WALKING ON WATER — AN ENTREPRENEURS GUIDE- Part 7 (Your Management Team)
This Article is part of a series of eleven articles from my book. You will find the links to the next feature article at the bottom of this page.
SKIP TO A PARTICULAR ARTICLE IN THIS SERIES
Part 1- Introduction
Part 2- The Beginning of a Business
Part 3- Planning and Goal Setting
Part 4- Act As If
Part 5- Financing your Business
Part 6- Investment Bankers
Part 7- Your Management Team
Part 8- Lawyers, Accountants, and Auditors
Part 9- Doing Your Homework
Part 10- Strategy & Growing Your Business
Part 11- Exit Strategies & Keeping Your Sanity
Chapter 6 — YOUR MANAGEMENT TEAM
Investing in Your Team
Investors don’t invest in your business; they invest in you, your team, and your collective track record. If this is your first venture, this can be a very tough nut to crack because of two reasons. First, when you first start a business, you are always cash strapped, and it is very hard to pay someone with a limited amount of money in the bank account. Second, you have to find like-minded individuals who are willing to share the vision and the risk, work for less money than they could possibly earn elsewhere, but perhaps get a share of the company. So we need to spend some time designing your management team.
Managing for Success
I’m a big believer in giving people ownership in your business. It is a big motivator for someone who wants to leave the corporate grind to be involved in a startup but who needs to get over the fear of potentially risking his paycheck. The biggest reason is that, once they are owners, people will be a bit more careful with how they treat your business and how they spend the company’s money. Always hire people who are smarter than you. It’s true that people feel threatened very easily by co-workers. In most companies, managers end up hiring people who are dumber than they are, just to make sure they don’t lose their own job. But as an entrepreneur, you can’t have that worry. In fact, you are in desperate need of people who are smarter than you and have a longer track record than you have. You’re the boss, you own the company, so go ahead — hire people who are smarter than you, because no matter how good you are, there is always an opportunity for learning something new. Your investors will see this trait as an asset. In the following chapters, I will give you additional ideas on how to get people on your team to bolster your company’s track record.
Delegate but Maintain Oversight
One major problem that afflicts startups is the money-raising cycle. You spend all your time raising money, and then you go and work for a couple of months on your business, only to realize you need more money. You drop everything and make another round to various sources, asking for more. The risk is that sometimes you run out of money faster than you can raise it. That is when most founders get into trouble. In order to avoid this trap you need to be out there raising money consistently and throughout the year — particularly while you are cash flow negative. To do this you will need to delegate the work to capable people in your company, freeing up your time to raise money. But delegating is not an easy task for an entrepreneur.
I hate bosses. It’s probably one of the biggest reasons why I quit my job very early on in my career and became self-employed. You probably feel the same way — you want to be in control of your destiny. But be warned. Now you are on the other side, and there is nothing worse than a boss that looks over your shoulder at every moment and doesn’t give you the freedom to make decisions or grow in your position. The biggest problem you will face is learning to delegate work to others. I learned that lesson too late. I was quite obsessed with having to control everything, or doing it to my exacting standards, which I admit are very high. But I completely ignored my private life and ended up gaining forty pounds. I found out the hard way: when I realized I was running out of breath while trying to keep up with Sir Richard Branson on his personal tour around the hills of Necker Island. That was a definite sign to me that I was doing something wrong. Here was a man who owns two hundred companies and employs more than ten thousand people; yet he was in shape and had enough time to stay in shape, and he even had time to give a nobody like me a tour of the entire island.
I have learned that if you are patient with people, they will learn from their mistakes and can grow into your shoes. But it takes some time and mentoring. Don’t be afraid to give work to others — you might be surprised how people thrive. Empower them to make decisions, even if that means the occasional mistake. Get them excited about the company’s vision, and remember that they also have a personal life and career ambitions, so cater to those needs as a boss. You will be rewarded through increased productivity.
There are also fantastic ways of outsourcing work to third parties in India. Yes you heard right: India. It’s called a virtual assistant. I could never really justify a full-time assistant in North America. Most of them just sat around the office staring at the ceiling because I really never needed anyone to check my email or answer my phones. I was good enough at avoiding people on my own. But there were certain tasks that easily could be outsourced, such as expense reports, follow up calls, making sure my housekeeper has all the supplies she needs, and so on. It of course takes a little courage to overcome the fear of giving your personal information to someone in India, but there are a couple of very reputable companies like Brickwork India that do a fantastic job at this. Rates start anywhere from $10 to $25 per hour, depending on whether you need a lonely assistant or a PhD.
Family vs. Friends vs. New Hires
One way to get around this dilemma is by hiring family or friends, but this is a tricky subject because you are intermingling two worlds, your private life and your business life. You need to strike a balance between cheap labor and overloading yourself to the point of turning your company into a family business that stands no chance of raising money.
Working together with family members has its benefits and disadvantages. You can expect business to be talked over the dinner table during the annual holidays — something that even my mom frowned upon. And it is very difficult making business decisions when you have family interests to consider. Most family members might also find it difficult to draw a line between business and family, and that can lead to conflict. I am very fortunate that I have been able to work with my father. And I would venture to say that this has been one of the most rewarding things I have had the privilege of experiencing in my life. It represents a 180-degree turn from my early twenties when my father and I weren’t necessarily on the best of terms. My dad is pretty much the only person I know who can pull rank and lecture me. But he does it behind closed doors, and we always show a united front and manage to come to a resolution, which shows the deep respect we have for each other. His career experience certainly managed to accelerate my own, but hiring your parents is not for the faint hearted, so think twice before you do so.
Of the five friends I hired, only one managed to balance work and personal relationships. All the others I ended up letting go (firing!) because it didn’t work out. Of course, that did some temporary damage to my friendships with these people. I was fortunate that we had a good enough friendship to eventually overcome this hiccup in our relationship. So generally, I would recommend staying away from the temptation to hire friends or to go into business with them.
Hiring outside of your company can be a hit-or-miss prospect, too, and most of the time it turns out to be a miss. I like hiring people from within my companies and giving them brand new projects that they have absolutely no qualifications for whatsoever. I do this mostly because I am already convinced of their abilities to learn on the fly, to make decisions, and to accept a challenge. Otherwise, they wouldn’t be working for me. Plus, it’s cheaper than paying a large placement fee to a human resource agency. I have had only one or two successes using a placement firm, and these people are with me today. Most others I found myself or met in some other capacity, such as a consultant who just happened to impress me enough for me to offer a job. I have found that to be the easiest and least expensive way to find the right employees. If there is a consultant you like, hire that person and make him/her an offer. You would be surprised at how many people will accept an offer of employment simply because you wrote them an email and said you were interested in hiring them. That’s because most of them can’t stand staying at a consulting firm longer than a couple of years because that time, they’ve learned everything they can and are itching to leave. But as consultants, they are also used to the ups and downs of cash flow and the need to chase business, something a startup struggles with on a daily basis.
Mistakes Will Happen
I give my employees enormous amounts of autonomy and decision making capabilities, knowing full well that I might get stuck with a bad decision that will cost me money. But the benefits far outweigh the risks. Some people are a little uneasy at first, because they expect a boss that micromanages, only to realize that most of the time I am not even in the office because I am chasing the next business opportunity. They sometimes get scared, or walk into my office saying, “I’m not doing anything; is there something wrong?” My usual reply to them is, “Well, you know why I hired you, right?” The answer is inevitably, “Yes, of course!” I then counter and say, “Then I suggest perhaps you ask your new coworkers to get you up to speed so you can figure out where you can jump in and pick up the slack.” If I have done a good job at hiring, then that person will be extremely busy within about two weeks, because he or she take on projects and justify his/her position.
When it comes to making mistakes, ultimately my rule is that everyone gets one chance. You are allowed one major mistake. Indeed, I have had employees cost me a quarter of a million dollars because they made a mistake, but I didn’t fire them. This is because I know full well that I have made mistakes in the past, and if I fire them, I have wasted $250,000 training them. Rest assured, they won’t make that mistake ever again in their entire life. And if they make it while working at my company, they know to pack up their stuff. Fortunately, that has never happened yet.
Company Culture and Work Atmosphere
I have had some really bad experiences when it comes to corporate culture. Gossiping, backstabbing, micromanaging bosses, discriminatory attitudes, bosses who don’t keep their word when it comes to paying your bonus, and the list goes on and on. That’s why I ventured out on my own to start with. I couldn’t stand it anymore.
When I launched my first company, I made sure that company culture would be more important than company profitability. You might think that is absurd, but in the end, if your employees are happy and motivated, they will go the extra mile to make sure the company makes a profit — because they care.
The first thing I emphasized was a zero tolerance policy for discrimination. If I hear even the slightest negative remark out of a person’s mouth in relation to ethnicity, sexual orientation, gender discrimination, or religion — even if it’s an ill-timed joke — that person is fired…on the spot…no ifs, ands, or buts. All my employees know this, every single one. And because of it, nobody does it. It’s that simple.
Secondly, I motivate employees by giving them extra vacation time (six weeks to be precise), and every now and then they will find a little gift on their desk. It might be a Starbucks gift card, free movie tickets, or a prepaid gas card. Because you’re the business owner, these gifts don’t have to cost you money. I use our corporate credit card, which has a rewards points feature. I will take some large expense, charge it to the card, and have enough points for the rest of the year to use for employee gifts. It’s the little things that make the difference. Instead of that dreaded office birthday cake, I take people to the local theme park, movie matinees, boat cruises or the local art museum. And I never, ever plan it in advance. I always make it a surprise announcement; I don’t really care how busy you are. Everybody goes, including the receptionist. We just lock the door. The world won’t stop turning because we don’t answer our phones. But the effect on company culture and work atmosphere doubles productivity and just makes it a great place to work. There is more to working there than just a salary.
