your corporate

personnel structure.

So first we kind of want to talk about the C-suite, right? And accounting, tone at the top is a big deal. We talk about it quite a bit. ⁓ So when we're talking about C-suite, we have to determine, obviously, if you're listening to this, you're probably a founder or a co-founder.

So then I guess the first question, Seth, is should you even bring someone else on?

Seth Jenson (: 01:17

Yeah, no, and this kind of fits in our broader discussion of...

That's zero to one space, because obviously if you're in an ETA situation, if you're purchasing a business and you're wanting to run and grow it, you're probably inheriting a team. And so that kind of comes with its own set of issues, which we'll talk about in a later podcast. But yeah, if you're, if you're thinking about building something or if you're in actively building something, then this is a really big question. You have to ask yourself, do I want to take this kind of lone wolf, wolf road, which means I can maintain control, which means I retain more equity in my company, or do I want to share the load and bring some

home and unfortunately and unsurprisingly there's not a clear and simple answer for everybody it's a very case-by-case basis and it has a lot to do with the way that you personally operate and what your business needs so I can give you a couple high-level principles but at the end of the day you're really gonna have to to choose and the number one thing I always tell people thinking about bringing on a co-founder

is look for what I call a value multiplicative situation. So not one plus one equals two, but one plus one equals 20. And yeah, I know the accountant in you is cringing, Charlie, because that wasn't even a multiplication problem, and it wasn't even right. But the reality is you don't want a soldier as a co-founder. You want a visionary.

Charles (: 02:31

Ha ha ha.

Seth Jenson (: 02:37

or someone that can operate in a way that really complements you. There's a kind of...

This classic framework in business where there's the visionary and the operator and you need both in the company. There are people that can be both of that for their organization. But if you're more on the strategy end, you might need someone that can operate. If you're more on the operator end, you might need someone that can think bigger and go hustle and sell the vision. But that's really key is too often people are like, I'm going to get my best buddy and we're going to do this thing.

when that might not actually be the best fit, right? You need someone that can grow the size of the pie, so to speak. Because the thing you gotta understand is there's a lot of risk in taking this individual. So it's gotta be worth taking that risk. And that's only if they're gonna significantly 10x, 20x your own efforts.

Charles (: 03:22

Yeah. And boy, to me, it just sounds like marriage. and we'll talk about that more, but you know, sometimes marriages can blow up, if you're not on the same page, but marriages can also really accelerate your personal growth. ⁓

Seth Jenson (: 03:35

Yes.

Charles (: 03:36

I think both me and Seth can speak to that. We're both married. think both of us have experienced the growth from it. And it's really, really fun and awesome. But if you're not at that same point with the co-founder, you can have the same same issues, shall we say.

Seth Jenson (: 03:52

And again, it's funny you bring that metaphor up because there was some research done. I remember off the top of my head, was the Harvard University of Chicago. It was actually Google that presented this statistic, but basically they had gone and talked to venture capitalists all over, I think it was 80 different venture capital firms and I pulled them saying, hey, what is the biggest risk factors in your investment? What makes, what sinks a business more than anything?

And the number one by far was the management team and the management team dynamics. So there's a 55 % factor that like, let's see.

55 % of the time, if there was a failed ⁓ investment, it was because of the management team, which is about the same statistics as marriage. It's about a 50-50 whether you get divorced nowadays in the United States. And so...

Charles (: 04:38

Yeah.

Seth Jenson (: 04:42

And that just really speaks to how big of a choice this is for you and your company. Like this is the number one risk factor and your company is choosing someone and giving them a portion of your company and then five years down the road or even five months down the road, realizing, shoot, this isn't working. They're actually decreasing value in the company. So I said value multiplicative is the number one factor. We're going to trademark that because I don't think it's a real word. The second one is

If you want to, in terms of thinking about this risk, you need someone that's willing to grind just as hard as you do. And that's something that I see so often, especially I work with a lot of young founders and they're really excited at the offset. They're all like, yeah, we're going to build this company. We've got this exciting vision. We're going to be billionaires. But when the rubber hits the road and the grind starts happening day in, day out, and you realize that, oh my gosh, we've sunk three, four, five, six, 10 months into this and we're still not just, you know, taking off.

That's when one co-founder might slowly start drifting in terms of their output and one might be pushing twice as hard. And those are the awkward conversations when you have to be like, hey, look, you just aren't performing.

what's necessary for a co-founding relationship. And frankly, I feel like I'm lifting this whole kind of world on my shoulders. You want to avoid that as much as possible. So trying to find someone, and the marriage, again, to kind go to that analogy, date before you get married, right? Like have a history of output and progress and collaboration and know how you function together.

before you go and sign papers and kind of allocate equity. We've talked about this in another podcast, and we can go deeper in future ones about equity allocation and investing so that you make sure that it's performance-based in terms of ownership in the company. But before you even get to that point, you want to establish a track record of, this person has the same mentality I'm bringing and they're grinding just as hard, if not more. Like I'm trying to keep up with them. That's what you want. And if both people feel that way,

Charles (: 06:38

Right.

Seth Jenson (: 06:38

That's

magic if they're both trying to live up to the other's expectations and output. I'm curious to hear from you, Charlie.

Charles (: 06:44

Well, it's interesting you bring that up because I think

of our, I think of our interview with Britain, who had talked about specifically working with his co-founder previously and doing multiple things with him over a period of time, kind of growing that relationship. And then when he finally reached out and said, I would really like to do this, the other person said, yeah, I thought we were doing this already. And so again, it's one of those things where,

Seth Jenson (: 06:51

Yeah.

Mm-hmm.

Yeah.

You

Charles (: 07:09

you could say that they were dating prior to actual going in together.

Seth Jenson (: 07:12

Yes.

Yeah, I've seen similar things where I've seen co-founders who were kind of working together, like maybe they built a little venture together that didn't really take off, but they learned so many lessons. They learned how to work together. And so then their next venture together, they're really able to hit the ground running because it is a really...

high bandwidth, high intensity relationship to being that co-founder one. And so yeah, any prior history is powerful. So yeah, I think, you know, just to summarize, you want to bring someone on that can, you know, multiply your efforts, not just perform. That's if they're just here and they can do what an employee does, don't hire them as a co-founder. Have them just be an employee, right? They need to be growing the size of the pie. So value multiplicative is number one. And number two is they've got to have the same level of grind as you do.

and make sure that they're really inspiring you to push harder on this business to go further faster. And I'm curious, Charlie, to hear from your perspective. Did you consider bringing on a co-founder when you launched your accounting firm? And what would it have taken to make that make sense for you?

Charles (: 08:13

Boy, at the beginning, I didn't consider it. I was still scared if, you know, self doubt, self esteem, like, can I actually do this? So I didn't even consider bringing someone on at the beginning. And I'm glad I didn't. I don't think I would have learned the right lessons with someone else. But it's interesting you bring this up because now I think I'd bring someone on as a partner.

I don't think I would have when I first started my firm and I'm glad I didn't. But at this point, if someone came to me with the right situation, I would be open to it. Specifically someone that's bringing in a lot of tax experience and bringing in a client list. So I'm not supporting their salary, I guess is kind of what I would say. ⁓ But if they were coming in with

Seth Jenson (: 08:54

Mm-hmm.

Charles (: 08:57

kind of a similar firm to me, I think that could be really, really beneficial at this point. So I'd be open to something now, but at the beginning, I would never have never have wanted it.

Seth Jenson (: 09:03

Yeah.

Exactly. mean, it becomes at this stage because again, you've built a successful company.

And you've been able to grow at your own pace. You've been able to make control. You've kind of had all these benefits of, of being that sole founder. But if you can do the math at this point and say, wow, if I bring on this experienced tax professional and all of a sudden, instead of dealing with, you know, 30 clients a month, we're dealing with, you know, 200 because they're bringing in all this, this clientele, these connections, then yeah, that, that, that math might totally check out and get you excited, especially if, and only if the,

That personality is right. You guys have that collaborative Dynamic because it's not worth it, you know Yeah, yeah

Charles (: 09:42

Yeah, the likelihood is very very very slim. Yeah, the likelihood

is next to none I think at this point, but it's an interesting conversation now and I think I'd have it now where I don't think I would have done it when I first started.

Seth Jenson (: 09:55

And there's probably a stage in your business too when you've kind of, I mean...

you're still, and part of this is your personality, but you're in the weeds of your business, right? You're still dealing with clients directly and things like that. But at a certain level of scale, it might simply be kind of a merger situation too. And you're kind of bringing that leadership in, kind of with parity with you. And you're both outside of the day to day, but kind of combining clientele, having efficiencies. And that's kind of an interesting dynamic, especially with the broader economy, we're seeing these kinds of things called, know, aqua hires,

Charles (: 10:09

Right?

Seth Jenson (: 10:27

where basically, know, Meta or OpenEye are buying entire firms just to have the C-suite inside their organization, essentially, ⁓ which is an interesting dynamic of kind of this discussion. But...

Charles (: 10:36

Yeah.

Seth Jenson (: 10:40

But yeah, I'm in a similar situation where my consulting practice is great. I can see myself bringing on a co-founder. Again, at this point, maybe it's not even a co-founder because we've already built the companies, bringing on a partner to, especially if they had connections in industries I really wanted to break into. Right now I'm, you know, kind of...

really strong presence in things like higher ed and local tech. But if there were other industries that I didn't have connections to and someone could bring those connections and expertise in those industries and kind of what I brought to the table and what they brought to the table really elevated our consulting ⁓ outcomes, that would be kind of an exciting conversation.

But again, the principle here is, you know, don't treat this lightly. And, and, and I'm, this is, again, this is not us warning you against co-founders because a lot of investors will only invest in companies if they're a co-founding relationship, because they've just seen that peanut butter chocolate happen in their investing profile and they know how hard it is to be a solo founder. Right. And you sometimes really just need that support. Sometimes you just don't want to go that road alone. So definitely, ⁓ if it's a, if it's a good relationship, go for it.

but just be really careful ⁓ and don't treat it lightly and put your economics hat on when you're making this decision. Really be able to do the math beforehand and see, I prove that this person is going to increase the speed and growth of the company or am I just hoping and guessing and praying? Because that's not what you want to do.

Charles (: 12:02

Yeah, at some point we should have a minority discussion of every Kirk needs a Spock. but I think a lot of times we see this in businesses and I think most really famous entrepreneurs have someone that they work with on regular basis. so oftentimes that's a co-founder. Sometimes it's, it's not right. And sometimes it's just hiring the right people.

Seth Jenson (: 12:08

Yeah.

It's true. Yeah.

Charles (: 12:24

It just depends. and then I don't know their names. They're not as famous usually. Right. But I think the one that I can think of off the top of my head is Steve jobs and, Wozniak. Is that right? but I know Elon Musk has someone that follows him around pretty much everywhere that works with him almost exclusively at this point. I'm sure. Is also a billionaire at this point would be my guess.

Seth Jenson (: 12:30

Yeah, yeah.

Yeah.

Charles (: 12:48

Bill Gates had Steve Ballmer, right? That's a famous one as well, but there there are a lot of these Kind of behind-the-scenes co-founders or Early early hires, right and I think that's pretty important

Seth Jenson (: 13:01

And even on a much smaller scale, like I just was reading about the history of Magnolia, Chip and Joanna Gaines, right, who built this kind of...

home empire and they started really small. were just flipping houses originally. Even before that they had a little home boutique, but hearing their co-founder story, obviously it's a literal marriage and a co-founding relationship, but hearing how they balanced each other was so fascinating. even, again, now they're huge, so that's maybe a bad example, but they weren't. They struggled for five, 10 years in what people consider very scrappy, small.

Charles (: 13:21

You

Yeah.

Seth Jenson (: 13:35

Type things and some huge failures to built into their story, which are really interesting But you can see that the success came from that co-founding relationship chip brought things to this table that Joanna didn't have and vice versa and and I just you know I encourage people to go read their story because obviously again there they look hugely successful But they're just really normal people and it's fun to hear their story of just this family trying to make it in this world and be entrepreneurial and

and learning the lessons necessary. So yeah, that operator visionary role, that Spock, that Kirk, I think there's a lot of truth to that. But don't rush it, don't rush it. So.

Charles (: 14:13

Yeah, yeah, yeah. So that kind of

brings us, we've been talking about co-founders, but now we're kind of starting to move towards that hiring process, right? So when is it the right time to hire?

Seth Jenson (: 14:26

Yeah, so we talked about this a little bit in the past episode in terms of your financial health and the stage of the company you should be in. But what I'd love to go more into detail on that question is this concept between the hire and the outsource.

because a lot of times in those early zero to one stages, you don't have the revenue necessary. You'll have been listening to that past podcast we did and being like, crap, my cash flows are not significant enough to justify bringing on an employee. I just don't have a steady enough income to be able to do that responsibly. And that's okay because we've got other ways to get jobs done and to grow in our business. And often that comes through in these initial...

moments of your business through bringing on contractors or bringing on kind of partnerships that help you get things done. And so in business, there's this this build or buy discussion from a strategic level.

And in these early moments, it kind of applies in a similar way where option one, you can figure out how to do something yourself in the business, right? Where you're like, like I need a website developed. Well, you can learn that, right? You've got all the tools you need to, to, ⁓ you know, watch YouTube, learn some basic, web dev, use some, you know, Squarespace, whatever it is, not a sponsor, to, put it together. Like you can spend the time to, to develop that skillset.

So that's the become option. You can ⁓ build a team to do it. You can bring in a hire ⁓ and have someone permanently that can maintain that for you, a developer. Or you can just...

hire that out, essentially. Bring on a contractor, outsource it, right? So you become the answer, you hire someone and bring that into your organization as a permanent fixture, or you just bring your boat up next to someone else's boat and have this kind of contracted relationship. And when the job's done, you can either move on or continue to hire them, right? And there's different situations where each of these make sense. These are all tools in your tool belt.

and they each come with different pros and cons. And so I think it'd be good if we go through these three. Charlie, I'm curious, how many of these three have you used so far in your firm or will in the next six months?

Charles (: 16:28

⁓ Outsource for sure. I did not make my own website. I did at first and then I got it revamped. I hired someone to do that. And then I have an employee and then I'm planning on getting a contractor for tax season next year. ⁓ And not that I can't do it. Whole portfolio, it just is gonna depend, right?

Seth Jenson (: 16:42

So you're using the whole portfolio here.

Charles (: 16:47

For example, I can go through each of my examples on why I chose each one. My bookkeeper, that's my employee. She's amazing. I absolutely can't imagine my business without her at this point. But that's a monthly reoccurring work that needs to get done. And honestly, I have the time to review the work, but I don't really have time to be in the weeds doing it anymore. And so...

Hiring her was a great step. She takes most of the day to day and honestly she asked better questions than I think I ever would. ⁓ And it's been a huge unlock for me personally. For tax season. I think people can understand this tax is a specialty that is more expensive to hire because it's.

Seth Jenson (: 17:17

Yeah.

The worst.

Charles (: 17:30

just

yeah, well, it takes skills and knowledge that not normal people have or normal people don't have, right? And so you can't just do taxes. So the employees for taxes are significantly more expensive than a bookkeeper, right? And so that's for me, that was a consideration. I still probably need the help for taxes. I can't.

Seth Jenson (: 17:32

You

Charles (: 17:52

Well, I can do it all myself. I'm just gonna be working really, really long hours during tax season if I'm doing it all myself, which is still a possibility. But if I can hire a contractor, I'm not paying them the full year. I'll probably pay a premium rate for during tax season. But hopefully that will save me enough time where it's still reasonable and then it'll still be less than hiring someone for the full year. That's kind of the thought process behind that. And then as far as off.

⁓

What was the third one? As far as the website, offloading that to a different company totally makes sense. I am not gonna be involved in that. I'm never gonna be a computer programmer or a website developer, so that just wasn't the right fit.

Seth Jenson (: 18:28

And give us some examples of things that you didn't know, but you taught yourself to be able to execute in your business, where you became the skill set you needed.

Charles (: 18:37

I know that's a silly one. And I do off, I've offloaded IT support at this point for security reasons. I'm an accountant firm or accounting firm. have a lot of sensitive information. So that was one of the first things I wanted to give to an expert because I want my computers and my servers secure. So I have offloaded that now, but at the beginning,

Seth Jenson (: 18:39

Yeah.

Charles (: 18:57

you know, setting up Google Workspace and all of these weird things that you've never done before. And they're all taken care of by an IT professional that I had to figure out. None of it was terribly difficult. It took some time. And I did do my website at first. Or I should say my wife did a lot of my website at first. I tried, but I'm not very good at it. What else have I done that I, I mean,

Seth Jenson (: 19:03

Yeah.

Charles (: 19:17

It's funny that, yeah, marketing, sales, I am so much better about it now. it's funny because I, was the marketing at the beginning when I first started was the first thing I wanted to unload. A social media expert, all that kind of stuff, because I just didn't understand it.

Seth Jenson (: 19:18

your sales process, right?

Charles (: 19:37

this point, I don't know if I'll hire them within the first three years, because I've figured out enough, right? I'm clearly not the best. I'm not going to say I'm a great marketer, but I figured out enough where I can survive and subsist. And honestly, I'm growing faster now than I've ever grown. And some of that is just people are aware that I exist, but

It's just kind of interesting to see something that I probably wanted to offload faster. I'm actually going to hold on to longer now.

Seth Jenson (: 20:05

And that's a good example. again, those are, it's fun to hear kind of the three different, again, contracting relationships, hiring, figuring it out yourself. That sales process and that marketing one, I think it was really important for you to learn those lessons, right? Because that's core to your business.

Charles (: 20:19

Yeah.

Seth Jenson (: 20:19

Like if your marketing isn't working, if your sales process doesn't work, you don't have a business. Like the cashflow dries up. And that's really the principle that on that becoming one, that's so important, you figuring it out is if it's core to your business, that's something you do not want to contract out because it's putting the control on somebody else's hands. And I see this happen a lot where people will hire a sales team in externally and it'll drive up sales, you know, for a little bit. But then when that contracted relationship's over, now they don't have the internal capacity.

Charles (: 20:25

Yeah.

Seth Jenson (: 20:47

and then they suffer, right? And so it's worth investing either in a hiring relationship long term or in your team or your co-founding team. If it's core strategically to your business, if you can't survive without it, that's something you might wanna get good at. It's worth your time. Now don't extend yourself beyond your own capacity.

Charles (: 20:49

Yeah.

Seth Jenson (: 21:08

because you don't want to do things you're not good at and not everyone's good at everything, right? so that's when you might think about co-founding relationships or making a great hire to compliment what you can do. But within your organization, whether it be you figuring it out, your co-founder figuring it out, or hiring, you want the strategic imperatives built into that structure so that you maintain control and you get the organizational capabilities to continue to deliver over and over and over again.

Charles (: 21:12

Yeah.

Seth Jenson (: 21:34

⁓ But on the flip side... go ahead.

Charles (: 21:34

I think this is so important too.

Well, so marketing is a great example because marketers are really good at marketing, right? So you get a lot of sales intake from marketers. So I think this is a good example. I'm not not saying I'm not trying to pick on marketing, but you get a lot of, hey, SEO is going to solve all of your issues. Why? Why are you even trying this other thing? Or then you get someone else saying SEO is

Seth Jenson (: 21:54

Yeah.

Charles (: 21:58

is terrible, terrible return on investment. Do Facebook ads. It's the only way to go. Right. And so I think at least for me personally, that's what stopped me from hiring a marketing person earlier. And I'm glad it did because I was getting bombarded from every side saying this is the right way to do it. And I was saying, I don't know what the right way is. And you all are saying totally different things. And so I had to learn what works for me and my business so that

Seth Jenson (: 22:04

Yeah, yeah.

Yes. Yeah.

Charles (: 22:26

Now, if I hired someone to do the marketing, it would be a lot more successful because I know what needs to happen. And so that would be my, my suggestion and say, Hey, slow down. Like think through these things, try and understand the process and you need to understand it for yourself. And. You know, I'm going to maybe shoot myself in the foot, but even accounting, right? I'm going to say you probably should get an accountant.

Seth Jenson (: 22:30

Yes.

Ha ha.

Charles (: 22:49

and probably sooner rather than later, but maybe start doing it yourself so you can understand at least the basic concepts and then when you run into difficulty, have a connection with an accountant so you can ask questions and if that means to pay them a consulting fee to come on and explain something to you, that's okay. But start that process by yourself and then

Seth Jenson (: 22:57

Yeah.

Charles (: 23:11

you'll quickly realize, hey, this is not for me, or I need help, and then you can outsource it. ⁓

Seth Jenson (: 23:18

but you're asking the right questions

when you do outsource it, right? Because you've learned those lessons and...

Charles (: 23:21

right.

Seth Jenson (: 23:23

And that's, I mean, again, that's again, a perfect description of what's going on here because you don't want to deny yourself the opportunity to learn the most important lessons related to your business. And, and again, that's not to say you won't eventually outsource marketing or whatever, but when you do, when you're like, okay, I've kind of solved this problem. I understand the fundamentals of what's going on here. I know my, my business is on solid footing and I know kind of the causal chains between success and failure. Then you can hire or, ⁓

and manage those relationships in a way to ensure they're successful, right? But you can't if you don't have that basic expertise yourself. So that's a perfect ⁓ kind of example of that. And that's why, let's talk about some of the risks of these different situations because ⁓ the part of the problem, and you kind of alluded to this with the contractor, is...

Charles (: 24:09

Yeah.

Seth Jenson (: 24:16

there's some distance between you and the contractor, right? Like this is kind of an arm's length agreement. They're not really invested in your success, right? So their incentives are to apply what they do well to whatever your situation is, whether it's gonna work or not. So obviously you can get contractors a lot cheaper for your business than hiring or spending the time. Like time is expensive. You could be doing other things. And so the opportunity cost of you figuring it on your own is really high.

So a contractor will always be the more economical option. But there's always that risk of, you know, they're not invested in your business. It's going to be a low bandwidth relationship, right? They're not going to be answering calls at 11 p.m. because you want them to change X, Y or Z. And you always get what you pay for, right? And so often the very best contracting relationships are expensive and they're expensive for a reason. And so.

at that point it might make sense to hire, right? So that's just important to realize, although that contract relationship is powerful, it...

It's there's risks associated with it. And I, I unfortunately meet with lots of founders who had horrible experiences in the early days, outsourcing something and basically having the money just flushed down the toilet where they hired them to say, build a platform or an app to do X, Y, or Z and months and months of iterating, never yielded the results they needed. And at the end of the day, they had to scrap the entire thing. and, think about that concept too, right? Cause that's a really common story. the contractor is paid

Charles (: 25:17

Yeah.

Seth Jenson (: 25:40

often by either project or time. And so their incentive is not to deliver quickly. Usually it's to stretch out those hours of consulting or development or whatever it might be to get a few more iterations under their belt. And so the incentives aren't always aligned. ⁓

Charles (: 25:57

Yeah.

Seth Jenson (: 25:58

But that being said, hiring comes with risks too, right? And when you were thinking about hiring your first employee, it sounds like it's gone awesome, but what were you most worried about when you made that plunge?

Charles (: 26:07

Boy, I was worried that they'd take up more time than they gave me back. ⁓ Training was not super concerned because I was only hiring people that had been doing the job. But still, just because you've been doing the job, we've all been in corporate America, doesn't mean you actually know the job. So that was a concern. Are they going to be proactive and get stuff done? Or are they just?

Seth Jenson (: 26:13

Yeah.

Charles (: 26:31

You know, cause I hired hired remotely, right? I'm not going to be standing over their shoulder. I fundamentally disagree with standing over someone's shoulder, but it does bring in concerns, right? I'm not going to be able to stand over their shoulder and make sure that they do the work and they can. and then. I mean, I, I still keep certain things close to the chest, right? I'm not going to share, clients, banking information with them or payroll. I haven't done that yet.

Seth Jenson (: 26:39

Ha.

Great.

Charles (: 26:55

Mainly because I trust her and I think she's awesome. But I've only known her for three, four months at this point. Right. And so it's, it's still one of those scary things. Like if she decided to high tail and run, I'm in trouble. And now I've got more clients, more work that she's doing. So that's been a, that keeps me up at night a little bit. Right. If she leaves, I am in trouble.

Seth Jenson (: 27:12

Yeah.

Charles (: 27:17

So that's kind of been, it's funny because I building my organization and we haven't talked about this too much, but like, what is my dream organization? My dream organization is to have three bookkeepers doing two bookkeepers job. so that if someone leaves that I'm okay, and then I can bring someone else on during that period of time, some redundancy and

Seth Jenson (: 27:33

Yeah, some redundancy.

Charles (: 27:36

I understand that that's more expensive and that's scarier, for my personal sanity, that's what I'm kind of trying to hit. And so I'm at the point right now.

Seth Jenson (: 27:42

Haha

and your business allows those margins.

And so it's worth investing in that redundancy for you, right? ⁓ you've, yeah. And so, ⁓

Charles (: 27:49

It's worth it.

But it's hard, right? Like, and I'm not

there yet.

Seth Jenson (: 27:54

One of the things you mentioned that I think is so important.

is that it's not like you hire that person in day one, they're producing at the level you're hoping, right? That you're literally investing in that person over time to get them up to speed so that they can be independent and do their job, right? And sometimes that learning curve is long and it's a lot of work, right? And so all of a sudden, not only are you having to do all the day-to-day operations of your business, but you've also got this second almost full-time job of bringing somebody up to speed. And so it's expensive.

Charles (: 28:24

Yeah.

Seth Jenson (: 28:24

It's exhausting. And there's always the risk that it doesn't go well and it's not easy to hire. You can always do it, but you don't want a reputation as a firm that you're just hiring and firing all the time. And it's expensive to onboard someone, find them, onboard them, and it's expensive to fire them too. So I think that risk is really important. it's, you know.

a wonderful magical thing in your business as you expand your capacity. Like this has been such an unlock for you to hire your first employee, but it doesn't come without risks and potential ⁓ cons. So let's review here. So we've got option one, figure it out yourself. The obvious con of that is opportunity cost, but.

Charles (: 28:55

Yeah.

Yeah.

Seth Jenson (: 29:05

there's the pro of, if it's something core to your business, you're gonna develop that expertise and that's gonna pay dividends as you kind of operate and grow. Option two, you can hire. It's expensive. It's a lot to invest in someone to get them up to speed. It's obviously expensive to hire all the benefits and things we talked about in previous episodes. It's not just the salary, it turns out. There's a lot of other costs associated with it, but it can actually literally increase the capacity of your organization. And you can have somebody eventually

independently working to build from within and help you, ⁓ you know, do you know, literally more than any one person can do, right? And then there's this contractor option and the downsides there are you get what you pay for. They're not invested in your company. There's low bandwidth, low trust relationships in these situations. And so it's more often can go wrong than other ⁓ other types of relationships. But

On the plus side, it's cheap compared to the other options and ⁓ it can often get the job done. so the things that I want kind of, I hope our listeners take away here is if it's something that's generic, if you just need something done and if you hand it to 10 people, they'd all do it the same way. That's great for contracting relationships. That's something prime for outsourcing. Right. And so often things like web development fall into that category where

Charles (: 30:16

Yeah.

Seth Jenson (: 30:21

Or let's see, another example with account. Yeah, exactly. You talk about that tax professional.

Charles (: 30:22

counting is a great one too.

and that's always how

I sell it, right? Like to hire a tax professional, a bookkeeper, someone who can give you high level advice is gonna cost you minimum 150 a year. And you can pay me for significantly less. And then you get all the expertise wrapped into one, which is helpful too.

Seth Jenson (: 30:29

Yeah.

Yeah.

Yeah.

Absolutely. And again, for example, say you're bringing on within your organization a tax, someone to contract out some of the tax portions of your portfolio. And that's a perfect example because...

Charles (: 30:53

Mm-hmm.

Seth Jenson (: 30:55

you're paying them to do it exactly like anyone else would. Like you don't want creative like tax accountants, right? Like they need to, they should not be artists with the books, right? And so it's generic by definition. Like you're trying to have it be very consistent. And so as long as they're good at their job, it's gonna have the same outputs. That's perfect for outsourcing, right? ⁓ And so that's what to look for.

Charles (: 30:59

Yeah. No.

Right.

Right. Well, and the nice part about that too is then I

can still come in and review it, make sure it's still correct, but they're still saving me tons of hours on that. and so I think sometimes with contractors too, if, if it's not a skill you have, if you can have some way of understanding what's going on. And I guess that goes back to doing it yourself, right? We have to be able to evaluate what's happening. And if we can evaluate, then there can be an issue there.

But that probably goes for employees too, would be my guess. And even yourself, right?

Seth Jenson (: 31:48

Yeah. And so that second category, what's good for hiring? If it's core to your business, but not something you want to be spending your time doing, If your time is better spent other places, but it's core, it's fundamental, it's something you need to have control over, that might be a good situation to hire and invest in. Again, I think of hiring a great sales professional, that can pay dividends through the roof, right? All of a sudden they can 10X your clientele base or whatever.

Hiring and in your case, you know, the bookkeeping is a great example. That's core to your business That's one of your main offerings and if you can do twice as much bookkeeping now bringing that in that makes sense Or you know even more than that because they're focusing on that space And then finally, what should you be spending your time on? It should be the things that are gonna benefit your business long term, right? And that sometimes that involves the unsexy work of figuring out developing your expertise in these areas, right like

dabbling in the accounting just long enough for the web dev to, or whatever it is, so that you can speak the language and make sure it's getting done well.

But long term, you wanna focus on what your business needs most and what's gonna be the thing that 5X is your growth over the next time period. And it certainly should not be those generic things. I see founders do this all the time where they're spending their time doing something that they can hire someone on Fiverr to do and spend.

100 bucks a week or something and save themselves 10 hours a week. It's like that's a no-brainer. Like there's so much your business needs from you. Don't waste it on kind of generic things that anybody can do. Do the things only you can do and your business will thank you for it. In terms of revenue and joy and a big warm hug if it's a nice business, I guess.

Charles (: 33:12

Yeah.

Okay, so we've talked about the different types. I'm curious your thoughts Seth on do you consider the hires based on your long-term vision for your business?

So for instance, yeah, so for instance, I'll explain. I've laid out what I want my business structure to be in 20 years. Well, probably not that long, in five years right now. Mainly so that I know what hires I need to do and when I need to do them. I'm curious if that's generally what you recommend thinking through or is it something that's usually

Seth Jenson (: 33:39

I think most of the time, yeah, go ahead.

Charles (: 34:02

You're doing your business and you feel like there's a bottleneck. You figure out what that bottleneck is and you hire accordingly.

Seth Jenson (: 34:08

So there's one major risk in that vision, that option one, and that's that you're not listening to your business and you're just hiring because there's some vision you're wanting to achieve. And I see this more than I wish I did, where people are like, their dream is to have a, say a...

Charles (: 34:17

Mm.

Seth Jenson (: 34:26

a boutique and it's bustling and it's whatever and they want a certain type of vibe in it. So they hire a bunch of people to be there and working and ultimately they overextend themselves because they have this picture in their head of what their business should look like. And the reality is they only need one person on the sales floor, not three, but because their vision has three, they hire three too early and then all of a sudden they're underwater.

⁓ So that's the main risk of letting your dreams lead. And again, that's not to say that you shouldn't be motivated by dreams and have specific goals. ⁓ But that second option means that you're growing at the pacing that your business allows. Where it's like, wow, if I just had another person, I could be doing twice as many clients. And so that person's gonna pay for themselves out the gate.

Charles (: 34:54

Yeah, yeah.

Seth Jenson (: 35:10

And that's that that scenario doesn't always work perfectly where it's like, okay, I can see how if I hire this person, my revenue doubles or something like that. It's not always that clean. Sometimes you do have to cut into your margins and it's worth it to because you need that functionality in your business. But I would just give a caution against chasing a specific.

version of what you think your business should look like in hiring accordingly versus listening to what your customers need and what your workflow and operations are demanding and hiring based on those gaps.

Charles (: 35:39

Yeah, it's interesting. bring as soon as you started talking about that, I realized like I've seen this before. I worked for a startup and, pretty big, they're venture backed, larger startup, but they, I don't think this was totally on them either, but they started pursuing.

different paths I would say and they quickly realized that one of them produced a lot better than the other two and because of that you know they hired the wrong CFO they had to replace the CFO they had to replace or they cut out big swaths of departments like customer service they went from being customer folks customer facing

Seth Jenson (: 36:12

Yeah.

Charles (: 36:17

to B2B, right? Which is a huge change. so customer service goes, right? Like all these things just kind of shift. And I don't blame them 100%. You know, things change and you learn as you kind of grow your business, but they definitely had a vision and over hired and then realized, these are actually underperforming. And the one that's performing really, really well, and that's gonna actually 10X is the one that we're.

Seth Jenson (: 36:24

Yeah.

Charles (: 36:43

we need to focus on. And it just required a lot less staff, which is why it could 10x.

Seth Jenson (: 36:43

Yeah.

Yep.

It's a tale as old as time. If you have money, it's really hard not to spend it. And that happens, especially in venture capital where all of a sudden you go from being broke to having seven, eight, nine figures in the bank. You just go spend it. You go buy the nice office space. You go hire four more people. You go whatever. And it feels really good because all of a sudden you're the captain of this prettier ship with more sailors on it, right?

Charles (: 36:54

Yeah.

Seth Jenson (: 37:12

But very quickly, the fundamentals of your business are going to catch up to you, right? And so unless you can see that line between revenue and growth, efficiency and hiring, you've got to be careful and hold off ⁓ taking the plunge. And there's something beautiful, again, about letting your business speak to you and letting it ask for growth from you, right?

Essentially, you're creating the value and building the structure to maintain and grow that value as you go. And that's just often the right path for most entrepreneurs. But yeah, it's so hard to resist. It's so hard to resist when you get those first big customers coming through and you get the money coming and you're like, do we need a pool table? We do, right? Like, do we need like an Xbox in the break room? Yeah.

Charles (: 37:42

⁓ So hard

That's never been on my list, but

I don't know if I got if I got three big new clients by the end of the year, I'd probably hire a tax person instead of contracting it out. Right. Like and that's I don't know. It's always a hard hard balance to know what the right approach is.

Seth Jenson (: 38:06

Yeah.

And so I think a good principle that's kind of gone through even from the co-founding relationship all the way through the hiring process, like the theme here is don't like choose the right mode of incentive for the right task. And if just, you know, a contractor expense gets the job done, do that, you know, start there. that doesn't and you need to invest in a salary, do that.

If that doesn't do it and you need to use equity to incentivize a co-founder to build your business, then do that. But you never want to start on the other end of the spectrum and using equity for what a ⁓ basic expense could do or equity for what a salary could do, right? And so you've got those three things. Be careful. And before you make any of those expenditures, whether it be salary expenses or equity,

double check with yourself, ask yourself, is there a less costly version or path I can take to get the same results? Because equity is by far the most expensive thing you can possibly give away in your business, right? Because you are giving away a portion of all of your future profits. You're saying, even if it's just a slice, you're saying, I'm just giving 5 % of my company, it's not that big. Well, that's 5 % of everything you make for forever is now owned by somebody else, right? So.

you know, sometimes it's worth paying $100,000 now because you're going to, you know, get $10,000 more for the rest of the life of your business. So equity is by far the most expensive. Salary is obviously the next expensive. And then just an expense in terms of a contract relationship is by far the cheapest. So use the right thing and always be questioning yourself. Is this the most effective way? Or efficient?

Charles (: 39:43

No, that makes perfect sense. And we want you to hire, right? Like everyone wants to grow and expand their business. That's part of starting a business is you don't want to be in the weeds forever, I imagine. ⁓ And so hopefully you can do that.

Seth Jenson (: 39:54

Yeah.

and we'll be here supporting you every step of the way.

Charles (: 40:02

Anyway, thanks y'all for listening to the Unsexy Entrepreneurship Podcast and we'll see you next week.