Startup: An Insider's Guide to Launching and Running a Business (18 page)

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Hire Well or Not at All

Back in about 2002, my company Meridian World Data enjoyed a surge in interest in its product, and my partner Sterling and I felt we had an opportunity to greatly expand our business. We got a new office, new furniture, a phone system, and servers, and we were ready to take on the world. The concept of Meridian World Data was solid. We had customers and a growing list of people who were lining up to buy our products. We “owned” a significant number of important keywords for our industry on the search engines and we were the only player of our type in our market. As a small operation, we were very excited to have nearly $1 million of new sales leads written in a list on a big whiteboard in the middle of our office.

It was with this sense of optimism that we set about hiring a group of salespeople to expand our capacity to make profit and reach new heights. The fact is that Sterling and I were both pretty tired of having to do everything for ourselves.

As background, Sterling and I had great success with making phone calls to potential clients and getting sales. With our knowledge and sense of ownership of the product, we had a very good closing rate from phone call to purchase of product. Our commercial licenses averaged about $2,000, but they went as high as $50,000, so there was a good incentive to close as many leads as possible. But it was time-consuming and we wanted to hand the process over to a dedicated sales staff. With the recent office expansion, we did not have a lot of extra cash to commit to high salaries for our new sales team. It was decided to heavily weight salaries toward commission. We brought two people in and gave them around a $35,000-per-year base, plus commissions. We also handed them tasks relating to product enhancement, general office work, and sales.

To cut a short story even shorter, the result was that we had two salespeople sitting in an office only half trying to hide the fact that they were looking at porn sites instead of working, who made zero dollars in sales over several depressing
months and successfully burned up our whole list of potential clients by making repeated inept and ineffective contacts with them.

Ouch.

So then, what did I learn with this exercise? Well, for one thing, if you are going to delegate something as important as contacting potential clients, you had better make sure that the people you’re delegating to have the training and experience required, along with the right attitude to treat your customers (the most important of all resources) with the respect and careful handling that they deserve. In point of fact, we probably should not have handed sales to people who weren’t owners at this early stage.

The old adage is usually true: you get what you pay for. We tried to hire people on a budget. What we thought we could afford was $15 to $20 an hour, plus a generous commission structure. We would have actually made a lot more money if we had paid a single highly qualified salesperson $40 an hour with a smaller commission structure. The problem for us was that we needed to make sure that we could pay the bills as they came in, and we only knew we could do that if we had sales to go along with the new employees—thus commission-heavy compensation. In the end, it may have been the case that we were not yet ready to hire multiple additional employees. Clearly, hiring just one individual with a better attitude and some good sales experience would have been the better thing to do.

Hiring the wrong person can really hurt, as we found out, especially when you are just starting your business. Consider hiring new folks as contractors for 90 days before committing to them as full-time employees.

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Lead by Example

As the leader, a policy of “do as I say, not as I do” just won’t cut it. Always, always lead by example. If you want attention to detail from your team, then you need to pay attention to detail. If you want creative thought, then think creatively. The difference between what a regular employee brings to the business and what you bring is called
ownership mentality
. Ownership mentality is the driving force behind fixing and avoiding problems, gaining new business, and promoting excellence in a business. It is the force of caring about the result,
not just caring about getting to Friday at 5:00 p.m. It is the state of mind that
takes it personally
when you lose an account or have a bug in your software. Ownership mentality cannot be taught directly—that would be like telling somebody how to feel (kids, you are required to love broccoli!). This does not work. It can be caught, however, when it is demonstrated over time, and when employees are allowed to express themselves adequately and own what they do.

As a young entrepreneur in the construction industry, one of the things I realized early on was that when my team of workers would start to drag their butts near the end of a long day that was my cue to jump in and double my own efforts. I remember fondly the looks on my employees’ faces when my 160-pound self would take over the work of one of the 250-pound heavyweights that had run out of steam. The look of surprise was precious. The result was that they would all pick up the pace, not wanting to be outdone. No one likes to be outdone—and enthusiasm is contagious.

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Motivated Employees Are the Key

The best employees are those that care about your business. One employee that really cares about whether your business survives, thrives, or dies is worth more to you than a room full of unmotivated ones that are just showing up for a paycheck. Motivated employees are exactly what you need to progress from a company that is just
you
to a self-regulating company that can stand on its own, and eventually into a self-determining company that will fully function without your input. This progression, as discussed elsewhere in this book, is of critical importance to you if you are eventually going to want to release your company by sale or delegation into other people’s hands. If you can confidently tell me that you want to spend the rest of your life managing the same company, then please ignore this chapter and skip ahead to the next one. Motivated employees are the key.

If this is so, then how do you get motivated employees? First off, this kind of employee is not simply found; he or she is often
grown
. You will probably never get somebody off of the street that suddenly and inexplicably decides that they love your company and identifies with you and your mission from the
start, unless you are a brand like Google. Getting a team that cares about your business is a process, which takes time.

Employees will not viscerally care about your business unless they can see their contribution to it as a matter of identity. If an employee cannot do her job and then point at the result and say, “That was me,” then it will be very hard to grow her to a point where she cares deeply about your joint success. The exception to this is when you are a well-known brand such as Disney, Coke, or Google. You can hire employees to repaint the broom closet who may end up taking pride and ownership in their contribution just on the merits of your famous name. As a small startup company, you will have to earn employee buy-in the hard way.

Find a way to engage your employees. Revenue share is one way. Having an articulate, understandable, and concrete story that describes the purpose and meaning of your business is another way. Giving employees responsibility to make decisions and shape outcomes is another way.

The best answer to this question of growing great employees will be subtly different for every business. Look at your particular business model and see what fits for you. The key takeaway is that acquiring engaged employees should be one of your primary goals. Look, learn, and challenge your team—don’t settle for people that are just showing up for a paycheck.

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Your Extended Team

Beyond the employees that you hire, there is a cadre of additional team members that every business will need to find, and establish relationships with. This group includes lawyers and financial folks for sure, and will likely include external vendors, suppliers, and contractors as well.

It is tempting to treat these relationships in a purely transactional way—that is, to think, “We pay ’em, and they work.” That is true, but for the most important of these relationships it is not good enough. The smart entrepreneur will make it a point to humanize these relationships and create personal bonds with these critical outside players. These vendors and professionals will be critically important from time to time, but you are sharing them with many other people. Having a first name–basis relationship with them, sending them
an occasional gift when they do a good job for you, interacting with them on Facebook, and otherwise treating them as friends can go a long way toward making sure that they treat you right, and will be there for you when you need them.

Have a Good Lawyer and Put Him on Speed Dial

In case you haven’t noticed, the world we live in is governed by neither goodwill nor common sense. Both of these admirable traits are abundant around us (most of the time) when we are dealing with individuals, but are often missing entirely when individuals give way to companies, corporations, and the laws of the land. Because of this, make sure you have a good attorney, and consult with him or her frequently.

The first lawyer I had for an early company of mine was, well, how can I best describe him? Well, the best thing I can say is that he was a nasty piece of work. After getting to know him, he was soon sharing schemes with us where he would not pay his credit card bills, but would buy the debt for pennies through some kind of back door. He took a kind of sinister pride in warping the law for his own benefit. Our relationship ended before it really got started because it quickly became clear that he embodied one of the ugliest sides of the legal profession—the application of rules without morality. We moved on and met a competent and upstanding attorney who I continue to work with even years later.

The benefits of having the close association of legal counsel are many:

• Common sense is no substitute for knowing the law. There are legal precedents and reasons beyond your understanding for every detail and nuance in a contract. Don’t even begin to think that you can deal with this kind of thing on your own. The consequences of specific word choices and the presence or absence of certain clauses in any contract will often only be revealed in court if it comes to that in the worst-case scenario—and that is not the time to find out that you were not adequately protected.
  
• Without an attorney, you are more likely to simply accept any contract you are presented with. With an attorney reviewing every contract, you are more likely to negotiate, and to effectively shape your agreements in a way that supports your long-term best interests.
  
• You will be more effective in responding to threats made to you. If you become successful and get noticed in business, people will come after you and try to sue you. It is an unfortunate fact of life. Competent legal staff is a must and will often be able to help you stop such actions as they start, instead of allowing them to fester and become full-blown problems that could threaten your business.
  

Here is one anecdote that I like from early in my Meridian Internet Services days. We were a very small company and unable to get out of a bad service contract that we had signed with an Internet facilities company in Austin. After a year or so we found that we were locked into a package of expensive services that was billed at far over the market rate. The company refused to negotiate with us on bringing the price down to a reasonable level. There had been some service outages during our relationship with the company, so we used this to our advantage. We just had our lawyer put a short letter on his letterhead describing the impact of the service outages. We were out of that relationship within the week. That is a simple example of how even a faint whiff of legal intervention can help you to bring reasonable behavior back to a business relationship.

Lawyers: One Size Fits All?

As a new entrepreneur, I did not realize that having a general attorney is not enough to solve many of the specific scenarios I would face. You too will eventually need specialists. Would you go to a family doctor for laser eye surgery? No, you would find an ophthalmologist who specializes in laser surgery to fix your baby blues. The same applies to attorneys. When the chips are down, it is critical that your attorney be a specialist in solving the kind of problem at hand. One unfortunate tendency is that there is a financial incentive for your general attorney to offer to help you with things that are outside of his or her specialization. And if you don’t know any better, what could be easier than to ask them to do whatever you need? This happened to some of my entrepreneur friends some years back, as they were represented in court by a friendly and
willing contract attorney who had absolutely no courtroom experience. After a painful 18-month court case, they lost.

There are many types of attorneys: contracts, real estate, civil or litigation, mergers and acquisitions, environmental, and so forth. Don’t ask your attorney to represent you in anything that is outside of his or her experience and comfort zone. As an attorney friend of mine recently noted, there is an every-changing body of knowledge in each area of legal specialization, with court precedents being set and changing laws at the local, state, and federal levels. He sharply noted that there is way too much to know in any one area for an attorney to effectively cover more than one base for you. You need a general counsel to be there for the day-to-day transactions and questions, but make sure that you and he understand when it is time to call in specific help. Don’t let him even try to cover everything all the time.

Getting the Most from Your CPA

Until you are big enough to have full-time financial folks managing your accounts, you are likely to end up hiring outside companies or individuals by contract to help you to keep everything in order. Especially when it comes to handling your taxes, a CPA or accounting firm is really important.