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Hire Your First Employee With Confidence

Uncategorized Jun 13, 2016

 

One of the first important steps towards building a Bus Proof Business is making that first, solid, hire. Your first handful of employees or independent contractors, especially while you’re expanding, will demand a pretty alarming share of your revenue. Depending on the quality of your hire, this drain on your profits will last for at minimum, a few weeks and then, depending on the nature of their work, you should see a boost in productivity that translates to your worker essentially paying their own way, and beyond.

This is “Delayed Gratification” at its finest. You need to be willing to forgo your immediate desires, to make money, for the future profitability of your company. We are expanding our Retail Arbitrage business (our Bus Proof Business that focuses on buying clearance items at local retail stores to sell on Amazon) and we recently brought on a new logistics manager (someone who preps, packs, and ships our FBA products in addition to a variety of other tasks). This guy had the skill-set and the hustle to really fit in well with our organization. But, like all employees he still needed to be trained in, he needed to spend a few weeks really learning the system before he could “earn his keep”. In the meantime we would contentedly forgo our own weekly paychecks.

That’s right! Not only did we feel the growing pains of bringing on another employee, we felt it to the point that we had to skip 2 paychecks (as the president of an S-Corp I am issued a paycheck like anyone else). After all of our expenses were considered, there just wasn’t any money left over (we still had revenue coming in from used book sales and a couple of other revenue streams). But, the trade-off here is that once this guy gets up to speed, he will 2-3x the profitability of our retail arbitrage business. Because we have a solid vision of the future, we are more than willing to forgo some immediate payouts, to wait for the much bigger payout down the road.

This all necessitates that you hire carefully, that you choose only the most qualified employees and independent contractors. What would happen if you hired someone horrible? Even with the best intentions, we all run the risk of hiring someone we think would be good for a particular position, only to find out that we were wrong. What happens then?

They drain on your business without any hope of increasing your revenue, let alone “paying their own way”. This is a very bad situation to be in, and it can have drastic effects on your business. Over the years I have gotten much better at the hiring process. The last dozen people that we have brought on have really hit the ground running, and I attribute that to our ability to spot, and filter out talent. Here are my Top 4 Tips to Hiring Smart:

1)Be Hard to Reach:

I know that this one seems kind of odd, but hear me out. After I’ve advertised, either directly or via word-of-mouth, that our company is hiring, I’ll gladly chat with those who are interested in coming to work for us. In this over-the-phone or in person interview I will really layout the heartbeat of our business and the incredible opportunities that this particular position offers (from a monetary and advancement point of view). I really “sell” this position as sort of a “once-in-a-lifetime” opportunity. Since we have a small organization I want these candidates to know that if they really excel at their entry level positions, that there is tons of opportunity to work their way up.

After I spend some-time really selling the position, I all-of-a-sudden get hard to get a hold of. The people that really want the job won’t let the opportunity slip by that easily. I figure if they call, email or text three times inquiring about the job, before hearing back from me again, that they really are hungry for the position. I don’t want “shoulder shruggers” working for us, I want people who are desperate and hungry to join the team, and are willing to break-down doors to get in! People who want the job this bad, tend to fight to keep it once it’s theirs.

2)Use Applications, Resumes and Creative Interview Questions to Really Get to Know the Candidate:

After we’ve vetted some good candidates for the position we run them through a filtration process that really help us get to know them. We have them fill out applications, and we request that the send us their resumes. For those who have made the cut, we will sit down with them and interview them with all sorts of questions. Once again, the goal here is to get through all of the rhetoric to ensure that this particular individual is a good fit for the business. Is this person motivated to succeed beyond the monetary benefits? Do they intrinsically have something that would motivate them to show up every day and put in exceptional effort? Do they have a chip on their shoulder? Are they currently being under-utilized in their current position? Do they have the work ethic and integrity that we look for in every new-hire?  All of these questions should help you ensure that the candidate is right for your company.

3)Customize a position around their strengths:

During this interview we are also looking for particular strengths. We even have all of our new employees take the Strength Finders test. The Strength Finders 2.0 test is sort of like the Myers Briggs except it gives it’s takers a list of their top 5 strengths (out of 34), this essentially would be the strengths that we should look to highlight in their new position. I think that it’s always better, if possible, to find top talent and then create a position that really exploits all of their strengths, as opposed to trying to fit a round peg in a square hole. Or new logistics guy has these top five strengths, according to the test; Belief, Achiever, Discipline, Competition, and Strategic. Having these strengths on hand as well as a solid understand of what they mean, will really help you maximize your team. Our logistics guys is a very hardworking analytical, his discipline, strategy and his desire to finish things really positions him well to work in logistics. On the flip-side he’s not very outgoing and charismatic (unlike our product Sourcer), but that’s okay because his position doesn’t demand it.

4)Pay Them in a Way That Motivates Them For All the Right Reasons:

Think long and hard before you choose a compensation plan for your worker, and be sure to ask yourself a series of question; How does this plan really motivate our workers? How does the way that we pay our people unconsciously tell them what a “win” is? Does this plan help them align with our goals for the organization? What are our prospective workers expectations?

It seems like the most common way to pay people is via an hourly wage, but think long and hard about this compensation plan before employing it. I know that giant corporations all over the world pay people this way, but you need to realize that you’re not a giant corporation. If you are hiring you’re very first employee you are very small company. Let me stress to you again the importance of making sure that you hit a homerun with you first – if you choose wisely your business will be on the trajectory to success, if you choose poorly your business will be impacted in a negative way. Let’s quickly look at the options:


1) Hourly Wage: this type of pay is very easy for your prospective employees or contractors to wrap their minds around. An hourly wage feels very safe because it’s not at all dependent on productivity. If you can find an hourly wage that works for your employees/contractors and it makes sense to your bottom-line then great, go for it. Think about it from this perspective a “win” for an hourly worker is not how many books they can source, or items they can list, or how much money they can generate for the company, it’s how many hours they can put in. When you pay people hourly you are intrinsically telling them that a victory for them is maximizing their time on the clock. For certain individuals this could mean great things for your business, but sadly for most maximizing hours doesn’t generally align with the goals of your organization.

2) Finder’s Fee: Depending on the nature of the work a finder’s fee (an up-front payment per item), could really be a great motivator (for all of the right reasons). We pay most of our Book Sourcers (those who evaluate and buy used books for us at the library sales and thrift stores) $1 per book sourced (as long as they meet our criteria). Our company’s goal is to source the most amount of profitable books possible, and I really feel like this compensation plan addresses that. Our Book Sourcers “win” when they source 100s of books, and so do we. Now, this plan isn’t without its drawbacks; 1) taking on an extra dollar up front, per book really adds up. This extra fee can really have a big impact on your COGS (Cost of Goods Sold) and in turn strain your cash-flow. Make sure that your criteria account for this added expense, and 2) your workers will find ways to maximize your Finder’s Fee in ways that aren’t necessarily better for your business. When it comes to sourcing books this may mean that they over-index on the low hanging fruit because the quality of books is not important, instead they are more interested in volume. We have had Book Sourcers show no regard for the finer side of our book buying criteria and were perfectly content sourcing books that were on the very end of what we would hope to find. Other times they would buy masses of books that although they met the criteria points, common sense should have indicated to them that there’s no way that a particular book would sell.

3)Commission After-the-Sale: Another great way to compensate your workers so that your ambitions are better aligned is to pay them only when you get paid (but typically at a higher rate than the other compensation models). With a commission you don’t have to tie up capital on a finder’s fee or hourly wage, that money can immediately be invested into more inventory. When the item sells you can share the profits with your worker. The benefit is that you’re people won’t be fixated on maximizing their hours, or buying hordes of mediocre books, instead they will want to buy lots of books that will bring in the greatest return. They really want to make you a huge profit, because when your bottom line wins so does their paycheck. The main problem with this compensation plan is that your workers need to be able to practice “Delayed Gratification”, and for the majority of Americans this just isn’t possible. Depending on how you would like to structure things, offering your Book Sourcers, for instance, 20-30% of the net profits would be reasonable in my opinion. Be sure to have a good inventory tracking program in place or else this could end up being an accounting nightmare.

4) Pay Salary: If you have clearly defined tasks that you need your worker to finish on a week to week basis, then you may want to consider paying a salary. When you pay a salary you are paying them a flat amount per week regardless of the output, or the number of hours worked. This type of compensation plan works best when you have an outlined “job” that needs to get done and you don’t really care how long it takes to finish, as long as it’s finished. For example, we have a salaried employee and his job is to spend $7,500 (on products that meet our criteria) each week doing retail arbitrage. If he has a great week and only needs to put in 3 days of work, great! Guess what, he gets the rest of the week off (who wouldn’t like a 4-day weekend). Again, the key is to scrutinize exactly the kind of job that you are looking to have completed by the end of the week (down to the minutia), so that there’s no ambiguity. The reason for this attention to detail is that if there are holes in your weekly agenda, it is almost a guarantee that your salaried employee will take the easy way out. Once again, they are not motivated to make you and your company the most amount of money possible, instead they consider a “win” to finish the job as fast as possible, so that they can take the rest of the week off.

5)Hybrid Compensation: If you’ve considered all of these compensation models but still haven’t found your favorite, consider creating your own custom, hybrid compensation model. Let me give you an example our Retail Arbitrage guy (the same one mentioned before) gets paid $700/week or 20% of the net profits of what he buys, which-ever is greater. This way he has some stability in his weekly salary but he also has the potential to earn much more (we set a cap on his weekly earnings of $900). In our mind, he is now not only motivated to get the tasks done fast(salary), but he’s also looking to find the most valuable products possible (commission). This structure works great for this particular position. I wouldn’t necessarily recommend a hybrid model for all employees everywhere, but you should consider it as a viable option.

In closing I hope that you have found this article to be helpful as you look to hire your first, every important, employee or independent contractor. Just like in many other areas of business, the more work that you put in on the front end, the greater the chance of profitability on the back end. In other words, make your money on your future employees going in. The more time you invest in ensuring that you hire the right people will generally pay off in production and profitability in the end.

-Bryan Young

 

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