Eventually you’re going to be put into a position where you’re forced to manage people. That’s right. Dealing with employees in some form. This is the worst part of life in general (not an exaggeration) as people are driven by emotion, ego and a myriad of other non-revenue generating factors. With the bleak beginning, we can move onto the good news. If you simply focus on aligning incentives you’ll be off to a good start.
Why Managing People is the Worst: Before beginning, we’ll warn you that everyone you meet will immediately assume you’re a bad manager. That’s right. People who have never managed people in their lives and people who will unlikely ever get to that point believe they know if you’re “good or bad” at it. We wish we were joking but we’re not. In fact, if you show this article to anyone they will immediately react in the exact same fashion “this makes no sense they just suck!” The reality is that managing people is the part that actually “sucks”. You’re now in charge of someone else’s livelihood (paying for their bills, family etc.). On top of that they think they are smarter than you and think you’re “out to screw them”. It’s insane but this is the starting point.
The ramp period is generally the worst part. You have to find out what type of skills the person has without bursting their ego. We’ll use a sports analogy as it should hit home. If you tell a 40 year old guy that is 5’ 7” all and a tad overweight that you don’t think he can dunk a basketball, he’ll agree and won’t be offended. After all, this is easy to confirm and validate. Now here comes the “fun” part. Tell him that he can’t write a sales memo or can’t make a good power point presentation and he’ll flip out. Why? Everyone thinks they are smart and if you tell them they can’t do something that requires thinking, their insecurity will go parabolic. Remember this paragraph and engrave the words in stone. During the “ramp” period, you have to put the person into a myriad of tasks to figure out where his skills are. If you assign him a task before you know that he’ll be good at it… he’ll be personally insulted when moved to a different task. Do not give anyone direct responsibility until you’re certain that they will do a good job.
The last one that explains why managing people is the worst is this: they overvalue their contribution. Generally speaking, people over estimate their worth. It is crazy since the job market is pretty open. If the person was really worth 20% more, how come they can’t get another job offer? This is pretty clean logic and yet you’ll get hit up for more money over and over and over again. If someone is doing a good job certainly pay them over market. But. If a mediocre person continues to ask for something, begin ignoring them. Unsurprisingly, the ones you’re paying the most are usually the ones who don’t “ask” for anything and come in with a new offer and a resignation that you have to match.
Two Easy Ways to Start: Hopefully the above already reduced your interest in managing a large team (good!). Their incentives are already different. If they are paid an hourly wage, the performance of the firm doesn’t matter to them. But. If you’re the owner, the performance of the firm matters a ton to you. It’s time to close the gap.
The easiest way to close the gap is by hiring people who had bad managers and by figuring out a way to give them large amounts of autonomy. The first one is more of an art that will be developed over time. If you’ve never had to read people before, this is something you can ignore for now. Just keep it in the back of your mind. If someone had a terrible manager before, that’s the main reason they left. No one quits a decent paying job, they quit bad management/work environments.
The second one is where you can control a lot of the work flow. If you’re able to correctly identify where a person has a “competitive advantage” this naturally leads itself to more autonomy. Most people would actually take a pay cut if it meant that they could work in full autonomy. Absolutely no one likes a micro manager who stares over their shoulder all day. This should be music to your ears. Find the tasks where you trust them 100%. This also protects their ego. If you have to constantly “fix or edit” their work, their ego takes a hit. They believe everything they do is perfect (a part of the human condition).
Incentive Alignment: There are two things you’re looking for, a person to help save you time and a person to help your net income go up (more than the amount you’re paying them of course, otherwise you’d go out of business). While this is what you’re looking for the employee/worker is not looking for this. They are looking for the least amount of work for the most amount of money and a sense of “purpose”. If someone is simply lazy you can’t hire them and you’re looking to align incentives by adding a “purpose” to their life. It sounds crazy. But. People will really work hard if they feel that they are needed/providing some sort of value. The value does not need to be high, the way they feel is more important than that. This is why criticism never works and you’re better off managing with carrots instead of sticks.
While we’ve painted a picture of an ideal hire, someone who is good and incentivized by something illogical (a sense of meaning or purpose), this is not always going to be the case. The key items that people care about are: 1) money, 2) feeling of importance, 3) autonomy, 4) stability and 5) risk
Money: This one is quite simple, if someone is really looking for money you want to put them in performance roles so your incentives are entirely aligned. Sales for example. Hiring a money hungry person for an administrative position (or back office) is just going to lead to headaches. You don’t want to pay top dollar for things that are “qualitative”. You want to pay top dollar for things that are quantitative.
Feeling of Importance: As mentioned earlier this is the best hire in general. The money hungry person is only the better hire if they are *good* at their revenue generating role. Other than that, the person with the big ego and need to feel good is the best hire. All you need to do is make them feel important and they might even work for less since you’re such a good manager (seriously this happens A LOT more than you’d think). This reduces turnover, reduces the chances they look for a new position and increases morale in general.
Autonomy: While covered above, this is a bit separate as Autonomy means different things for different people. For some it means that they get to work from home and don’t interact with co-workers. For others they want to be in an office but don’t want to be micro-managed. And. For the extremely talented, it means they don’t want instructions just a “direction to run in”. If you find people who are actually able to produce with basic directions (XYZ is needed), you’re probably going to give them equity in the future. In fact, there are only two people who really end up getting competing offers and moving up in any company: the fully autonomous person and the money hungry performer.
Stability: No one works well when they are under a lot of stress. As another fun rule of thumb, anyone you hire will do 50% better in under a month. Why? They are nervous because they are human. Many say it’s because they need to adapt to the new tools/tasks but it’s really a function of being nervous/new. This is a general concept you’ll hear thrown around an office environment. The need to feel “stability” since they are likely paying bills, may have a family and other obligations. So if you figure out that a person is in this camp (unable to perform under stress camp), you pay higher salaries and lower bonuses. This is the calling card of the typical “risk free” person. No interest in risk.
Risk: This naturally leads us to the Risk person. You’re *much* more likely to find this person when you look for a new worker. Why? Well unless you’re already managing a 100+ person Company, the chances are you’re a pretty new and small company. These individuals are only motivated by “upside” and don’t care much for the salary. The answer is Equity. And. Ideally with a performance component. Large companies use options but this could also be done for smaller companies.
Congrats! Now you have the basic framework for making a hire. You have to figure out which one of the basic five they are in and adjust your strategy. The funniest thing about this entire endeavor is that the average person still thinks management with the “stick” is the right way to operate. It never works. People who are happy to see you every day will work harder for you, potentially work for less and deliver better results. If you ignore all of the items above but simply avoid yelling at people and criticizing consistently, we’d wager you’ll still do better than 90% of people when they look to build a team.
Not So Fast on the Hire: Started out with the bad, moved to the solution (positive), now we move back to the realities of life. Under no circumstances do you hire people you don’t need. Cannot do a post on people management without the harsh truth… You want to hire the least amount of people as possible. Contracting, outsourcing, software tools, etc. Use every single possible thing you can think of to improve efficiency. Until you’re *losing* profits with 100% certainty do you hire someone. Notice that you need to be certain that the person will free up your time to make more money. That’s a good rule of thumb to be aware of. Hiring too early will cause you to lose cash and it just isn’t worth it to scale extremely fast unless you’re trying to get to $100M+ in net worth.
Basic ideas for avoiding a human hire. Virtual help, this comes in the form of assistants and software tools that automatically do mundane tasks. It should take about 90% less time to “check” something versus manually doing the task. Outsourcing tasks that are not critical. This means you find someone who works on short contract cycles. Much better to simply write a check vs. the whole negotiations, health care, etc. Combine both! Hire someone to come up with a tool to fix part of your process. Depending on your industry we have no doubt that there are many many more.
Structuring the Process: Now that you’ve got the big three: why hiring is the worst, how to focus on the big picture and ways to avoid hiring in the first place, it’s time to conclude with creating consistency. The best way to create consistency is to have a plan B in place before the new hire shows up and to keep a pulse on their personal interests.
Have a Plan B: At the end of the day, no one is going to care more than you do about the success of your venture. Don’t believe the lies. Every interviewer is going to say they are hard working, smart and love the Company. It’s all a mirage. No one can possibly care more than you do if you’re serious about making more money. If other people do care more than you do it’s probably time to sell it anyway. Therefore you must have a Plan B. A plan B means you have multiple ways to generate “value” out of the person. If you hire them for task A only to find that they can’t do it, you’d be out of luck. So you’re looking for someone who can fill two different roles in an ideal situation. To wrap it up, you want to create a trial period for most employees so you can let them go without legal headache within a short period (call it a few months). This is becoming more and more common.
Personal Interests: As a rule of thumb, people in their 20s are more interested in learning, people in their 30s want to see career growth and people in their 40s want to be managers/respected. The last one is complicated since people in their 40s usually hit a plateau, don’t generate much more revenue/value but want to see higher incomes and status. To make matters worse they typically have families and only a heartless person would enjoy firing anyone in that situation. As a fun framework, you want to outsource projects to people in their 40s, these individuals usually had strong careers, made their money and decided to become their own boss so to speak. Quality usually high. People in their 20s shouldn’t be trusted with serious outsource work as they don’t know how to work with minimal guidelines. And. To wrap it up people in their 30s usually catch on to new trends as they synthesize their work experience with life experience. Good age range for idea generation. Before getting lambasted in the comments this is just a summary for the “general population”. There are many exceptions to the rule and we’re not focused on that since it is statistically unimportant.
So put it together. Since people in their 20s want to learn, you can move them around fast to see what they are good at. This benefits you and it feels like learning to the employee. People in their 30s want to see career progress so you should be certain about their skills. If they don’t have the talent to scale up, they’ll leave on their own as they see they are not being moved up. Tasks for people in their 40s should be outsourced unless they are part of the select few who have too much talent to ignore.
If you think the above is brutal, we remind everyone to read the greatest book ever written “How to Get Rich” – Felix Dennis who states the following: “Youth is a further factor. By the time talent is in its mid-to-late forties or early fifties, it will have become very very expensive. Young talent can be found and underpaid for a short while, providing the work is challenging enough. Then it will be paid at the market rate. Talent is indispensable, although it is always replaceable. Just remember the simple rules concerning talent : identify it, hire it, nurture it, reward it, protect it. And, when the time comes, fire it.”
On that note the book has been read so many times we’ve even picked up some of the writing mannerisms. And. For example. Sign of good things to come. Hopefully excludes the throat cancer part.
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